stats.bls.gov
Dec 9 2000 9:00AM ET More on Market Snapshot...
Sustained Rebound? Maybe.
By Stephanie Mercurio
Markets Writer
Stocks ended the week on a positive note, even weathering major-league profit warnings, as investors focused on longer-run hopes for another wave of powerful economic growth.
For the week, the Nasdaq rose 11.5% and the Dow Jones industrial average climbed 1.5%, spurred by Alan Greenspan's Tuesday pledge to protect the economy from contraction. Not even an earnings warning from Intel {INTC}, which scaled back analysts' fourth-quarter forecasts, could deter the rally.
Many analysts now believe stock prices fairly account for the slower earnings growth likely for at least the next couple of quarters. And they say the market probably can take whatever bad news fourth-quarter earnings reports can dish out.
On its face, this argument sounds a lot like last quarter's mantra: Get past the earnings warning season and everything will be okay. That approach didn't pan out last quarter. Why should this period be any different?
It all boils down to one word: Greenspan.
Investors have taken to heart the Federal Reserve chairman's promise to keep the economy rolling. Investors agree the Fed will shift to a neutral stance at its December 19 meeting and ease interest rates sometime in the first quarter. They're suddenly more confident the economy can return to its recent glory.
"Investors have been ready for a disappointing earnings season," says Tim Ghriskey, fund manager for Dreyfus Investments. "It's no surprise we are in a weak economic period, but what is different here is the tone of the Fed. They will be easing sooner rather than later, and (stock) prices have come down significantly."
Fourth-quarter earnings are expected to come in about 8% to 9% above last year, downwardly revised from the 16% growth forecast at mid year, according to Joe Kalinowski, chief equities strategist for I/B/E/S International. This single-digit growth is much lower than 20% in fourth-quarter 1999 and 17.5% for third-quarter 2000.
The economy has indeed cooled off, analysts say, but after a string of earnings warnings from bellwethers such as Gateway {GTW}, Apple Computer {AAPL} and Motorola {MOT}, investors already have braced for less-than-spectacular fourth-quarter earnings.
"There are moderate amounts of slowness priced in, some sort of deceleration is there," says James Grefenstette, growth fund manager for Federated Investors. "(But) the Fed will be pro-active and stall a recession."
Stocks have skidded most of the year, but their decline intensified this fall as earnings fears deepened. Valuations seem to have declines enough to make stocks attractive, even in a slower-growth environment, analysts say.
"We are able to overcome the negatives," says Alan Ackerman, market strategist for Fahnestock & Co. "People feel that stocks are at levels that are attractive."
The mood has lifted considerably, but participants are aware a number of sectors are taking hits from the slowing economy.
"Downward revisions are focused on technology and retail," Kalinowksi says, but companies are feeling the slowdown across the board. Best bets could be health care, food stocks and other non-cyclical industries.
Economic News
Investors have a bonanza of economic news to digest next week, and they'll be watching closely as the Federal Reserve's December 19 meeting on interest rates fast approaches. Market players agree the central bank will move to a neutral interest-rate stance, ending a long rate-hike campaign, and most forecasts expect a rate cut early next year.
November retail sales are slated for release on Wednesday at 8:30 a.m. ET. The figures offer a key glimpse of consumer spending, the main engine of economic growth. Sales have cooled significantly in recent months. Market watchers predict another tepid result for this month, calling for sales to rise 0.2% for the month, up slightly from 0.1% in October, according to Briefing.com.
A decline in retail sales, which isn't out of the question would make a Fed ease more likely sooner rather than later, says Christopher Low, chief economist at First Tennessee Capital Markets.
Investors will also get a sense of whether inflation is in check, with both the consumer price index and the producer price index out next week. Economists expect CPI to rise 0.2% for November after a 0.2% rise in October. Meanwhile, they expect the PPI to rise 0.1% for November, less than the 0.4% rise in October.
Still, economists say the reports don't carry the same weight as they did a couple of months ago.
"The inflation numbers are a lot less important when the economy is weakening," Low says. "Companies don't have pricing power when the economy is weakening. That is further indication that costs will be contained. |
