SMARTMONEY ONLINE: Market Digest
By KARYN MCCORMACK
Dow Jones Newswires
SmartMoney Interactive
NEW YORK (Dow Jones)--Don't be fooled by a one day rally.
Technology stocks bailed the market out Friday from two days of heavy
selling, but many market watchers say that the troubles overseas and
political uncertainty here will continue to drive the market lower. The Dow
Jones Industrial Average jumped as much as 201 points, ending the day
up 179.96 points, or 2.36%, at 7795.5. For the week, the Dow was up
155.25 points, kicked off by Tuesday's 380-point jump inspired by
Federal Reserve Chairman Alan Greenspan. Since its high on July 17, the
blue chip index has fallen 16.5%.
Positive earnings disclosures from many leading technology companies
sparked the Nasdaq index 56.32 points higher to 1641.65 for a 3.55%
gain. The index has declined 18.5% from its high in July.
"The news of an increase in PC demand is driving the market today," says
trader Art Hogan at Jefferies & Co. Hogan thinks the Nasdaq is
bottoming, given that Intel and Dell are reporting an increase in demand.
That has investors looking for bargains. "The buyers are ready to come
back in," says Hogan, noting that AMG Data Services" report Friday that
investors put $1.44 billion in new cash into equity mutual funds in the week
ending Wednesday, after paring back in the prior week.
Investors may also get more relief from Greenspan next week. The Fed
chairman and investor George Soros are scheduled to speak Tuesday to
the House Banking Committee in Washington about the global economic
turmoil. In addition, a few officials from the Federal Reserve have
scheduled speeches next week, which may give investors some more
insight on whether the Fed will lower rates at its next meeting.
In the meantime, investors will get a heavy flow of economic reports next
week. "Some of the data will show that the overseas turmoil has washed
closer to U.S. shores," says economist Harvinder Kalirai at I.D.E.A.
Here's a rundown on what to expect:
Tuesday, Sept. 15
Retail Sales. Kalirai expects sales (excluding autos) to fall 0.1%, indicating
that consumer spending continues to wane.
Import Prices. This report will probably be weak as well, given that prices
for commodities have fallen. He sees import prices down 0.4%.
Thursday, Sept. 17
Consumer Price Index. Economists are expecting a flat CPI for August,
given the soft producer price index report Friday, Kalirai says.
Trade Balance. Kalirai believes the trade balance report for July will show
a record trade deficit of $16 billion, as foreign countries cont inue to hold
off purchases of U.S. goods.
Philadelphia Fed Survey. This report is the first indication of how
manufacturing is faring in September. He sees the index falling to eight
from 13.3 in August.
Friday, September 18
Housing Starts. Kalirai forecasts a slight decline in the housing report from
1.72 million to 1.65 million, but says that the housing market still remains
robust.
Perhaps the most important indicator of all right now will be third-quarter
earnings. A few companies have a lready disclosed how the economic
slowdown is affecting earnings in the current quarter, and more warnings
are expected. "There's uncertainty surrounding Clinton and events
overseas are important, but it all boils down to corporate profits," says
Charles Carlson, who pens the Dow Theory Forecasts newsletter.
So what should you do? Be patient and don't chase short-lived rebounds,
advises Carlson, who turned bearish in early August. Instead, he
recommends investing a small amount of money regularly int o more
defensive stocks.
Carlson favors the shares of BellSouth (BLS), Merck (MRK), Abbott
Laboratories (ABT) and FDX (FDX).
Of course, investors probably won't be focusing on economic or earnings
minutiae this weekend. After all, given a choice between your mutual fund
statement and the summary of the Starr Report, which one would you
choose?
Tech Leaders
The stock market rallied this morning after yet another apology from
President Clinton. But tech companies were trading higher for le ss cosmic
re asons. In a speech early Friday, Dell Computer CEO Michael Dell said
that the company's third-quarter sales are strong, despite the economic
troubles overseas. "The third quarter is going great," Dell told reporters in
Dallas.
Analysts will continue to raise their estimates for Intel following the
chipmaker's upbeat sales forecast for the third quarter.
According to First Call, analysts currently expect Intel to earn 73 cents a
share in the current quarter, compared to 88 cents a shar e a year ago.
