Stock Attack II - A Complete Analysis Message Board

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Strategies & Market Trends : Stock Attack II - A Complete Analysis

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To: TechTrader42 who wrote (27800)	1/17/2002 8:16:52 AM
From: stockman_scott	Read Replies (1) of 52237

Stocks: Are Expectations too rosy? Dr. Sung Won Sohn Chief Economic Officer Wells Fargo & Co. (612) 6677498 January 14, 2002 drsohn.com <<...After the worst setback in corporate profits since 1938, earnings are projected to jump in 2002. Corporate profits are determined by two factors: volume and margins. The best measure of volume is industrial production, not economic growth (chart 6). As inventories are rebuilt, production will rise faster than economic growth. The lack of pricing power will be a problem, but margins can still rise due to a slower rate of increase in wages and salaries; this is exactly what happened after the 1991 recession. The market has already factored in healthy economic rebound and rosy earnings; the market is somewhat overvalued and some disappointments are likely. For example, about 60 percent of the increase in profits in 2002 is supposed to come from the tech sector which doubled in price since the bottom on September 21. The sales and earnings in the tech sector may not match the expectation of the market. Aside from the strength of economic recovery and rich valuations, there are other risks including energy costs, Japan, etc. Unlike the 1990s when the bulls punched through all the barriers, the market now is more sensitive to the surrounding economic and political environment...>>

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