The Coming Week: Pros Expect a Bumpy Ride if Warnings Roll In
By Yi Ping Ho
Staff Reporter
6/9/01 5:24 PM ET
Strap on those seatbelts and turn on the headlights, the road for stocks this week could be a bumpy one.
Market watchers are gearing up for more earnings confessions, key economic data and Friday's triple-witching, or the quarterly expiration of index futures, index future options and certain stock options, which tends to result in higher volume and greater volatility. And many are saying the market will continue to feel the repercussions from the companies that have already lowered their guidance and earlier weak economic reports.
"Wall Street's line is to dismiss the bad news right now, and they're telling you it's a fourth-quarter recovery," said John Mesrobian, an analyst at Constantinople Advisors, which advises institutions, corporations and private investors on currencies, commodities and bonds. Mesrobian, a self-described bear, believes the market will drift down this week, given the week's economic news and possible earnings confessions.
Last week saw some noteworthy earnings preannouncements from tech bellwethers like Intel (INTC:Nasdaq - news) and Juniper Networks (JNPR:Nasdaq - news), whose before-the-bell warning about a revenue shortfall sent shivers through Friday's market. The Nasdaq Composite Index fell 49 points, or 2.2%, to 2215 on Friday, while the Dow Jones Industrial Average finished down 114 points, or 1%, to 10,977. The index fell sharply after the Big Board resumed trading around 11:35 a.m. EDT after its midmorning technological glitch. For the second time since the beginning of the month, the blue-chip index slipped below the 11,000 threshold. The broader-market S&P 500 Index shed 12 points, or 0.9%, to 1265 last week.
According to Joe Kalinowski of Thomson Financial/First Call, the preannouncement tally could range between 1,400 and 1,500 companies this season, with as many as 1,000 companies lowering their outlooks. He estimated that about 850 preannouncements remain for the second quarter. And despite those statistics, the analyst is relatively optimistic about the market's reception to any possible upcoming warnings and he doesn't expect the type of selloff witnessed in the first quarter.
But the detractors are still out there. "I think the market will begin to readjust and re-evaluate the speed at which its rallies have taken place," said Michael Filighera, a stock market strategist at Global Markets Strategists. "The high-level support may not continue to hold. If recovery is not going to take place in the second half as has been forecast, then I would say we would start to readjust. We're getting reactions to each individual report that comes out."
Peter Cardillo, chief strategist at Westphalia Investments, believes the market will probably remain in a trading range, without any major movements up or down "until all economic data is digested," he said, adding that the first few days of this week could see increased volume and the unwinding of positions because of the options expirations on Friday.
Besides the steady drumbeat of earnings confessions, this week's Bear Stearns annual technology conference, which kicks off on Tuesday, could offer critical insights into the state of corporate America. A bevy of well-known companies are slated to appear at the conference, including Intel, Altera (ALTR:Nasdaq - news), BMC Software (BMC:NYSE - news) and Motorola (MOT:NYSE - news).
And there's still the softening economy. After a short break from economic data last week, this week brings a bagful, including the latest retail sales report on Wednesday, as well as the Beige Book report, the Federal Reserve's anecdotal report on economic conditions around the country.
Two key inflation gauges for the month of May will be released by the Labor Department late this week. The producer price index will be out on Thursday, while the consumer price index numbers will be released on Friday.
While investors are banking on Alan Greenspan to stoke the economy and revive corporate spending, there have also been growing concerns within the bond market that inflation could be an unwanted and dangerous byproduct of aggressive interest rate cuts. Experts have pointed to the rising yield curve, which is the difference in two dated securities like the two-year Treasury note and the 30-year Treasury bond, as an indication that the economy could see higher prices down the road.
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