Does This Turkey Still Have Legs?
By Igor Greenwald
WALL STREET PROS ought to stay away another week. In their absence, the thrill-seekers who elbowed their way down department-store aisles Friday got home in time to cap the shopping spree with a helping of earnings-challenged stocks.
Leave the market to the individual investors for a few more days, and Dow 10K will surely follow, with Nasdaq 2K in hot pursuit. But then the nagging doubts that dogged stocks earlier this week might resurface.
Why are shares worth more now than on Labor Day, when the recession was just a worst-case possibility and the rebound in corporate profits just as imminent as it seems today? What happens to a momentum rally running out of momentum? And how could a refinancing bonanza touted as a tonic for the sick economy vanish like a quack remedy down the drain, unmourned by anyone except late-arriving bond investors who bought the hype?
Stocks' saving grace has been the lack of good alternatives. Gold bugs who glittered in the immediate aftermath of the terror attacks got squashed again not long thereafter. Money market funds looked best the same wretched month, but their returns sank to an all-time low this week, swamped by a torrent of the Fed's loose cash.
Bonds seemed expensive all fall long but kept getting more so, until the crash of the past two weeks. And none too soon, since the small investor was starting to get a taste for junk, always a fatal attraction. The yields on 10-year Treasurys are now at their most enticing in more than three months, which could soon prove bad news for stocks.
How else to incubate that shriveled nest egg? Real estate? Housing prices tend to be sensitive to unemployment, and so trail the overall economy. Some more deflation talk and the underside of the mattress might start looking like a plausible safe haven.
But unlike mattresses, stocks have friends in high places at the Federal Reserve, which has responded to the last two financial crises by handing out wads of money to everyone within easy reach. The first time around, in 1998, the giveaway fueled an 18-month bull run. And while history won't necessarily repeat itself, no one wants to crash that party late a second time.
The siren calls from Goldman Sachs and Merrill Lynch play on that fear. Goldman strategist Abby Joseph Cohen is blunt: ``Fourth-quarter earnings will be exceptionally ugly, but it won't matter to stock prices,'' she writes. ``Most investors expect improved earnings in 2002.''
Cohen's counterpart at Merrill, Christine Callies, allows that ``tactical profit taking is common going into the end of the year.'' But hey, the Fed is on your side. ``Real M3 money supply growth has reached 10.5%, the highest year-over-year growth in almost 28 years,'' Callies advised her clients. ``The surge in broad-based liquidity measures should provide essential support for equity markets and P/Es through most of 2002.''
Whichever direction stocks travel this week, they will have to make their own weather, because a trickle of analyst meetings and a flood of statistics of questionable relevance likely won't do the trick. It's too late to fret over Kmart's (NYSE:KM - news) quarterly report Tuesday and too early to fear December's profit warnings.
There will be stimulus talk, but that no longer sets hearts racing now that investors have priced in the ensuing boom in congressionally subsidized bison meat and business expenses. So the market is left with the consumer confidence index and home sales Monday, the Fed's Beige Book of economic anecdotes purporting to prove nothing in particular on Tuesday, initial jobless claims and new home sales Thursday and another third-quarter gross domestic product estimate Friday. The last one is strictly for the history books.
Nokia's (NYSE:NOK - news) meeting with analysts Monday and Tuesday will set the tone for tech shares, though the company plans a separate earnings update next month. Enron (NYSE:ENE - news) will provide the suspense, as everyone waits to see whether its surrender takes longer than those of Kunduz and Kandahar. In both cases, a discredited leadership is under siege by rivals out for blood and weary of the double-cross.
Eastman Kodak (NYSE:EK - news) tiptoes through investors' hostile questions about shrinking margins and vanishing profits Tuesday. Alcatel (NYSE:ALA - news) undergoes the same ordeal on Thursday, while Home Depot (NYSE:HD - news) gets politely asked to clarify its growth prospects to a more optimistic crowd the same day.
By week's end an army of PR types in the employ of the big retailers will have the world convinced that selling $74 DVD players and $50 mystery-meat leather jackets at a loss will save not just the Christmas shopping season but the whole economy. After which, their work complete and final paycheck in hand, the PR types will join the growing pool of people forced to consider a career screening airport baggage. |
