Expectations have been lowered so much heading into the earnings season, that any results that meet or beat them will give a boost to the market, as the quarterly earnings of Alcoa (NYSE: AA) did on Tuesday. The Dow closed at 13,390.51, up 61.66, or 0.46 percent. The S&P 500 and Nasdaq also closed in positive territory on Wednesday.
Investors are looking to revenue as one of the key indicators of the economic health for the fourth quarter, and Alcoa outperformed in that regard, which the market responded to in a soothing manner. If there is more good news from important companies, the market could jump to significant levels because the bar has been set so low.
There is no doubt the next weeks will experience a lot of ups and downs as investors appear to be trading on news at this time, rather than the overall health of the economy and individual company performance.
So when some companies report better-than-expected results, the overall market is benefiting from it. That's nothing new in and of itself, but it seems to be more intertwined than usual.
Also important is the outlook the companies of give heading into 2013. For Alcoa, the assertion that they see global demand for aluminum rising in 2013 helped to create the positive atmosphere that pushed the markets up overall.
Since expectations are so low, even some average performances could have a positive effect on markets, which could move them up to levels not reflecting the reality of the situation.
The bottom line is markets will probably perform better than the gloomy fog recently surrounding it has signaled, although it could set things up for a plunge after the earnings season is over and investors digest the news.