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To: Dale Baker who wrote (35177)	10/13/2003 4:13:29 AM
From: Dale Baker	Read Replies (1) \| Respond to of 118717

The Big Picture - Prepare for an Excellent Earnings Season 09-Oct-03 07:21 ET [Briefing.com - Dick Green] It will be an impressive earnings season. Third quarter earnings will be up 15% to 20% over last year. Expectations of a strong fourth quarter will be confirmed. Very Few Earnings Warnings The early signs for this earnings season are very positive. The average forecast for the aggregate S&P 500 earnings rose during the past month. It usually drops in the month preceding the reports. The number of earnings warnings this quarter was barely more than half the number of warnings last year. The ratio of earnings warnings to upside guidance was about 70% of last year. There were no warnings from major companies that shook the entire market or even a sector. Earnings Forecasts Increase as a Result The upbeat guidance from companies has led to a modest uptrend in analyst forecasts for aggregate third quarter earnings. Now, the average is 15% to 16% for the S&P 500. Two months ago it was 13%. Usually, the forecast slips as the quarter approaches and earnings warnings come out. The uptrend seen this quarter is unusual and noteworthy. The upbeat guidance from companies has led some analysts to raise third quarter forecasts to as high as 20%. There has also been an uptrend in fourth quarter forecasts. A couple of months ago, the forecast was for 20% earnings growth for the S&P 500 aggregate. Briefing.com assumed that was the usual Wall Street hockey stick forecasting, reflecting tremendous optimism down the road that typically doesn't materialize. Yet, this time the optimism has increased as the quarter approached. Now, forecasts are for 22% earnings growth in the fourth quarter. The fourth quarter of 2002 was very weak, making for an easy comparison, but again, what is really noteworthy is the upward trend in forecasts rather than the usual downtrend. A Good Start Earnings season has barely started. Still, there have been 25 companies report so far in October. None have been below expectations. Revenue numbers from Alcoa and Yum! were a bit disappointing, but in general the revenue numbers are coming in pretty good as well. Yahoo! showed a very solid revenue number and provided good guidance. It is extremely early, but the early indications are that the positive leanings for this quarter are valid. Briefing.com expects an unusually high number of companies to beat analyst expectations this quarter with very few noteworthy misses. Our guess is that earnings for the S&P 500 comes in above expectations at close to 19%. What it All Means It is always better for the stock market when earnings come in above expectations rather than below. It is extremely good when guidance leads analysts to raise, rather than lower, earnings forecast for the coming quarter. The market is now looking at close to 20% earnings growth for both the third and fourth quarter. Back in May during the war and the economic pessimism, the possibility of a second half surge in profits seemed like a pipe dream. Now, it is clearly happening, supported not just by cost cutting and easy comparisons from the prior year, but by solid revenue growth in a strengthening economy as well. There are concerns that the good news is already in the market. Yet, right now, the news keeps getting better and better. There has yet to be that long-awaited market correction. Sometimes, strong earnings growth is associated with a declining stock market. That happens when the economy is strengthening so much that interest rates are rising and the market starts looking ahead to slower earnings growth. That is unlikely at this time. The Fed clearly intends to keep interest rates low, and yields in the bond market remain at historically low levels. The good earning news the next couple of weeks will indeed be good news. A big earnings season rally may not happen, but 15% to 20% earnings growth this quarter, with guidance supporting expectations of 20% growth next quarter will be very supportive to the market. Be prepared for a very upbeat earnings season in the coming three weeks. Comments may be emailed to the author, Dick Green, at dgreen@briefing.com. (C)