(REUTERS) RPT-Wall St Week Ahead-Stocks may meander in earnings madness
RPT-Wall St Week Ahead-Stocks may meander in earnings madness
(Repeating column that initially ran late Friday)
By Denise Duclaux
NEW YORK, April 21 (Reuters) - Expect the stock market to
flip-flop but finish the week flat, as a mixed bag of corporate
earnings at the height of the first-quarter reporting season
leaves investors scratching their heads.
"People are confused, cautious and bewildered," said
Stanley Nabi, managing director at Credit Suisse Asset
Management, which oversees about $269 billion worldwide. "We
are getting a lot of information, but the information is
pointing in different directions. It's all over the place."
Wall Street's uncertainty is compounded by Friday's
government warning of "unsubstantiated information" that
"unspecified terrorists" are considering attacks against the
nation's banks. The market has shown increasing resiliency
against such alerts, but investors are opting to scrap big bets
in the shaky environment.
"There is a sense of tentativeness, not so much confused,
but not feeling reassured," said John Davidson, president and
chief executive at PartnerRe Asset Management, which oversees
more than $4 billion.
More than 160, or about one-third, of the companies in the
Standard & Poor's 500 are slated to release their quarterly
results this week, marking the peak of the first-quarter
reporting period. Many of the 30 blue-chip Dow components are
on that lengthy list, ranging from diversified manufacturer 3M
Co. <MMM.N> to telecom heavyweight AT&T Corp. <T.N>.
But, with a growing focus on transparent accounting and
uncertainty over the strength of an economic rebound, Corporate
America will be tight-lipped about upcoming quarters. That
leaves investors with little desire to jump into stocks,
especially after nudging prices higher this week for the first
time in a month.
"No one is willing to stick their necks out," said John
Zielinski, senior portfolio manager at Northern Trust Global
Investments. "Absent management raising their guidance and
giving more visibility, I see us trading sideways to down over
the next several weeks."
Advance data from the government is expected to show the
world's largest economy grew 4.8 percent in the first quarter
as companies aggressively rebuild inventories -- that's up
dramatically from 1.7 percent in the fourth quarter. But
analysts warn the U.S. economy will not hold that momentum
throughout the year.
CLOUDY OUTLOOK MUDDLES MARKET
About 220 companies, or 44 percent, of the S&P 500 have
reported quarterly earnings so far this season, according to
Thomson Financial/First Call. Among those, 131 companies, or 60
percent, topped analysts' estimates, while just 30, or 14
percent, missed Wall Street's targets. The rest matched
expectations.
First-quarter earnings are beating analysts' expectations
by an average of 3 percent, better than the 1 percent average
recorded since the mid-1980s and the 2 percent average since
1990, according to Thomson Financial. But analysts warn that
impressive performance is due largely to analysts' drastically
lowered earnings estimates.
"We are due for an earnings recovery later this year, but
the surprises we are seeing are just due to downward guidance
rather than a rebound or recovery," said Joseph Kalinowski,
equity strategist at Thomson Financial.
About 23 companies have warned they would miss
second-quarter estimates, down from 36 at the same time last
year, Thomson Financial said. About 24 companies forecast
results would top estimates, up from just 10 at the same time
last year. While the earnings outlook may gradually be
improving, analysts think the market may already be fairly
valued.
"It's bumping against a valuation ceiling -- the P/E
ceiling," Davidson said, referring to the price-to-earnings
ratio commonly used to value stocks. "That ceiling can be
broken through with stronger-than-expected earnings. But it
will take a few quarters until we see really strong earnings
come through."
Oil heavyweight ExxonMobil Corp. <XOM.N>, chemical maker
DuPont Co. <DD.N>, photography company Eastman Kodak Co.
<EK.N>, entertainment giant The Walt Disney Co. <DIS.N>, online
retailer Amazon.com Inc. <AMZN.O>, media behemoth AOL Time
Warner Inc. <AOL.N>, diversified manufacturer Tyco
International Ltd. <TYC.N> and telecom group WorldCom <WCOM.O>
are all expected to report earnings this week.
GDP GRABS ECONOMIC SPOTLIGHT
The government's advanced tally of gross domestic product,
the broadest measure of the economy's health, will be closely
watched on Friday. The report is expected to show GDP expanded
4.8 percent in the first quarter, according to economists
polled by Reuters.
The market will scrutinize that number carefully to see how
much of it is due to inventory rebuilding and how much is due
to final demand. Federal Reserve policy makers look for
sustainable final demand for evidence a solid economic recovery
is taking hold.
"The GDP figures will show strong economic growth in the
first quarter, but it will be looked upon with a bit of
suspicion because a good deal of it will come from the
rebuilding of inventories," said Nabi, who expects
second-quarter GDP growth to land at just 2.5 percent to 3
percent.
The University of Michigan's U.S. consumer sentiment survey
for April also is due on Friday. In March, the index rose to
its highest level since December 2000, suggesting continued
robust consumer spending, which represents about two-thirds of
U.S. economic activity.
The March durable goods orders report, due on Wednesday, is
expected to show orders slipped in March after rising 1.8
percent in February, according to a Reuters poll.
(( -- With additional reporting by Chelsea Emery,
Wall Street Desk, 646-223-6112 -- ))
REUTERS
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