Wall Street cautious as earnings season starts

U.S. stocks ended mixed on Wednesday after fluctuating in a narrow range most of the session, as investors held tight before the start of new earnings season.

Stocks have surged in the past two sessions, with the Dow gaining 244 points, its best back-to-back gains since July, after the Institute for Supply Management's service index last month topped estimates and Australia surprisingly hiked interest rates. All 30 stocks that make up the Dow rose for the fifth time this year.

After a furious two-day rally, the market seems to cool off on Wednesday. With little economic news to find direction on, investors were focusing on quarterly earnings reports which will take center stage when aluminum company Alcoa Inc. kicks off earnings-reporting season late Wednesday.

After Wednesday's closing bell, Alcoa, the largest U.S. aluminum producer, reported an unexpected third-quarter profit as it benefited from rising metal prices and cost reduction by slashing jobs and raw-material costs.

The company achieved a profit of 4 cents a share, exceeding analysts' average estimate for a 9-cent loss. Net income fell to 77 million U.S. dollars, or 8 cents a share, from 268 million dollars, or 33 cents, a year earlier. Revenue tumbled 34 percent to 4.62 billion dollars from the same period a year earlier, but was up 9 percent from the second quarter of 2009.

Alcoa is the first among 30 Dow component companies to report the third quarter results and its rosy results were a relief after three straight quarterly losses, as investors desired to look for more evidence of economic recovery.

Earnings will provide strong insight into just how far any economic rebound has been so far and how strong a recovery will be. During the second quarter, companies largely beat modest earnings estimates by cutting costs and streamlining operations. 72.3 percent of S&P 500 companies surpassed the average analyst expectations for earnings, matching the highest proportion in Bloomberg data going back to 1993, which helped fuel the market's rally throughout the summer.

For the third quarter, investors will be looking for actual growth in revenue and sales as the momentum of earnings growth. That would indicate companies are starting to get their footing again and consumers are back loosing purse strings.

The third-quarter earnings season has just begun and no doubt Alcoa made a running start. Analysts' predictions suggest companies will report a ninth straight quarter of declining profits before returning to growth in the last quarter of the year. Wall Street expects the earnings reports and forecasts that arrive in the coming weeks to have a big influence on the market's direction through the end of the year.

Investors, however, remain cautious amid concerns the equity market has rebounded too fast and too far from its 12-year low in early March. The Dow enjoyed an advance of 29 percent in the April-to-September period, its steepest two-quarter advance since 1986. The S&P 500 gained 34 percent since the end of March, the biggest since a 42 percent surge in the first half of 1975.

Moreover, traders also worried that the strength in consumer borrowing will continue to be weak as job layoffs are rising. The Federal Reserve reported Wednesday that total U.S. consumer debt outstanding fell in August by 12 billion dollars, as households cut spending and banks lowered credit lines. It is the seventh straight month decline of the data.

The Dow fell 5.67, or 0.06 percent, to 9,725.58. The S&P 500 index rose 2.86, or 0.27 percent, to 1,057.58, while the Nasdaq composite index rose 6.76, or 0.32 percent, to 2,110.33.

Source: Xinhua