POINT OF VIEW: Stock Optimism Defeated By Facts
25 Apr 12:54
By Neal Lipschutz
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Something curious went on in U.S. stock markets in
early March.
Buoyed by an optimism that is never far from markets' surface, investors
decided then that the economic/corporate profits picture had brightened
sufficiently for a real rally.
The week ended March 8 saw the Dow Jones Industrial Average finish at about
10,572 and the Nasdaq Composite Index end at 1,930. That was less than two
months ago.
What's interesting is that the fundamentals haven't changed that much. It's
just that a DJIA a tad under 10,000 and a Nasdaq Index near 1,700 seem more in
line with those fundamentals than the headier view of early March.
Things haven't deteriorated that much in the past couple of months, the
market is just better aligned to an uncertain reality.
Of foremost concern is still the nature and strength of this economic
recovery. Some broad economic numbers have been tepid, creating concern about
the solidity of expansion.
More than that, we still can't count on gains in gross domestic product
automatically resulting in a robust corporate earnings rebound.
And corporate earnings increases, or the firm expectation of real earnings
gains, are needed to sustain an equities rally.
Already reduced costs, the lack of pricing power and overcapacity in some
industries all bode ill for a sharp earnings snapback.
Markets are forward looking, but the steady drumbeat of recent equity losses
confirms that as the winter was ending that forward look stretched too far.
We've pretty much run out of bullish potential to be gleaned from the current
quarterly earnings reporting period. There weren't enough upbeat assessments of
the profits path ahead to stir the bulls.
Next time around it will again be the corporate looks to the future that will
be of most interest to stock investors, rather than the factsand figures about
the current quarter.
So it is the post-earnings conference calls, rather than the earnings
themselves, that are key to guiding investor thinking.
It is interesting to note, as the nature of corporate disclosure is broadly
under review, that the publicly accessible conference call has become a staple
of the disclosure process thanks to the Securities and Exchange Commission's
Regulation FD that sought to end selective disclosure of material news.
While of overriding importance, corporate profits are not the only worry for
stock investors.
Even more so than in early March, the pitfalls of the global political
situation are plainly evident. The violence and intractability that
characterize the Middle East carry the unhappy potential for further problems
for the U.S. economy and equity markets.
Neal Lipschutz is senior editor, Americas, Dow Jones Newswires.
-By Neal Lipschutz, Dow Jones Newswires, 201 938 5152
neal.lipschutz@dowjones.com
(END) DOW JONES NEWS 04-25-02
12:54 PM |
