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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: SecularBull who wrote (34166)	3/20/2001 2:50:52 PM
From: stockman_scott	Read Replies (1) \| Respond to of 65232

Fed Rate Cut No Quick Fix Tuesday March 20, 2:47 pm Eastern Time By Chelsea Emery <<NEW YORK (Reuters) - There's no quick fix for sagging U.S. corporate profits and slumping stock prices. The U.S. Federal Reserve on Tuesday cut interest rates for the third time this year to jump-start the nation's flagging economy, but investors will have to wait until Christmas for better corporate earnings and higher stock prices, investors say. ``Don't look for the market to bounce strongly just because the Fed lowers interest rates,'' said James Walline, a fund manager with investment firm Lutheran Brotherhood, which has $25 billion in assets. Walline, like other big-time investors, believes the market should bottom this summer and only then start to hold gains. It takes at least nine months for an interest-rate cut to boost corporate profits, many investors say. In addition, stocks still are expensive relative to their earnings, they add. Companies in the Standard & Poor's 500 Index (.SPX), a broad measure of the U.S. stock market, are expected to post earnings growth of just 1.8 percent this year, according to market research firm First Call/Thomson Financial. That is way down from the 14.8 percent growth Wall Street expected six months ago and pales in comparison with profit growth of 16.2 percent last year. Earnings growth should pick up in the third and fourth quarter, to 3.3 percent and 14.4 percent respectively, analysts now expect. But some fund managers are dubious. ``Fourteen percent sounds a little optimistic,'' said Walline, who currently holds about 3 percent in cash, at the high end of the 1 to 3 percent he usually holds. ``I don't think we'll see a turnaround quite that fast.'' Exacerbating investors' pessimism, a record number of companies have warned that first-quarter results may not meet expectations because of the soft economy. The latest was Solectron Corp (NYSE:SLR - news), the world's largest contract electronics manufacturer, which said on Monday it would miss the year's sales target. Three months ago, Solectron was a lot more upbeat and said it expected to prosper in a downturn. Of the 805 companies that have forecast their earnings reports, 69 percent have warned they are likely to miss expectations. That is the highest percentage of warnings in the past five years, according to First Call. Last year at this time, just 46 percent of all forecasts were negative. Analysts surveyed by First Call expect earnings growth to fall by 6.7 percent in the first quarter and decrease by 4.4 percent in the second. One additional reason for the higher number of warnings is Regulation Fair Disclosure, a new law that requires companies to publicly disseminate information about their prospects. The law, which aims to end private chats between corporate executives and Wall Street analysts and money managers, took effect last October. Still, ``the number of warnings is primarily due to the state of the economy,'' said First Call analyst Stephen Rigo. Among other technology bellwethers to warn this week: Corning Inc.(NYSE:GLW - news), the world's biggest maker of fiber-optic cable, said on Monday it expects its 2001 profits to fall below analyst forecasts because of slower spending by customers. Computer maker Compaq Computer Corp. (NYSE:CPQ - news) last Thursday said a softening U.S. economy would cause first-quarter earnings to fall short. There are few places to hide. Even shares of drug and health-care companies, which investors typically like because of their stable earnings in economic downturns, have fallen with the market. Drugmaker Pfizer Inc.(NYSE:PFE - news) has slid 17.6 percent since the beginning of the year, and Merck & Co. (NYSE:MRK - news), which said last month that it stuck by its earnings-per-share forecasts for the year, has dropped 23.7 percent this year. ``There's nothing out there to hang your hat on,'' said Coleen Barbeau, a money manager with Fiduciary Trust Co. International, which has about $50 billion in assets. ``Corporate profits will actually be down slightly for the year ... and the rate cut won't be the deciding factor. We're not aggressively taking any big bets.'' Even as technology shares have slid -- the Nasdaq Composite Index (.IXIC) is down about 60 percent from its high last year -- stocks in the tech-laden Nasdaq are still expensive, according to some measures. The index traded at a price-to-earnings ratio of 29.7 in 1992. Even after declines and adjustments in earnings expectations, the index now trades at 46.8 times earnings. ``It's still overvalued if you use the historic norms of the '90s,'' wrote Joseph Kalinowski, equity strategist at First Call. Fund managers like Barbeau are evaluating earnings and share prices as if the stock market bubble of late 1999 and early 2000 never happened, regardless of the Fed's move. ``We've gone back to 1998 and looking at where earnings were at that point,'' she said. ``We're just trying to get to a level as to what normal earnings are and making assumptions from there.''>>