Earnings warning season arrives
By Mark Cotton, CBS.MarketWatch.com
March 20, 2004
NEW YORK (CBS.MW) -- U.S. stocks' direction next week could depend on earnings preannouncements for the first quarter, with more surprises to the upside possibly overriding other worries.
"We had a long uninterrupted rally for many months and for the last two months we've had a full blown correction," said Joe Liro, equity strategist at Stone & McCarthy Research Associates.
"If the focus on geopolitical questions is dampened and the fundamental news on the economy and earnings can dominate, the market could go back and retest their former highs."
The Dow Jones Industrial ($INDU: news, chart, profile) hit a 52-week high of 10,795 on Feb. 19, but has since shed 5.6 percent based on Friday's close of 10,186.60, when it dropped 109 points. For the week, blue chips lost 53.48 points, or 0.5 percent.
The Nasdaq Composite ($COMPQ: news, chart, profile) has slumped close to 10 percent since it peaked at its 52-week high of 2,154 on Jan. 26 2004. The tech-rich index ended Friday's session down 21.97 points, or 1.1 percent at 1,940.47. On the week, a loss of 44.26 points translated to a 2.2 percent loss.
The S&P 500 has fallen 4.6 percent from its March 7 peak at 1,163. It was down 12.54 points, or 1.1 percent, on Friday. Its weekly loss was 10.79, just under a 1 percent loss.
Liro said any market rally next week could be easily derailed by fresh terrorist action either in the United States or abroad. However, on a positive note, investors would likely welcome any news of a successful resolution to the current standoff in Pakistan, where the army there is believed to have cornered al-Qaida leader Osama bin Laden's chief lieutenant, Ayman al-Zawahiri.
On the economic front, the market will be paying close attention to durable goods orders for February, personal income and consumer spending figures for January and the final reading of the University of Michigan consumer sentiment survey for March.
New and existing home sales for February will also be closely watched.
Liro said the data will give a good idea of the strength of the U.S. economy in the first quarter as they provide a snapshot of the performance of some of the major economic components that go into calculating U.S. gross domestic product.
"They will overshadow the final fourth quarter GDP reading on Thursday, which is already somewhat out of date."
Durable goods orders are expected to rise by 1.8 percent in February compared with a 2.3 drop in January, according to economists polled by CBS MarketWatch. The report is due out on Wednesday.
Personal income is expected to grow by 0.3 percent in January compared with 0.2 percent in December while consumer spending is targeted to rise by 0.5 percent in January after rising by 0.4 percent in December. The report is due out before the bell Friday.
On Wednesday, figures for new home sales are expected to show a dip in February to 1.09 million from 1.11 million, according to analysts polled by CBS MarketWatch.
Existing home sales are forecast to climb to 6.10 million in February from 6.04 million in January when figures are released on Friday.
The final reading of the University of Michigan March consumer sentiment survey is expected to come in at 93.6 against a prior reading of 94.1.
Earnings moving center stage
Earnings are moving progressively to the center stage as companies look to guide investors on what to expect when they release their first quarter results.
"Next week should be very active for earnings preannouncements," said Liro. "So far we have been pleasantly surprised that there has been more positive guidance than negative guidance than we have seen in past quarters. And we've had a general uptick in estimates of first earnings growth."
"We may see a little bit of more of that, which could be a positive for the market."
Preannouncements aside, a number of companies will be releasing full-blown quarterly results.
Goldman Sachs
On Tuesday, Goldman Sachs (GS: news, chart, profile) will post first-quarter numbers. Analysts polled by Thomson First Call are looking for the investment bank to show earnings of $1.66 a share for the period, vs. $1.29 a share the year before.
Also reporting results that day is Red Hat (RHAT: news, chart, profile) a distributor of Linux software. The company is seen posting a per-share profit of 3 cents a share for the fourth quarter, according to Reuters Research, compared with breakeven results last year.
Thursday will bring fiscal third-quarter results from ConAgra Foods (CAG: news, chart, profile), maker of Chef Boyardee pasta and Butterball turkeys. The company is expected to make 38 cents a share, according to First Call, vs. 30 cents a share a year earlier.
Cognos (COGN: news, chart, profile), Canada's biggest software company, is seen reporting a fourth-quarter profit of 35 cents a share vs. 33 cents a share the year before, according to Reuters Research.