For the year, analysts see the company earning $3.03 a share, down from
$3.87 in 1997. On Friday, Gruntal & Co. raised its earnings per share
estimate on Intel to $3.09 from $3.03 for 1998. Warburg Dillon Read
upgraded the shares of the company to Buy from Hold.
Following Oracle's better-than-expected earnings report, Merrill Lynch
upgraded the shares to near-term Buy from Accumulate.
Prudential Securities also raised its rating on Oracle to Strong Buy from
Accumulate. It's not as thou gh Oracle's business is suddenly on fire,
however.
"Better-than-expected" in this case, and for many other tech companies
including Intel, means better than sharply reduced earnings expectations.
For many companies, earnings growth will slow this year.
Adobe Systems
Here's another case of diminished expectations. The maker of graphics
software reported earnings late Thursday that were two cents higher than
analysts were expecting. But analysts had lowered estimates after Adobe
warned on Aug. 11 that earnings would fall short of forecasts. Adobe said
that fiscal third quarter earnings fell 49% to 37 cents a share from a year
ago. Revenue fell 3% to $222.9 million from a year ago, which was in the
middle of the company's forecast.
The company blamed its sales decline on the problems in Japan.
But with the help of new products and cost controls, the company said
that it should be able to generate annual revenue growth of 15% and
operating margins of 25%.
In response, CIBC Oppenheim er raised its rating on Adobe shares to
Buy from Hold.
American Express
The shares of the financial services provider rebounded after the company
said that the problems in emerging markets will modestly hurt earnings. In
a press release, American Express said that it still expects earnings to
increase 12% to 15% a year and revenue to rise 8%. The company also
said it is targeting a return on equity of 18% to 20% over the next few
years. The company led the Dow Jones Industrial Average higher on
Friday.
General Electric
The largest company in the world tried to calm investors" worries about
the economic troubles overseas Friday by saying that third-quarter
earnings should come in on target with analysts" forecast of 69 cents a
share. GE, a conglomerate that makes appliances and owns the NBC
network, expects revenue for the quarter to increase 15% to 20% from a
year ago.
While GE said it is facing increased competition from Whirlpool (WHR)
and Maytag (MYG) in its appliance business, its jet engine, medical
scanner and GE Capital finance units are doing well.
Lehman Brothers
Shares of the brokerage company plunged early Friday amid rumors that
the company could file for bankruptcy protection because of huge
derivative losses in emerging markets. But Lehman Brothers denied the
rumor and the shares rebounded slightly.
Pier 1 Imports
The home furnishings retailer reported earnings that were on target with
analysts' expectations, but sales were disappointing. Pier 1 said that fiscal
second-quarter earnings fell 15% to 17 cents a share from a year ago.
Sales rose 9.1% to $281.5 million from the same quarter in 1997. In a
press release, the company said that it is on track to open 65 new stores
and remodel more than 100 stores by February 1999.
Adams Harkness lowered its rating on Pier 1 shares to Attractive from
Buy because sales were less than the company's forecast and could be
hurt in the third quarter by Pier 1's continuing re modeling plan. The firm
trimmed its earnings per share estimates to 71 cents from 76 cents in fiscal
year 1999 and to 88 cents from 90 cents in fiscal year 2000.
Suiza Foods
The dairy products maker said it will acquire Broughton Foods (MILK), a
milk products maker and distributor, for $123 million. The terms of the
deal involve Suiza Foods paying $19 a share for Broughton Food and
assuming $13 million in debt. Suiza Foods said that the acquisition will
strengthen its position in the Mid western and Southern regions of the U.S.
The deal is subject to the customary regulatory approvals.
Telebras
Shares of the Brazilian phone company rebounded in response to the rally
in the U.S. and Latin American markets. A Brazilian news agency
reported Friday that the 12 spinoffs of Telebras will trade in Brazilian
exchanges before they list on the New York Stock Exchange. The plan
originally called for the units to trade on both exchanges at the same time.
For a list of other SmartMoney stocks on the move in today's market, see
the SmartMoney Gainers & Losers page.
For more information and analysis of companies and mutual funds, visit
SmartMoney Interactive at smartmoney.com |
