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To: Les H who wrote (117633)	8/20/2001 1:02:28 PM
From: Les H	Read Replies (1) \| Respond to of 436258

Sometime, these two trendlines should converge... martincapital.com inflation containment quote.bloomberg.com MARKET EARNINGS Slashing of S&P500 Earnings Expectations Continues Even though the pace of earnings reports and their accompanying comments has slowed significantly, the earnings warnings for 3Q01 continue to pour in. There were 30 last week, bringing the total to 327. That is 13% ahead of the 289 at the equivalent point in the record holding 1Q01. The list last week included Dell Computer, Ciena, Brocade, BEA Systems, Analog Devices, and Avnet in tech, Deere in capital goods, Ford, Wal-Mart, Gap, and Tiffany in consumer cyclicals. Whether or not 3Q01 will be a new record, it is clear that the final results will be in the same general area as 1Q01 and 2Q01 warnings, and well ahead of year ago warnings. Currently, 3Q01 earnings warnings are about six times those for the year ago quarter. Therefore, the estimates for 3Q01 and 4Q01 are likely to continue to be aggressively cut for at least a bit longer. It may not show up much the next few weeks because there will not be many earnings reports with their accompanying outlook comments nor will there be many pre-announcements. However, the pre-announcements start heating up sometime in mid September, and the trimming of 3Q01 and 4Q01 estimates likely in the next few weeks will return to slashing. We continue to believe that S&P500 3Q01 year-over-year earnings growth will match the 17% decline for 2Q01. The current estimate is a 13.4% decline for 3Q01 and a 1.1% decline for 4Q01. It is still too early to narrow down the likely 4Q01 earnings growth. Final results will likely be no better than a 5% decline but it could be much worse. In any event, there is virtually no chance that the difference in the 4Q01 year-over-year decline from that of 3Q01 will be sufficient to say that 4Q01 earnings are up on a seasonally adjusted basis from 3Q01. The earliest that S&P500 earnings could turn up on a seasonally adjusted sequential quarter basis is 1Q02. Fish or cut bait time on whether the earnings recovery will get underway in 1Q02 will likely come in late September or early October. The fall out at that time from the peak weeks of the pre-announcements and/or from the peak weeks of the actual 3Q01 earnings reports should bring the 1Q02 outlook into better focus. Expected Earnings Gap Between Small & Large Caps Widening With 87% of the S&P600 having now reported, and using estimates for the remaining 13%, the earnings decline for 2Q01 stands at 12.4%. Clearly, small cap earnings will show less of a decline in 2Q01 than the large caps. Last week, we commented that the pattern was changing. After three quarters of small cap earnings doing better than large cap, small cap earnings would likely show bigger declines than large caps for at least the next two quarters. The gap between the small and large cap earnings growth is widening. Last week, 3Q01 the expected earnings decline for the S&P600 slipped 2.3 percentage points from 15.5% to 17.8%. The slippage in the expected decline for the S&P500 was only 0.8 percentage points, from 12.6% to 13.4%. Similarly, for 4Q01, the trimming for the small cap index was 1.6 percentage points, from a 1.9% to a 3.5% decline, while for the large cap index, it was only 0.7%, from a 0.4% to a 1.1% decline. www1.firstcall.com >>>And I had thought the rush to small caps was because >>>they were still growing earnings.