Earnings Point to More Gains: U.S. Stocks Outlook (Repeat)
Bloomberg News
July 18, 1999, 7:43 a.m. PT
Earnings Point to More Gains: U.S. Stocks Outlook (Repeat)
(Repeats story originally published July 16.)
New York, July 18 (Bloomberg) -- With 113 Standard & Poor's
500 Index companies having reported earnings so far, analysts and
investors say they are pleasantly surprised by the performance of
most of them -- and that may push stock prices, already at
records, higher in coming weeks.
The coming week is the busiest reporting week for the
quarter, with Citigroup Inc., International Business Machines
Corp., America Online Inc. and Microsoft Corp. among the 150 S&P
500 names scheduled. With investors optimistic that most
companies will match or even beat expectations, the only cap to
stocks' climbing may be bond yields, money managers say.
''It's not out of the realm of possibility that by mid-
August the Dow could be at 11,800,'' said Robert Froehlich, chief
investment strategist for Scudder Kemper Investments Inc., which
manages $350 billion. ''We're at the point where nothing else
matters but earnings -- if they come in good, the market will
rally.''
About 66 percent of the S&P 500 companies that have reported
earnings surpassed analysts' expectations, according to First
Call Corp. Typically a little more than 50 percent top estimates,
said Joe Cooper, a First Call research analyst.
Earnings-growth expectations on a year-to-year basis have
risen to 11.4 percent from the 11.0 percent anticipated a week
ago, Cooper said. That puts this quarter on target to be the best
since the third quarter of 1997.
''More companies are announcing positive surprises, so
analysts will raise earnings for this year and next year, and
that will help drive stock prices,'' said Timothy Ghriskey, a
money manager for Dreyfus Corp., which oversees $125 billion.
Ghriskey's picks for the coming weeks include Tyco
International Ltd., Cendant Corp., IBM and Intel Corp., all of
which are Dreyfus holdings.
Of course, companies' and analysts' estimates typically
understate what they think the earnings really will be.
Record Highs
The Nasdaq Composite Index, the S&P 500 and the Dow Jones
Industrial Average all closed at records Friday.
The Nasdaq was the best-performing major index, gaining 2.6
percent for the week to close at 2864.48. The S&P 500 gained 1.1
percent in the last five sessions to close at 1418.78. The Dow
average eked out a 0.1 percent gain this week and closed at
11,209.84.
The Russell 2000 Index of small stocks rose 1.6 percent,
although it is still 26 points from its record of 491.41 set in
April 1998.
Boeing Co. finished the week with a 3.2 percent gain,
although it fell in the two sessions after it reported it beat
forecasts for a fourth quarter. Boeing, a Dow average component,
last traded at 46.
Coke
Coca-Cola Co., another member of the Dow average, rose 2.1
percent through the last five sessions as its profit matched
reduced expectations. Coke had warned that slowing sales in the
U.S. and Asia and a health scare in Europe that forced it to
suspend sales and recall drinks would erode profits. Coke last
traded at 65.
To be sure, even with good earnings, not all of the
companies reporting since Monday managed to close the week with
gains.
Apple Computer Inc. lost almost 5 percent this week even
though it posted fiscal third-quarter profit of 69 cents a share,
beating both the average analyst forecast from First Call and the
unofficial estimate available from thewhispernumber.com. It last
traded at 53 1/16.
Still, investors expect any declines by companies that beat
estimates to be short-lived.
''It's short-term,'' said Michael D. Jamison, a managing
director at Brandywine Asset Management Inc. in Wilmington,
Delaware, which oversees $7.5 billion. ''As people look back at
earnings, and raise estimates, they will forget a two-point
drop.''
Jamison's picks for the third quarter are Federated
Department Stores Inc., Steelcase Inc. and Symantec Corp.
Interest Rates
The only caveat for investors in coming sessions may be
rising bond yields. The yield on the 30-year bond was last at
5.88 percent.
''The outlook for earnings is excellent, but the question is
what people are willing to pay (for stocks) and that is dependent
on interest rates,'' said Trent May, a portfolio manager for
Invesco Funds Group in Denver, which oversees $25 billion. ''If
interest rates head down, which is my opinion, it will be another
leg of support for the market.''
Investors will keep one eye on Federal Reserve Chairman Alan
Greenspan this coming week, when he delivers the first part of
the so-called Humphrey-Hawkins testimony. Greenspan is expected
to tell more about why the Fed raised rates on June 30 and may
indicate whether any more rate increases can be expected in his
twice-yearly testimony before Congress.
The Fed chairman will speak to the House Banking Committee
on Thursday. The same speech will be delivered to the Senate
Banking Committee on July 28.
Internet Rally Seen
Invesco's May likes America Online and Dell Computer Corp.,
based on his expectations for interest rates. He has also been
buying Teligent Inc., eToys Inc. and Amazon.com Inc.
''Internet stocks are due for a rally,'' he said. The fourth
quarter ''will be better for e-commerce than people expect.''
Some investors expect limited gains.
''We may run another week or two of good markets, but we are
near the peak as a result of good earnings announcements,'' said
Frederick B. Taylor, chief investment officer of U.S. Trust Co.,
which oversees $58 billion in assets. The good news ''is already
in the market.''
|
