That's the question many people are trying to figure out, and I think I know the answer: They won't.
Now that earnings season is here, it's important to point out that there are two components to the reports that began last night with Alcoa. The first is the actual earnings. The second, and far more important, is the outlook.
I think that many companies might actually report decent earnings, but there will be very few that report decent outlooks, particularly those involved with Europe, where there is simply nothing good to say about the future.
Take tech. So many tech companies charged into Europe to take advantage of that 500-million-strong market that 20 percent of their businesses, on average, are based on the sagging continent.
Let's look at a terrific company like Intel. I think Intel had a very good quarter courtesy of its big data business and its amazing Asian penetration. China is Intel's largest market. But Europe buys a lot of personal computers, and it's very difficult to marginalize that business on a conference call for a company as honest as the world's largest chip maker. As much as I think the 3.5 percent yield can prevent any severe selloff, I can't imagine that Intel's stock can transcend the valley if estimates are going lower.
If Intel can't withstand the onslaught, how about a company like Hewlett-Packard, where people are supposed to have already digested negative numbers? I think that if you get another estimate cut and a so-so outlook, you'll see a stock that still goes lower.I don't believe the industrials will be any different. We grew concerned last week about General Electric's ability to deliver the kind of earnings or outlook that we would like to hear because of weakness in Europe, as well as the bet on windmills that had been subsidized by now ailing governments.
Or how about Stanley Black & Decker? Here's another stock my charitable trust sold because, while it is in the sweet spot for a housing improvement in the U.S., about 20 percent of its business is based in Europe. That could produce both a shortfall and a negative outlook even as this merged hardware company is performing well above expectations in this country.
I don't believe Caterpillar will be able to transcend the orb of Europe, either. Don't forget a weaker Europe means a challenged China as the Asian colossus sells 20 percent of its goods into Europe. Consequently, I figure we could get both a shortfall and a cloudy outlook.
In each case, I believe that these reports will produce selling even as "everybody" seems to know that there's going to be weakness. My experience is that there are always people who will be disappointed if we don't get beats and raises, meaning a better-than-expected report coupled with a raised outlook, and those disappointed souls will sell.
They simply can't look through the valley to better times, even if it's entirely logical that Europe will eventually be incorporated in estimates that will be so low that they will most definitely be beaten next time around.
Disclosures: Cramer's charitable trust has no positions in the stocks mentioned.
