Opening Day of Earnings Season

Opening day ... and so far, it's one in the loss column. The stock market sank on April 11, although Alcoa, the first member of the Dow Jones Industrial Average to step up with quarterly results, connected solidly with what UBS Securities called the best first quarter in the company's history. But the rest of the blue-chip lineup might not deliver with the same power.

Alcoa (symbol AA) earned 79 cents a share, compared with the 76 cents a share that Wall Street analysts had projected. Profits were 9% above those in the same period of 2006. A poor quarter by Alcoa would have been more shocking than the good results were pleasing. Prices for all important metals, including copper, lead, nickel, aluminum and steel, are up from a year ago. Aluminum inventories worldwide are tight, a result of vigorous demand from demand and strong economic growth in much of the rest of the world. Alcoa reported some weakness in selling its metal for cars and trucks, but aircraft and construction took up the slack. Shares of Alcoa, which closed April 11 at $35.08, up 0.5%, remain a good investment, but don't get carried away. The stock is already up 18% in 2007.

A sterner test for the market comes on Friday the 13th, when General Electric (GE) is due to issue results. Analysts on average forecast a 13% gain in quarterly earnings, to 44 cents a share. The industrial side of GE's business has been terrific, with orders up 37% in 2006 and sure to boom for a while because of the same global economic vigor Alcoa sees. GE is reorganizing itself through acquisitions and divestitures to make it less of a financial institution and more of a worldwide growth-oriented industrial company.

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GE's residential mortgage lending in the U.S. is a flea on this elephant, but the market is skittish about this area of lending. So unless GE absolutely nails the energy, healthcare, jet engine and other non-financial businesses, the stock will have trouble getting out of the $34 to $38 rut it's been stuck in for most of the past couple of years. And that's despite practically every analyst who's ever turned on a GE light bulb thinking that the stock is worth more than $40.

Coming to bat on April 16 is Citigroup (C), which has done more than its share to tamp down the Dow and frustrate shareholders. As we said in this space last month, this is a turnaround situation and the announcement that thousands of Citi people will be fired makes you wonder if the bosses will trim in the right places or just demoralize those who are left.

April 17 will bring reports from two more 2007 disappointments, IBM (IBM) and Johnson & Johnson (JNJ). As with GE, business is good for both companies, but their stocks are down so far this year. IBM, which closed April 11 at $95.16, down 1.4%, looks like a bargain. But J&J, which ended at $61.89, up 0.4%, seems to be stuck in the same kind of rut that GE is. It's involved in so many businesses that as long as one or two of them struggle, critics will find reasons to, well, criticize.

IBM is in tech, one of the two sectors most in favor among investment managers, according to new a poll by the Frank Russell Company's new poll of investment manager sentiment (the other is health). Analysts call for IBM to make $1.21 a share for the quarter, which would be 15% ahead of last year. If IBM misses badly, the Dow Jones average, as well as the rest of technology, will be in for some rough days until some other tech titan comes to the rescue.

Fortunately, the Dow industrials are only 30 players in the vast arena known as the U.S. stock market. Small and midsize companies continue to do well, real estate investments remain surprisingly steady, and you can count on a dizzying variety of excellent companies in software, farm machinery, industrial gases, and healthcare equipment to make some money for you or your funds in 2007.

You'll read reams about how Alcoa's 9% year-over-year profit gain sets the tone for other companies to report gains short of the double-digit pace that's become almost a given since 2003. That streak came to an end in the fourth quarter of 2006, and a new streak is unlikely to have begun in the first quarter of 2007. That's not necessarily a bad thing. Just as housing values can't defy gravity, corporate profits as a share of total national income cannot rise indefinitely. A somewhat slower but sustainable pace of earnings growth, combined with good dividends, should keep stocks on pace for a 7% to 10% total return in 2007. If you see the Dow tumble 100 points in a day a couple of times in the next few weeks, just sit tight. That's all part of the sport of investing.