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Strategies & Market Trends : Guidance and Visibility -- Ignore unavailable to you. Want to Upgrade?

To: SusieQ1065 who wrote (75370)	9/30/2002 3:53:34 AM
From: 2MAR$	Read Replies (1) \| Respond to of 208838

Ahead on Wall Street: " More Thrills, Spills " biz.yahoo.com Saturday September 28, 3:30 pm ET By Pierre Belec NEW YORK (Reuters) - Keep those safety belts on tight and make sure your tray-tables are in the up position. The stock market is heading into more turbulence in the final quarter of the year. The way things are shaping up, investors will continue to have a tough time making money in the market because the earnings story is deteriorating and the economy is not in as good a shape as people thought. ADVERTISEMENT So investors, already black and blue after a year of being on the receiving end of body blows from an awesome bear market, should brace themselves for more kidney punches. The major stock indexes are ugly and getting uglier. The Standard & Poor's 500 index looks set to post its third year of double-digit losses, says James Stack at InvesTech Research. The S&P 500 is down 26 percent so far this year. The slide is scary because historically bear markets have lasted a maximum of 2-1/2 years. More than 2-1/2 years after the fall began in March 2000, the bears are still growling and sellers have become more brazen. The latest threats on people's radar screens are the possibility of a U.S. attack on oil-rich Iraq and renewed tension in Israel. "To put this decline into perspective, there have been only four years since 1928 with greater annual losses in the S&P -- three during the Depression years in 1930, 1931 and 1937," Stack says. "The fourth was in the final year of the big 1973-74 bear market." The fourth quarter of 2001 was supposed to be the turning point for corporate earnings as fewer companies disappointed their stockholders. The warnings about disappointing earnings leveled off in the first and second quarters this year. But now companies are posting more earnings caveats in the third quarter than in the second quarter, upsetting investors who had expected a turnaround by the second half of the year. EARNINGS CALL THE TUNE Wall Street is bracing for further revisions in analysts' forecasts, which recently called for an 8.4 percent gain in third-quarter profits versus a year ago. This is down from a wildly optimistic 16.6 percent increase estimated at the start of the third quarter. What's happening, says Richard Bernstein, chief U.S. strategist for Merrill Lynch, is that earnings growth is the least predictable in more than 60 years. Lately, warnings about earnings, or pre-announcements, have come from big names like McDonald's (NYSE:MCD - News), J.P. Morgan Chase (NYSE:JPM - News) and Electronic Data Systems (NYSE:EDS - News), the world's giant information technology provider, which cited the continued slowdown in corporate spending. EDS was a shocker because it had been expected to benefit from outsourcing of computer centers by cost-conscious companies. Since earnings are the jet fuel that powers stocks, the unpredictable earnings story will make it hard to justify any sustainable market rally. Just as troubling, the inability of analysts to get a handle on corporate profitability will destroy any rationale for pricing stocks in the near term. WAITING FOR OTHER SHOE TO DROP Investors are also waiting for companies to take charges against earnings over the next few quarters, now that government regulators have told corporate chiefs to come clean after messy accounting tricks during the go-go 1990s. The anemic economy will force analysts to remove their rose-colored glasses and take an ax to their overly optimistic forecasts for the rest of the year. Optimistic earnings expectations for the third quarter are fading and fourth-quarter estimates for growth of 22.8 percent also appear alarmingly high. This week, the Index of Leading Economic Indicators, which forecasts the direction of the economy three to six months forward, dropped in August for the third straight month. Consumer confidence fell in September for the fourth consecutive month. The Federal Reserve recently confirmed businesses are pulling in their horns. Industrial production in August fell for the first time since December, when the recession supposedly ended. The drop in industrial output suggests this summer's stock plunge made a lot of chief executive officers stick their heads in the sand, dashing hopes for an economic rebound. NOT YOUR USUAL RECESSION Economists are worried because the usual pluses are not in place in this business cycle. In the past, manufacturing led the economy out of recessions. That's not true this time. The CEOs can't get past the emotions of the moment. They're scared stiff about spending due to the bad economic news and the stock market's protracted slump. A Merrill Lynch survey in August found global fund managers expect companies will keep cutting costs to buoy their earnings over the next 12 months rather than make new investments. The uncertainty in corporate boardrooms couldn't come at a worse time. Companies are now in the process of hammering out their capital spending budgets for next year, which makes it unlikely the economy's problems will simply vanish. The economy is clearly in slow motion. There's more fear of a double-dip recession if consumer spending stalls. Consumers have been single-handedly supporting the $10 trillion economy over the last two years by buying cars and trucks at a record pace, thanks to Detroit's zero-interest-rate teasers. The housing market is also booming because the lowest mortgage rates in four decades make it cheaper for people to buy homes than to rent. The concern? Consumer spending may be running out of gas. "We doubt that the fourth-quarter motor vehicle sales rate will match the third-quarter pace," says Paul Kasriel, director of economic research for Northern Trust Co. "So where is the big boost to third-quarter aggregate demand going to come from? Housing? Doubtful." Consumers, he says, are charging more on their credit cards. And household net worth, which hit a record high of $42.382 trillion in 1999 during the stock market boom, continued to plummet in the second quarter, falling by $1.425 trillion. Household net worth -- a measure of total assets minus liabilities such as credit-card debt -- now stands at $40.077 trillion. "We thought that everyone was 'liberating' the equity in their homes to pay off their credit-card debt," Kasriel says. "Instead, they are liberating home equity, which is an insidious form of dis-saving, and putting more purchases on their credit cards." For the week, the Dow Jones industrial average tumbled 3.6 percent, finishing at 7,701, while the tech-loaded Nasdaq composite index slipped 1.8 percent to close at 1,199. The broader Standard & Poor's 500 fell 2.1 percent to 827.