Fear factors for markets
Investors in need of encouraging corporate results await easing of Mideast tensions, economic data.
April 7, 2002: 9:25 AM EDT
By Parija Bhatnagar, CNN/Money Staff Writer
NEW YORK (CNN/Money) - U.S. investors hope for at least a moment of clarity this week on several key issues: the somewhat blurry corporate profit picture, the possibility of a U.S.-brokered ceasefire in the Middle East and the pace of the economic recovery.
Wall Street pros say that money is likely to stay on the sidelines unless some of the overhang from the uncertainty is lifted this week.
"This is a very news-oriented market, even more than usually so," said Stephen Porpora, broker with William O'Neil and Co. "We've reached this point where [investors] have said, 'O.K. the economy looks like it's bottomed but we want to see some corporate earnings.' The markets are in a waiting period and are very reactionary to news. And of course, the Middle East is a big issue right now."
Analysts say the focus this week will be squarely on corporate earnings as the first-quarter reporting period takes off.
"We're sort of seeing a script that we saw last year at this time," said Charles Payne, CEO and chief market analyst with Wall Street Strategies. "There was a lot of hope that as we went through the year, the worst was behind us. But it wasn't reflected in the earnings numbers or guidance, especially in the technology sector."
"That seems be happening again," Payne added. "We need to see some big technology companies meet earnings estimates or provide some pretty strong upside guidance."
That certainly didn't happen last week as more than 20 tech names, mostly from the software sector, warned about the quarter, blaming the persistent drought in information technology spending from customers. The news unnerved the markets and investors appeared to retreat amid the uncertainty, choosing to adopt a wait-and-see approach.
But attitudes could change this week with a few pleasant surprises.
"Investors are sitting on the sidelines. They really haven't had any impetus or any news to buy off of," said John Pickett, a trader with LaBranche & Company. "But if we can get some good news and not too many bad misses, I think this market has a pretty good chance and investors will get back in."
Meanwhile, the decision by the Bush administration to send Secretary of State Colin Powell to the Middle East to try and restore peace to the region is considered a positive for the markets.
"Sending Powell gives everyone an excuse to take one step back. Assuming diplomacy starts to play an active role and cooler heads prevail, the Middle East will be less of a factor this week," said Wall Street Strategies' Payne.
For the week ended Friday, the Dow Jones industrial average fell 1.3 percent, while the Nasdaq composite shed 4.1 percent. The Standard & Poor's lost 2.2 percent.
A light drizzle of first-quarter corporate confessions
By the end of this week, about 10 percent of the S&P 500 companies will have reported their results for the three months ended around March 31. But the heavy downpour of first-quarter results is forecast for the week beginning April 15.
"This week is where the rubber meets the road with regard to earnings and we exit the pre-announcement period, " said Phil Dow, equity strategy director with RBC Dain Rauscher. "But having said that, no one expects great shakes for the first quarter."
For the quarter, analysts expect an overall profit decline of about 9.2 percent year-over-year for the S&P 500 group, according to earnings tracker First Call.
Two biotech names -- Abbott Labs (ABT: Research, Estimates) and Genentech (DNA: Research, Estimates) -- report Tuesday. Abbott is expected to post a profit of 54 cents a share, up from 47 cents a share in the year-earlier quarter, while Genentech is expected to post a profit of 22 cents a share, up from 17 cents a share in the prior year.
Internet portal Yahoo! (YHOO: Research, Estimates), reporting Wednesday, is expected to post a profit of 2 cents a share, up from a penny a share a year earlier.
Dow component General Electric (GE: Research, Estimates) is expected to report Thursday, with a profit of 35 cents a share versus income of 30 cents a share in the year-earlier quarter.
Among the tech names, network equipment maker Juniper Networks (JNPR: Research, Estimates) is expected to post flat earnings versus a profit of 25 cents a share a year earlier, while DoubleClick (DCLK: Research, Estimates), the provider of Internet advertising services, is expected to post a loss of 4 cents a share, narrower that the prior-year loss of 8 cents a share.
Consumers in the spotlight
Investors get a trio of economic reports Friday that shine a flashlight on inflation and consumer sentiment.
"There's absolutely no doubt the U.S. consumer is the engine of growth for this economy," said Lara Rhame, economist with Brown Brothers Harriman. " But there remains a real concern on the part of the Federal Reserve that the consumer doesn't have that much ammunition left. We're having a big tug-of-war at the moment between what the various sentiment indicators are saying and what we're actually seeing in the economy. That has raised questions about a recovery being a sluggish one."
Rhame cautioned that weakness in last Friday's March employment report, which showed the unemployment rate creeping up to 5.7 percent, could undercut some of the consumer resilience that dug in its heels through the economic downturn.
"With the unemployment rate back up to 5.7 percent, and with Fed speakers saying they expect the unemployment rate to keep rising for some time, this does raise concern regarding the consumer," Rhame said. "It doesn't take many bad unemployment numbers to scare the consumer."
The Census Bureau offers a gauge on consumer spending when it releases its update on retail sales in March. Economists surveyed by Briefing.com expect a rise of 0.5 percent, compared with a smaller rise of 0.2 percent in February. Excluding auto sales, retail sales are forecast to have grown 0.4 percent last month, up from 0.2 percent in the prior month.
The closely watched University of Michigan preliminary consumer sentiment index -- a measure of consumer confidence -- is expected to rise to 97.3 in its preliminary April reading from 95.7 in March, according to the Briefing.com consensus.
Investors get a check on inflation from the Labor Department's update on the Producer Price Index -- a measure of prices paid to factories, farmers and other producers. Thanks to a surge in fuel costs, economists expect to see a 0.6 percent rise in March after a smaller 0.2 percent increase in February. Excluding often-volatile food and energy prices, the "core" PPI is projected to be up 0.1 percent in March after being unchanged in February.
Inflation was a talking point last week after oil prices spiked to $28 a barrel Tuesday -- their highest level in six months -- as the intensifying Middle East conflagration caused a kneejerk reaction in the market, heightening fears of disruption to the region's oil supplies. Both Iran and Iraq have called on Arab states for an oil embargo to protest the ongoing Israeli military campaign in the areas under the control of the Palestinian Authority.
But Rhame discounted the speculation, saying inflation remains less of a concern in the near-term -- although it could become more pronounced if gasoline prices rise as consumers enter the summer driving season.
money.cnn.com |
