From Abby Joseph Cohen
dailynews.yahoo.com
Wednesday June 23 11:33 PM ET
Market Guru: Profits Outlook Good
NEW YORK (Reuters) - Market guru Abby Joseph Cohen, Goldman Sachs' chief U.S. market strategist, said Wednesday the corporate profits outlook for the second quarter looked solid.
In an interview on CNBC, a business-news cable television station, Cohen said, ''Our expectation is that the second quarter will be yet another good gain, not just in reported earnings but more importantly operating earnings.'' Pre-announcements by U.S. companies of quarterly profit shortfall have been a bit less frequent than in other quarters, she noted.
Further, in the second half of the year, ''we are going to have some very easy comparisons in a number of cyclically -sensitive industries.'' Corporate profits in the year-earlier period were curtailed by a market slump.
Cohen, a noted bull market cheerleader, said that from the valuation standpoint, stocks appear to be a ''little bit less interesting'' than they were last autumn, when ''investors were under the mistaken opinion that we were entering an economic black hole and stocks at that point were priced for that economic Armageddon scenario.''
''It was our view at that time that those recessionary fears were unwarranted. And what we have seen between, particularly, October and the end of February, has been a re-equilibration. We've gotten interest rates back up. We have also had stock prices rising because the U.S economy has been strong and U.S corporate profits have been solid,'' Cohen said.
Stocks, she said, have room to rise further, though she did not give any guidance on the Dow Jones Industrial average and Standard and Poor's 500 index. ''This is an economic and profit expansion which, in my view, is still far from an end,'' she said.
Cohen on March 24 raised her target for the benchmark S&P 500 index to 1325 from her previous mark in the 1275-1300 range. She also bumped her Dow Jones goal to 10,300 from 9,850, based on a solid corporate profits outlook, tame inflation and a generally favorable picture for stocks.
The New York native previously said she expected 1999 and 2000 to be years of ongoing profit expansion with better goal gains than in 1998, a disappointing year.
Currently, stocks are roughly at fair value, which is where they have been stuck for the last three months or so, she said in her latest CNBC interview, in the 1300-to-1350 trading range on the S&P 500. Going forward, they will rise at a pace that will closely track actual improvement in the economy, she predicted.
Commenting on the inflation outlook for the U.S. economy, Cohen said she expected ''a modest updrift,'' noting that there had already been de facto tightening in monetary policy that has kept inflation under ''very good control.''
''Interest rates are already up substantially,'' she said. ''Intermediate and long-bond yields have already moved up 125 basis points as bond investors have already anticipated what the Federal Reserve may or may not do over the next week or so.''
Furthermore, with inflation still being under very good control, it is ''unlikely'' that the market will see a dramatic further spike in either intermediate or long bond yields. ''So, my guess is that most of the damage has now already occurred to equity valuations,'' she said.
On June 17 Cohen said financial markets could ''easily tolerate'' an expected modest interest rate hike by the Federal Reserve Board. ''Such a flu shot is now widely expected and would be unlikely to unsettle investors beyond a transitory period,'' she had said earlier.
The Dow Jones Industrial average closed the day Wednesday at 10,666.86, off 54.77 points, or 0.51 percent. The Nasdaq finished up 17.87 points, or 0.69 percent, at 2,598.13. The widely followed S&P 500 index eased 2.82 points, or 0.21 percent, to 1333.06. |
