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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Earnings to Watch This Week

Starting tomorrow, investors and traders will be hit with a flurry of important third-quarter earnings reports that ought to tell us where the corporate part of the economy is going.

Alcoa, as it traditionally does, kicked off earnings season last week, surprising analysts by beating both profit and revenue estimates for the quarter. But the news failed to pop the stock price.

During the second quarter, about 75 percent of businesses beat profit estimates, but that's because (a) the estimates were set so low and (b) the companies executed Draconian cost-cutting. (See: the nation's 9.8 percent official unemployment rate.)

But only about half of the companies beat revenue estimates, which means they weren't expanding; they were generating profits only because of cost-cutting. And you can't cost-cut your way to sustained profitability. So investors and traders will be looking at third-quarter earnings to see whether companies grew their top lines -- revenue -- as well as their bottom lines -- earnings.

Not only are some big diverse companies, such as Johnson & Johnson, reporting this week, the nation's biggest banks, such as Goldman Sachs, will be reporting as well. Their health goes a long way toward telling us how the recovery will proceed.

The weak dollar (it's at a 14-month low against other currencies) will help earnings, because U.S. exports are cheaper overseas, helping sales.

Here are some big earnings reports to keep an eye on:

-- Johnson & Johnson, the world's largest health-care company, reports on Tuesday. J&J has been hurt by generic drug producers, leading to declining revenue, but hopes to have a home run in the pipeline: Xarelto, a blood-thinner. Deutsche Bank raised J&J's price target from $63 to $67 per share today.

-- J.P. Morgan Chase reports Wednesday. Because of its credit card division, J.P. Morgan is more exposed to consumers than similarly sized rivals. So investors and traders will be watching big retail banks to see how their loan default rates look, not just in credit cards but in commercial real estate, as well.

-- Goldman Sachs reports Thursday. Analysts expect Goldman's profits to jump 57 percent over the third quarter of last year. Goldman, the king of Wall Street investment banks, had a strong second quarter, as well, which drew scrutiny, given the troubled nature of the financial sector at the time. The spotlight fell on a certain kind of high-speed trading, called "flash trading," in which some traders get micro-second previews of stocks before trading begins, giving them an advantage. The SEC is now moving to ban flash trading. Goldman said less than 1 percent of its revenue comes from flash trading.

Meanwhile, troubled Citigroup is expected to post its sixth losing quarter in the past two years. Now that Bank of America has jettisoned chief executive Ken Lewis, can Citigroup's Vikram Pandit have much time left?

-- Frank Ahrens
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By Frank Ahrens  |  October 12, 2009; 12:06 PM ET
Categories:  The Ticker  | Tags: Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Johnson & Johnson, Ken Lewis, Vikram Pandit, earnings  
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