Stocks to Fall as Chill Sets In
Sunday September 29, 7:09 am ET
By Elizabeth Lazarowitz
NEW YORK (Reuters) - It's only fall, but Wall Street may feel winter's chill next week as investors give stocks the cold shoulder, wrapping up what could be the worst month for the market in four years.
ADVERTISEMENT
Major market gauges have etched out fresh multiyear lows in recent days, and analysts see little hope for the pressure to let up next week with the specter of more bad news on corporate earnings. Financial markets also are bracing for a rocky patch of economic data.
"The earnings that are coming out on balance are going to be disappointing," said Rick Jandrain, chief investment officer, Banc One Investment Advisors. "The other thing that is negative is it looks like the economy has kind of hit an air pocket, at least short-term."
Reports on the U.S. manufacturing sector and the labor market will be the main events driving trading next week, and investor sentiment could take a hit if the numbers confirm Wall Street's worst fear -- that the economic recovery has stalled.
Corporate earnings are also weighing on traders' minds with signs of a pickup in profit growth yet to emerge and the season still high for corporate confessions, a time when companies tell Wall Street if their results won't measure up to expectations.
With the economic outlook still cloudy, little hope for improvement in the corporate profit picture and the threat of a possible U.S. military conflict with Iraq keeping investors around the globe on edge, the market is poised for further declines, said Jon Brorson, director of equities at Northern Trust Co.
"It's sort of like: 'Three strikes, you're out. I'm not buying stocks today,"' Brorson added.
DATA STORM
The barrage of economic reports due next week is likely to steal the spotlight as investors search for signs that the dreaded "double dip," when the economy falls back into recession for a second time in quick succession, is at bay.
The main event arrives at the end of the week, with the government's report on the U.S. labor market set for release on Friday. Payrolls are expected to show a gain of only 5,000 jobs in September, while the unemployment rate is expected to rise to 5.9 percent from 5.7 percent in August, according to economists in a Reuters survey.
The Institute of Supply Management's closely watched manufacturing sector report for September, due on Tuesday, is expected to show expansion, albeit sluggish, in the sector. The forecast: The index will rise to 50.8 in September from 50.5 in August.
Personal income and spending data, on tap for Monday, may offer clues to whether the American consumer, whose spending drives two-thirds of U.S. growth, will continue to underpin the economy. Data on construction spending, car sales and factory orders will also catch investors' attention.
INDEXES AT MULTIYEAR LOWS
Investors' distaste for stocks after seemingly relentless declines this year helped drive blue-chip and technology stocks down to multiyear lows earlier this week.
The Dow Jones industrial average (CBOT:^DJI - News) hit a four-year low and the tech-laced Nasdaq Composite Index (NasdaqSC:^IXIC - News) ended at its lowest level in six years on Tuesday, pummeled by fears of a possible war with Iraq, sagging corporate profits and the fragile economic recovery.
The market staged a dramatic rebound from those levels, but that didn't keep all three major indexes from racking up a fifth straight week of decline. The Standard & Poor's 500 index (CBOE:^SPX - News) finished the week with a drop of 2.1 percent. The Dow fell 3.6 percent, and the Nasdaq fell 1.8 percent.
September is turning out to be a horrible month for the market. The S&P 500 is down nearly 10 percent so far this month, its biggest monthly drop since it fell 14.7 percent in August 1998.
Next week also marks the end of the third quarter, with the close of trading on Monday. Analysts say the positive effects of quarter-end "window dressing" will begin to fade, sapping more strength from the market.
Money managers who were shielding their funds from the market's drop by keeping money in cash have been scooping up stocks to dress up their portfolios for quarterly statements, and that may reverse next week, analysts said.
The market is poised above critical technical levels, as well, and the S&P 500 could soon retest the five-year lows below 800 etched out in late July, analysts said.
"You're going to at least have to get an attack at those lows before people can say the market's making a bottom here after three or four years and we can have more confidence in buying stocks," Brorson said.
EARNINGS FORECAST CLOUDY
Dour forecasts from corporate giants across a range of sectors, including JDS Uniphase Corp. (NasdaqNM:JDSU - News; Toronto:JDU.TO - News), the world's top supplier of optical network parts; Wal-Mart Stores Inc. (NYSE:WMT - News), the world's biggest retailer, and cigarette maker Philip Morris Cos. Inc. (NYSE:MO - News), fanned fears that corporate profit growth may be slow in coming.
Results are due from a handful of major companies like Alcoa Inc. (NYSE:AA - News), Walgreen Co. (NYSE:WAG - News), Pepsi Bottling (NYSE:PBG - News), Marriott International (NYSE:MAR - News) and Tenet Healthcare (NYSE:THC - News). But the focus will be on forecasts.
Analysts are expecting corporate profits to show a gain of 7.3 percent in the third quarter and a gain of 20.6 percent in the fourth quarter, according to Thomson First Call.
But some experts say that's asking too much and that even companies that meet Wall Street's expectations for the third quarter may not offer much hope for the quarters ahead.
"Probably there's a fear that companies are going to meet these numbers by hook or by crook and then lower guidance going forward," said Charles Payne, market analyst at Wall Street Strategies. |
