The Fed funds rate futures were pricing in up to 75 basis points. There would have to some really bad economic news come out to dissuade further tightenings. There would also have to be a lot of negative preannouncements by companies or downward earnings revisions if that were the case. That doesn't seem to be the case.
From First Call:
And the beat goes on for earnings revisions as well. Analyst estimates for 2Q00, 3Q00 and 4Q00
continue to rise slightly. Given that analysts are normally trimming their estimates, especially for the
current quarter (in this case, 2Q00), this is particularly noteworthy.
As we have been emphasizing for several months, earnings revisions, earnings surprises, and
earnings pre-announcements have been much more favorable than normal. Earnings for 1Q00 are
coming in, on average, 5.8% above expectations at the time each company reported. If that holds
as the last few companies report, that will be the highest level in at least the six years of data First
Call has on S&P500 surprises.
If the current better-than-average trends on earnings revisions, pre-announcements, and surprises
continues into July, the final earnings growth number for 2Q00 is likely to be about 23%. Even a
reversion to normal patterns should yield earnings growth of 21% for 2Q00, so an excellent
quarter for earnings growth is assured.
Earnings growth for 3Q00 may be somewhat less, but will most certainly still be very good. The
real issue is the impact of the recent and future Fed actions on earnings for CY01. The present
estimate stands at 15%, but could be lowered significantly if the Fed actions eventually take hold. |
