Alcoa Profit Jumps, But Can Earnings Offset Euro Debt And U.S. Slowdown??

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U.S. stocks never had much of a chance Monday. Europe’s ominous debt picture grew cloudier over the weekend with doubts cast over Italy’s ability to pay its creditors, setting up a selloff in equities and other risk assets that lost none of its ferocity when it made its way stateside.

Following a weak start, the major averages made fresh lows on their way to losses between 1% and 2%, but the narrative got slightly better after the close when aluminum producer Alcoa’s second-quarter profits of 32 cents per share were in line with estimates and revenue easily topped expectations at $6.6 billion.

Both figures were sharply above last year’s levels, and Alcoa maintains a bullish outlook despite what CEO Klaus Kleinfeld referred to as the “uneven” economic recovery.

Second-quarter earnings season will be intriguing from a market perspective, as investors weigh what will likely be a solid batch of corporate results against downside risks that seem to grow more troublesome by the week, if not the day. Some money managers and market strategists have suggested that another strong round of S&P 500 report cards should at least let the market hang in for the summer in the face of bigger macro concerns, before stocks resume a move higher into year-end. (See “Stocks Rally As QE2 Ceases, But What Drives The Next Move?”)

Monday’s fears were focused on Europe amid fears that the staggering debt burdens facing Greece, Portugal  and Ireland could also bring down the far-larger Italian economy. On Friday, investors were grappling with a dismal June jobs report from the Labor Department that reinforced the precarious state of the U.S. recovery.

It remains to be seen if traders will have an appetite for stocks Tuesday, in the wake of Alcoa’s earnings. The Dow Jones industrial average component was up 0.2% after-hours, following a loss of nearly 3% during the day.

The Dow itself slumped 151 points to 12,506, while the S&P 500 dropped 24 points to 1,319. The Nasdaq was the worst of the three, dropping 2%, or 57 points, to 2,802. The biggest names due to report earnings the rest of the week include JPMorgan Chase, Citigroup and Google. (See “Banks Could Bounce With S&P In Neutral.”)