Wall St Week Ahead-Stocks seen in brief St. Pat's rally
(UPDATE: Repeating column that ran late Friday)
biz.yahoo.com
By Haitham Haddadin
NEW YORK, March 17 (Reuters) - Stocks are likely to eke out gains this week, but don't expect the luck of the Irish to keep rubbing off on Wall Street since the market discounts a robust economic and earnings recovery.
``The market has a positive prejudice because the economy is doing better and profits are going to be improving, but it's tough to make a lot of upside,'' said Henry Herrmann, chief investment officer at Kansas-based Waddell & Reed, which oversees $32 billion. ``There's a lot of overhead (resistance) here and a lot of stocks valuations on the high side.''
Investors, coming back from Sunday's St. Patrick's Day celebrations, will focus on the U.S. Federal Reserve's Tuesday meeting of the interest rate-setting committee.
The Fed, which last year cut interest rates 11 times to shore up the U.S. economy, is expected to leave rates steady. The question is whether it will change its ``bias'' -- its viewpoint for future rate moves -- to neutral from an inclination to ease as the economy improves.
``If they change the bias then they really do see a recovery, and unless they imply that they are about to tighten, I think you're going to see the market rally,'' said Uri Landesman, portfolio manager with Arlington Capital Management. But he doesn't expect a runaway market either, amid what is still seen as a dearth of upbeat corporate earnings news.
Wall Street will get a trickle of earnings reports, including scorecards from Wall Street firm Goldman Sachs (NYSE:GS - news) and cruise operator Carnival Corp (NYSE:CCL - news). Investors also will sink their teeth into economic reports on the U.S. trade deficit, weekly retail sales, housing starts, retail inflation, and important leading economic indicators.
``Valuations in the tech stocks remain a problem for many,'' said Paul Cherney, market analyst at S&P Marketscope. ``Over the next couple of weeks I would expect caution in the marketplace because we are coming into the earnings confessional season -- that will tend to keep money on the sidelines.''
A possible upside for tech stocks is the contentious shareholder vote on Tuesday on the merger of computer makers Hewlett-Packard Co. (NYSE:HWP - news) and Compaq Computer Corp. (NYSE:CPQ - news).
``It might be a mild positive for the industry if it went through because there is this belief that one company with a fighting chance is better than two sick ones,'' Landesman said. ``I would not bet my kids' college funds on it, but I think it will pass, mostly because all the people who are against it have already sold the stocks.''
ST. PATRICK'S RALLY?
The stock market usually rises on the trading day before St. Patrick's Day, according to the Stock Trader's Almanac 2002. It certainly did on Friday on the back of more upbeat economic news. A report showed production by U.S. industry in February posted its biggest bounce since June 2000, adding to signs the U.S. economy was in recovery.
This week's calendar is full of data, starting with international trade numbers for January due Tuesday morning ahead of the market open. The figures are expected to show the trade deficit has expanded to $27.12 billion from $25.30 billion.
Wednesday brings February housing starts, which will shed more light on the red-hot sector, one the few bastions of strength in a sluggish economy. The data are expected to show 1.617 million starts compared with January's 1.678 million.
Retail level inflation figures ahead of the open Thursday are expected to paint a tame picture. The February leading economic indicators, expected shortly after the market's open Thursday, will shed more light on the economy.
``The only one that is going to ... be new news is the leading economic indicators. The rest of the numbers will tell us a story that we already know,'' Herrmann said. ``The housing numbers will be good and the inflation numbers are going to be irrelevant, there isn't going to be much (inflation).''
The January lead indicator, which rose 0.6 percent for the fourth month running, had showed the economy might already be out of recession and its recovery could be much stronger than expected. The January gain came atop a much stronger 1.3 percent rise December, the largest in almost six years.
EARNINGS TRICKLE
Among the trickle of earnings reports will be results on Monday from Dollar General (NYSE:DG - news) and Tuesday from Goldman Sachs and contract electronics manufacturer Jabil Circuit (NYSE:JBL - news). Wednesday's list includes investment banks Bear Stearns (NYSE:BSC - news) and Lehman Brothers (NYSE:LEH - news).
On Thursday, earnings news will come from Carnival and networking products maker 3Com Corp (NasdaqNM:COMS - news). Biomet Inc. (NasdaqNM:BMET - news), the orthopedic device maker, reports Friday.
The market is likely to stay in a tight range until investors start hearing the bulk of company conference calls in the third and fourth weeks of April, the pundits said.
``What this market really needs to see for another big leg up is that companies start verifying what the government data seem to be implying, which is that things are getting better,'' Landesman said.
Wall Street expects corporate profits will fall 8.6 percent in the first quarter, year-on-year, but will head higher in future quarters, according to research firm Thomson Financial/First Call.
The earnings are seen rising 8.9 percent in the second quarter; 30.90 percent in the third and gaining 41.90 percent in the fourth quarter. For the full year 2002, earnings will rise 16.90 percent compared with a decline of 17.30 percent in 2001.
``Stocks will stay in a sort of a no-man's land for the immediate future. The economic news is positive and market has been lifted, but the earnings haven't grown, so stocks have become expensive,'' said Michael Farr president of Farr, Miller & Washington, a fund that manages about $200 million.
-- Additional reporting by Denise Duclaux |
