Wall Street Week Ahead-Stocks may rise as GDP spells relief
By Chelsea Emery
Friday April 26, 5:35 pm Eastern Time
NEW YORK, April 26 (Reuters) - Look for stocks to inch higher next week as investors buy into a beaten-down market after buoyant economic growth data.
But Wall Street pros warn the recovery is still anemic and gains are unlikely to last.
"The market is positioning itself for a relief rally -- we've had a significant pullback," said Coleen Barbeau, who helps oversee $2 billion for Fiduciary Trust Co. International.
"But almost every indication on the corporate level is that business is still difficult and investors are again pushing out expectations for information-technology spending and corporate profitability."
On the plus side, U.S. economic growth surged in the first quarter at its fastest pace in more the two years, the Commerce Department said on Friday. Gross domestic product, or GDP, grew during the first quarter at an annual rate of 5.8 percent -- a full percentage point higher than economists had expected.
And 86 percent of the Standard & Poor's 500 index (^SPX - news) companies that have posted results so far have met or beaten Wall Street's lowered forecasts, according to Thomson Financial/First Call.
But the upbeat profit report cards are strong because analysts earlier slashed predictions as the economy slid into recession. In addition, the gross domestic product data was boosted by a so-called "inventory swing" as businesses had to start buying again after depleting existing stock piles.
In the short term, the market will reward stocks amid hopes of a rapid economic uptick that seems likely after Friday's data, said Ned Riley, chief investment strategist for State Street Global Advisors.
"But I myself don't see a raw-growth environment developing," he said. "I see very sluggish economic progress."
To be sure, some economic and profit cards still on the table may help ease worries and make short-term gains more sustainable.
Wednesday brings the Institute for Supply Management's (ISM) gauge of manufacturing strength. And on Friday, fund managers and traders will jump on unemployment data. If these numbers are stronger than expected, stocks are likely to gain.
Wrapping up the earnings season are some stragglers, including consumer products giant Procter & Gamble Co. (NYSE:PG - news), energy trader Dynegy Inc. (NYSE:DYN - news) and Cigna Corp.(NYSE:CI - news), the No. 3 U.S. health insurer
For the week, the Dow Jones industrial average (^DJI - news) dropped 3.4 percent, the Nasdaq fell 7.4 percent, and the S&P 500 gave up 4.3 percent. The decline put the Dow into the red for the year, with the blue-chip average now down 1.19 percent for 2002.
EARNINGS GLASS HALF-FULL
As the first-quarter earnings season recedes in the rear-view mirror, some are speeding ahead in reaction to data showing results beat Wall Street forecasts by an average 3.2 percent as strong consumer spending helped underpin the economy, according to Thomson Financial/First Call.
Financial road signs are pointing to even better results ahead. Early indications suggest the second-quarter pre-announcement period, when companies predict whether they will meet forecasts, may prove to be the strongest on record.
Of the 388 pre-announcements collected so far, 39 percent have been positive, while 43 percent have been negative. That's the strongest ratio since First Call began collecting such data in 1995.
But savvy market watchers note the strength is found mostlyin small- and mid-sized consumer-related companies, while larger firms that sell products to businesses are still struggling to meet earlier projections. Because larger stocks account for more in benchmark stock indexes, they can inordinately sway the indexes' performance.
"Once all the dust settles, you'll see we have a very good earnings season for small- and mid-cap companies and a mixed one for large companies," said Louis Navellier, who oversees $6 billion for Navellier & Associates. "You have to buy consumer-driven stocks or companies that rely on government spending. If you're dependent on business spending, like (computer systems giant) Sun Microsystems Inc. (NasdaqNM:SUNW - news) or (software maker) Oracle Corp. (NasdaqNM:ORCL - news), you're dead."
Also weighing on the outlook for stocks are worries that interest rates will inch higher later in the year, and lingering fears that companies will have to restate overly optimistic earnings after the collapse of energy trader Enron Corp. (Other OTC:ENRNA.PK - news).
FACTORY AND JOBS DATA AHEAD
Still, a white knight in the form of stronger manufacturing data could boost optimism for the economy and the beleaguered technology sector.
The ISM's manufacturing gauge is forecast to slip to 55.2 for April, from 55.6 in March, but "if we get a stronger-than-expected number, you'll get people thinking an economic recovery is not derailed," said Barbeau.
But unemployment data could hurt the outlook for stocks.Economists surveyed by Reuters anticipate the unemployment rate rose to 5.8 percent in April from 5.7 percent the month before.
A FLURRY OF IPOS IN THE WINGS
Also on the docket are several initial public offerings, including petroleum refiner Premcor Inc., which will trade on the New York Stock Exchange under the proposed symbol "PCO".
The tide has been turning for new stock offerings as investors begin to recover from the dot-com hangover, when crippling losses from investing in upstart companies caused the number of stock debuts to plummet between 2000 and 2001.
Wall Street investment banks aim to bring 24 companies public in the next six weeks -- more IPOs than in the entire first quarter and the fastest pace since late 2000, according to fund manager Renaissance Capital. |
