Marvin - In TheStreet.com's DAILY BULLETIN: Weekend Report July19, writer Aaron L. Task says earnings' run-ups this week will be eclipsed by waiting-for-greenspan in reference to his thurs. delivery. Do you think this will affect your modest 135 estimate? Here's what it says:
"With titans like Microsoft (MSFT:Nasdaq) set to report their numbers,
you might think the coming week is all about earnings. It is not.
That's a bit of a shame, since earnings have been so darn good. So far,
according to First Call, S&P 500 companies have been beating estimates
by a hefty 3.8%. A second-quarter earnings gain of 15% over last year
certainly seems doable. Moreover, companies have been extremely upbeat
about their third-quarter prospects -- a good example of that was Intel
(INTC:Nasdaq), whose uncharacteristic optimism on how its business is
going helped push its stock higher despite earnings that were a bit
below estimates.
But it's the chairman's show now. Fed head Alan Greenspan will be
delivering his twice-yearly Humphrey-Hawkins testimony on Thursday, and
until people see what he's had to say, nobody on Wall Street is going
to have a heck of a lot of conviction on whether the market should be
heading up or down. About half the people say the Fed will move rates
up at its August meeting, half say it won't, and none of them seem to
have much confidence that they're right.
Big Al has a tough act to put on. Since the Fed raised rates June 30,
the economic data have been benign to downright benevolent. "Right now,
based on all the numbers we've seen recently, you have to say the Fed
stays on hold Aug. 24," said Don Fine, chief market analyst at Chase
Asset Management. The problem for Greenspan, however, is that between
now and then, there's "a whole other round of numbers," Fine added.
"This time around, Greenspan will have to do a bit of a soft shoe."
It's likely that Greenspan will "lay out the guidebook" on
monetary-policy thinking, said Mitchell Held, economist at Salomon
Smith Barney, who also thinks "probability favors inaction at this
point."
This all leaves Fine thinking Greenspan will give a pretty even-handed
speech. "They have a neutral bias," said Fine. "It's hard for me to
imagine Greenspan getting up, after all this [good] data, and saying
that they're moving toward tightening."
If Fine's right, that could be a darn fine thing for the stock market.
Freed of its interest-rate worries, it could turn its focus to those
fine second-quarter numbers and what companies have been saying about
the third quarter. For bulls, that'd be a damn good thing.
There are those, however, that fret about how high stocks have gone and
worry that any move up will be a last-gasp rally before a big fall.
They point out how high P/Es have gotten, and say that with the bond
yield near 6%, stocks are overvalued by 30%. They worry that this year
will look like last year and the year before -- a summer top in late
July and then a big decline. This is a stock market itching for a fall
(and lookit all the trouble in China and Taiwan lately -- ominous).
But though he once worked under Morgan Stanley Dean Witter's Byron Wien
-- a guy who's among the worriers -- Tom McManus, equity portfolio
strategist for Banc of America Securities, doesn't buy the
stocks-are-overvalued talk.
"When people say the market is historically overvalued," said McManus,
"they're comparing apples to oranges. Valuations are in the
stratosphere -- compared to what? What they were in the '60s? What they
were in the '40s?"
Things have changed. Even 10 years ago, the S&P 500 was stocked with
far more industrial concerns -- manufacturing was a far greater part of
our economy. With the shift to more of a services-based economy and the
advent of information technology, the S&P is a very different index.
Microsoft, the company that is now the largest component, traded
(split-adjusted) at less than a buck 10 years ago.
"If you can understand why General Electric (GE:NYSE) carries a higher
P/E than General Motors (GM:NYSE)," said McManus, "you can understand
why today's P/Es are higher than in the past. I would contend that a
service business is a higher quality business than a manufacturing
business."
People who do valuation work have tried in various ways to capture the
shift in the S&P, but things have moved at such a quick pace that they
may not have altered their models quickly enough. "When something as
revolutionary as harnessing the power of millions of computers
networked together has occurred," said McManus, it's hard to keep up
with the pace of change. " |
