Everything is adding up to an interesting earnings season (again), with plenty of rocks and big water that can be exhilirating or tragic, writes Jim Lowell of Fidelity Investor.

July paddles me back 30-plus years to a three-week Allagash canoe trip through Maine’s untamed North Woods. My father and younger brother are behind me in the tin can canoe; I’ve been given the bowman’s sobering duty of navigating what lies unseen around every bend and right below me.

Wilderness, river style, is more realm than reality. Like writing, so much life teems in and on the banks of the wild flow that you can be both solitary and never alone.

Reading water, the way some read numbers, is a kind of second nature to me; watching for the tell tale “V” that lets me know danger is dead center below. Still, it doesn’t take more than a minor miscalculation of the way water undulates, circles back, or funnels forward to put the "gash" in Allagash, creating a hole in a whole day’s worth of planned progress.

And that risk is never higher than when the width of the river narrows into flumes of foam and speed. You better hope your bowman can read water both rapidly and fluently.

June’s Narrows
Before you go there, let’s review where we’ve been. For a slow reporting month, there were some major and meaningfully rapid developments in June that, by month’s end, found nerves more white water frayed than lake placid.

June began with the understanding that May was the worst month in two years for both the Dow and the Nasdaq (and close enough for the S&P 500). June started off the way May ended, rightfully nervous about the Eurozone and its chaotic state, mindful of Middle East issues that make quicksand look like cement, and noting that even our United States is anything but as the most divisive election year in recent memory is about to kick into higher gear.

The long and short of it is that I continue to be focused on the current slow growth’s exposure to what could slow it down even more, all the while knowing that fear driven selling-induced indiscriminate unloading of good and bad companies as one and the same creates some buying opportunities for the smart-minded managers we own, as well as long-term investors like us.

A Trojan Horse and Bailout Bull
Also in June, a feared election in Greece turned out better than expected in that it was a vote for some manner of austerity. While the country is against it, at least half of the voters still get that you can’t spend what you don’t have on entitlements you could never afford in the first place.

I continue to think the best gauge of belief in the Eurozone’s repairable realities remains the bond auctions. In June, Spanish shorter-term debt yields rose ever higher while debt solutions remained no clearer. I think the same holds true for the whole zone and the global realm that’s affected by its gyre.

On that note, month-end found a return of the EU rumor mill back toward a euro bond that could provide a key source of liquidity, if it ever materialized, but would, simultaneously, do little more than draw down the credit worthiness of the main creditors (i.e. Germany). Still, movement is often taken as more than merely not standing still, and can wear the glint of progress or at least a seeming step in a direction that might be better than worse.

Home on Our Range
Here, housing starts fell, but permits hit a four-year high and pending home sales hit a two-year high, signaling an uneven housing market recovery, but not an impossible one.

On the economic home front, the Fed is continuing to creatively build sources of liquidity. That the Fed needs to do so remains a tell on how tentative the Fed thinks our recovery might yet become.

But it’s not all bad news, and we're back in the thick of earnings season, wherein we’ll most likely find companies, even if the Eurozone weren’t an issue, profiting on the whole, albeit less so year-over-year based on a typical recovery pattern.

FedEx (FDX) saw lower demand over the past quarter, but upped its forecast for business ahead, particularly here in the US. So while it’s hardly a calm patch of water, if businesses can float profits, so can we.

Not (Yet) Running on Empty
Oil prices, one gauge I like to follow, keep turning lower. The turn is continuing to price in more quantitative easing from our Fed (based on the rationale of more stresses to the system), less demand from China, and more trouble ahead for the Eurozone.

However, if you try and find the kind of price correction we’ve seen in oil prices at your local gas station, you’ll be disappointed, since refining constraints render a precipitous drop unlikely unless we get a precipitous drop in the global markets on worse than currently known news.

Still, prices at the pump are coming down a bit, and every reduction in any tax helps. And let’s not forget that while prices are still double what they were three years back, a silent but meaningful enough tax on consumers across the board has had an impact on the pace of our recovery...but they have also not stopped our recovery in its tracks.

July’s Flow
Of all the known issues that could stall our recovery in the future remains the Eurozone as chief cook and bottle washer, albeit unwilling to be paid bottle washer rates. But, as I have been noting, the prospects for a patch, motivated by an election year here at home even more than the ongoing elections overseas, could be enough to hold us at current levels or propel us rapidly forward for a time.

Upshot
I think “rapids” may be the best way to think of our current course. There’s plenty of froth on the surface, with hard issues that could rend or upend us if we’re not careful. There are eddies that can have us circling for a while and vortices that can pull us under for a spell.

But the momentum is forward...rapid progress. The trick is staying in the boat and knowing how to read the water. So if you’re looking for me, I’ll be in the bow.

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