(SmartMoney) Bears Feast on Ailing Dollar, Weak Earnings
By Igor Greenwald -- July 16, 2002
A DAY AFTER STOCKS staged a dramatic comeback that scared speculators into covering downside bets, the bears returned Tuesday to drive premarket futures lower alongside the ailing dollar.
The greenback's slide reflects global revulsion with U.S. accounting scandals, as well as the low interest rates propping up the U.S. economy during a painful slump in business investment. Traders will listen closely this morning and the next as Federal Reserve Chairman Alan Greenspan testifies on Capitol Hill about the outlook for monetary policy.
Investors will also wade through the latest pile of earnings updates ahead of Intel's (INTC) accounting after the closing bell. The company's boss has scheduled a speech to employees concurrent with the release, fueling speculation that the leading chip maker may resort to massive layoffs to cut costs. Intel's third-quarter forecast and capital-spending plans may also be at risk given the stagnant market for the computers that use its microprocessors. The stock slipped 1% in premarket trading.
Shares of blue-chip banking giant J.P. Morgan Chase (JPM) were offered at a 3% discount amid unsubstantiated European rumors that the company's earnings report Wednesday may disappoint. Another bank with heavy exposure to troubled telecom and media firms, FleetBoston Financial (FBF), doubled its provisions for dud loans in missing Wall Street's quarterly earnings estimates on Monday. And because speculators will speculate, there were also fears J.P. Morgan could face legal liability over its close relationship with WorldCom (WCOME).
Sometime in the next day or so, analysts will also decide what the latest numbers from General Motors (GM) actually mean. Here's a brief sample of the auto maker's reporting: "GM earned $1.5 billion, or $2.63 per diluted share of GM $1-2/3 par value common stock, in the second quarter of 2002, excluding Hughes and an after-tax charge of $55 million, or $0.10 per share, for costs associated with end-of-life vehicle recycling in Europe (see Highlights)." Including those items produced earnings of $2.43 a share, a penny above Wall Street's consensus estimate. Profits have more than doubled in a year's time, thanks to determined cost-cutting and the growing popularity of GM trucks. The company's third-quarter forecast roughly matched analysts' expectations.
Another industrial giant, the heavy machinery maker Caterpillar (CAT), left much less room for interpretation in its disappointing report. Second-quarter earnings of 58 cents a share fell 15 cents short of the consensus estimate, as sales fell 4% in a year's time. "Business for the first half of the year has been extremely difficult," Chairman and CEO Glen Barton said in a press release, acknowledging that "the anticipated recovery in capital spending has yet to materialize." As a result, Caterpillar warned that 2002 profit will be down 15% from the 2001 total; Wall Street was expecting a 4% decline. Caterpillar shares crawled 4% lower in premarket trading.
Wireless operator Nextel Communications (NXTL) had better news. The firm trumped expectations for a loss of 24 cents a share with its first-ever profit, delivering earnings of 37 cents a share. The company credited revenues that grew by 25% in a year's time, lower spending and moves to trim its heavy debt burden by $1.5 billion. Nextel's stock soared 32% in premarket trading.
In contrast, Tyco International's (TYC) stock fell 7% after Goldman Sachs withdrew its Recommended List rating for the scandal-plagued conglomerate. The investment bank cited concerns that the Securities and Exchange Commission could aggressively pursue a probe of the company's accounting after dropping a previous investigation two years ago without taking action.
Also taking a hit was Merrill Lynch (MER), even though the big investment bank's quarterly earnings of 66 cents a share were eight cents above analysts' consensus estimate. The company acknowledged that "we remain cautious on the revenue outlook for the remainder of 2002." The stock fell 5% in premarket trading.
The outlook is rosier for the steadily recovering manufacturing sector. Industrial production rose 0.8% last month, while the capacity utilization rate crept up to 76.1% from 75.6% in May. Both numbers exceeded expectations.
Bond prices slipped a notch in response to the decent data. The yield on the 10-year Treasury note rose to 4.63% from 4.62% late Monday. The two-year note yielded 2.54%, up from 2.51% a day earlier.
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