No Sweeping the Earnings Clouds Away
Apr 8 1:26pm ET
By Elizabeth Lazarowitz
<<NEW YORK (Reuters) - For a moment, it looked like the clouds had parted over Wall Street, but the forecast calls for more rain this week with the torrent of disheartening earnings news expected to continue.
As the trickle of quarterly report cards from Corporate America begins to grow into a flood, stocks could end the shortened week -- with the U.S. financial markets closed on Friday in observance of the Good Friday holiday -- under water.
In recent days, stocks plummeted amid the rising chorus of companies confessing their profits will take a hit in the quarters ahead, due to the slowing economy.
"Not all of the confession period is over," said Stanley Nabi, managing director of Credit Suisse Asset Management, which oversees more than $100 billion. "Many companies may come out and lower expectations for the entire year and this is going to weigh down on the market."
Technology bellwether Motorola Corp. is on the earnings calendar this week, and the company -- after no less than two warnings for the period already -- is expected to set a bleak tone for the high-tech corporate profit picture.
The growing threat of recession also has Wall Street on edge. Investors will be watching for government data on wholesale prices and retail sales for clues to how aggressive the Federal Reserve will be in lowering interest rates to stave off an economic meltdown.
WALL STREET TAKES WILD RIDE
The market took a roller-coaster ride last week, slumping under the weight of a slew of high-tech profit warnings from the high-tech sector, and then skyrocketing on Thursday after personal computer giant Dell Computer Corp. said it stood by its first-quarter forecasts.
The Dell news could hardly have been called "upbeat," but it was enough to send investors on a furious buying spree. The Nasdaq Composite Index <.IXIC> jumped 8.9 percent to rack up its third-largest percentage gain ever, just two days after it sank to its lowest level in more than two years. The Dow Jones industrial average <.DJI> made its second-biggest point gain ever.
The euphoria did not last long. The major stock market indexes finished the week lower, bringing the Nasdaq down about 30 percent for the year and the Dow off 9 percent for the year to date.
Adding to the clouds gathering over Wall Street was news that PG&E Corp.'s unit, Pacific Gas & Electric Co., had filed for bankruptcy protection. Pacific Gas & Electric, which is California's largest investor-owned utility, owes about $9 billion to creditors, including billions in bank loans.
EARNINGS CLOUD HOVERS
The quarterly earnings season heats up this week. Few analysts are holding out hope for many rosy reports.
"Until it's conceded that the earnings declines will be more significant than is now being acknowledged, I think the bottom of the market will not be reached," Nabi said.
Trucking company Roadway Express is scheduled to issue its report on Tuesday, along with the world's second-largest mobile-phone maker, Motorola Inc. . Other high-tech firms will follow with their reports, including Internet media company Yahoo! Inc. on Wednesday and Juniper Networks , one of the Nasdaq market's heavyweights, on Thursday.
Also on Thursday's roster of quarterly results: blue-chip broadcaster and corporate powerhouse General Electric Co. ; Dow Jones & Co. , the publisher of The Wall Street Journal, and Pier 1 Imports , the retailer that specializes in furniture, housewares and accessories from exotic places. Another retailer, Office Depot , will report its earnings on Friday.
Despite the overwhelming feeling of gloom about the earnings picture, there is some hope. Gloomy earnings after the latest parade of bleak corporate profit forecasts should come as little surprise to investors by now and the market could begin to show some resiliency to the constant stream of bad announcements, some analysts said.
"Many stocks are already priced more or less for disaster, and if warnings are not severe, stocks are actually trading higher," said Charles Payne, head analyst at Wall Street Strategies. "We probably could trade in a very narrow range ... another week where we'll be down three to four days and then have one big up day."
FEDERAL RESERVE TO THE RESCUE?
Wall Street has been rife with speculation about what the Federal Reserve's next move will be with regard to interest rates, and a number of economic reports due this week could yield some clues. The Fed is widely expected to cut rates in an effort to jump-start economic growth, but whether it will slash rates again before its May 15 meeting is open to question.
On Thursday morning, the government will release the Producer Price Index (PPI), which is expected to show an overall reading of unchanged in March and a 0.1 percent gain in the core rate, which excludes volatile food and energy prices, according to a Reuters survey of economists.
Retail sales figures, also set for release on Thursday, are expected to be flat for the month of March and to rise 0.1 percent excluding automobiles, according to the poll.
"It would add to the speculation about an interim move if we get a lower core rate of PPI and the retail sales are soft," said Tony Dwyer, chief market strategist at Kirlin Holdings.
Last Friday, a report showing an unexpected drop in employment in March stirred up worries about a potential recession and fostered talk about an interim Fed rate cut. Jobs were lost last month at the sharpest rate in almost a decade, with March marking the first time jobs were cut from payrolls since last August.
Out of the 25 primary dealers of U.S. government securities, 24 predict key short-term interest rates will get cut by half a percentage point by mid-May. They put the odds of a cut ahead of the meeting at nearly one in two, according to a Reuters survey.
"It would add to the speculation about an interim move if we get a lower core rate of PPI and the retail sales are soft," said Tony Dwyer, chief market strategist at Kirlin Holdings.
Hopes the Fed will rescue the economy, however, may be overshadowed until the corporate profit outlook clears.
"Clearly there is a sense of a frustration with earnings that isn't going to abate," Dwyer said. "We're in a bottoming process (in the market) and it takes time.">> |
