1. CORPORATE PROFITS SINK IN FOURTH QUARTER
Over half of the firms in the S&P 500 have already reported fourth-quarter
earnings, and so far, U.S. corporate profits are down more than 20% from a
year ago. That just about matches the decline we saw in 3Q01, making the
latter half of 2001 significantly tougher than the first half. Earnings
fell 6% in 1Q00 and 19% in 2Q00. Looking ahead, profits in 1Q02 are
expected to drop 8% compared with year-ago levels, marking the
fifth-straight quarter of declines. That could be the last decline,
however, as analysts expect to see corporate earnings grow once again in
the second quarter.
TODD’S TAKE: Corporate profits could grow in 2Q02, but that will hide the
fact that some industries still have a long way to go before things turn
around. For example, we expect a big, ugly shakeup in the airline
industry this year. In addition, we don’t expect the automotive industry
to turn the corner very quickly, and those telecom equipment firms that
rely heavily capital spending, such as JDS Uniphase (JDSU, $7, unch.) and
the like, are going to continue to hurt. Finally, those industries that
have relied on strong consumer spending -- from housing to electronics to
clothing -- remain largely in the dark about whether consumers can keep it
up. Unemployment and growing consumer debt could finally catch up with
some of these companies.
Okay. So that’s the negative scenario. On the positive side, we think
the worst of the recession is probably behind us, and recent economic data
seems to point to a flat economy later this year (not a recessionary one).
Still, we want to make clear that the road ahead will not be a smooth
one. Picking stocks in this environment can be tough. We believe we have
the top picks in our portfolios (AVAILABLE ONLY TO PAID BULL MARKET REPORT
DAILY SUBSCRIBERS) to help you through this volatile period, and we will
continue to bring you detailed guidance to shape your investment
decisions. |