And on Friday, fourth quarter results from EchoStar Communications (DISH: news, chart, profile) are likely to spark some interest, after its well-publicized spat with Viacom (VIA: news, chart, profile) over fee payments.
The operator of the Dish Network is expected to swing to a profit for the period, with earnings of 9 cents a share, according to First Call, vs. a loss of $1.08 a share in the same quarter a year ago.
Friday's trading
U.S. stocks closed markedly lower Friday, ending the week on a sour note as the standoff involving the "high-level" al Qaida target along the Afghanistan-Pakistan border remained unresolved.
Michael Sheldon, the chief market strategist at Spencer Clarke LLC, noted the al Qaida news gave stocks a lift Thursday, but set the stage for a ho-hum session Friday. He said options-related activity was the likely culprit for the late swoon.
"No one wanted to short the market for much of the day because of the possibility of a capture," he said. "But this sort of selling towards the close, without a whole lot of news, points to options expiration."
Stock indexes spent the day in a holding pattern, listing lower for the most part, but showing little conviction in one direction or the other until the final hour.
Within the Dow, United Technologies saw the sharpest decline as McDonald Investments dropped its rating on the stock to "hold." The stock lost 2.8 percent to close at $85.40. See full story.
But there was limited corporate news with only a smattering of earnings reports, including Adobe Systems and Nike, to evaluate.
"There is much choppy action in the general market, but we believe the tech stocks and many small-cap stocks continue their correcting ways," said Bob Dickey, an analyst with RBC Dain Rauscher. "That many leading issues are pulling back is an indication that the market is still not in a position to stage a more prolonged uptrend yet."
Breadth was decidedly negative as losers within the Dow outpaced winners 24 to 6. Citigroup, Exxon Mobil, GE, General Motors, Hewlett-Packard, Intel, IBM, J&J, and Merck were the lead decliners behind United Technologies, while no single blue chip was able to muster a gain exceeding 1 percent.
Breadth was correspondingly weak in the broad market, where decliners trounced advancers, 20 to 12 on the New York Stock Exchange and 19 to 12 on the Nasdaq. Volume reached 1.43 billion on the Big Board, and 1.63 billion on the Nasdaq.
Bonds, dollar, gold, oil
Treasury prices slipped halting the bond's market streak of weekly gains at three as investors contemplate geopolitical developments and a mixed outlook for inflation. See full story.
The U.S. dollar regained some ground, bouncing off one-month yen lows as intervention speculation continued to dominate currency trading. See full story.
Gold futures closed higher, to log a five-session winning streak and end the week with a more than 4 percent gain. Concerns over inflation and terrorism, as well as expectations for continued weakness in the U.S. dollar sparked the rally in the precious metal. April gold closed at $412.70 an ounce on the New York Mercantile Exchange, up $1.40 for the session. The contract closed higher every day this week, tacking on a total of $17.10 in five sessions. See full story.
April crude closed at $38.08 per barrel on the New York Mercantile Exchange, up 15 cents for the session, and up $1.89, or 5.2 percent for week. One of the main reasons oil futures closed Wednesday at a 13-year high of $38.18 is that the market is concerned that OPEC will stick to its pledge to cut production on April 1.See full story.
Corporate news
Shares of publishing software maker Adobe Systems (ADBE: news, chart, profile) surged after the company reported better than expected results for the first quarter, and boosted its outlook for the second quarter.
Adobe cited strong growth in its Acrobat business, and the adoption of its Creative Suite platform for the stellar performance and forecast. The stock gained almost 10 percent. See full story.
And Nike put its best foot forward, posting third-quarter earnings of $200.3 million, or 74 cents per share, well ahead of its year-ago profit of $124.7 million, or 47 cents per share, and a penny better than Wall Street's consensus view. Revenue jumped 21 percent in the latest three months to $2.9 billion. The stock (NKE: news, chart, profile) added a scant 0.1 percent. See full story.
The latest merger news involved Marathon Oil (MRO: news, chart, profile) agreeing to pay $2.93 billion to purchase Ashland's (ASH: news, chart, profile) 38 percent stake in their joint venture, Marathon Ashland Petroleum LLC. Houston-based Marathon will own the entire U.S. refining, marketing and transportation operation once the deal closes in the fourth quarter. Marathon shares dipped 4.1 percent, while Ashland's stock tacked on 4.2 percent and hit a 52-week high of $52.50 on the news. See full story.
In analyst moves, Lucent Technologies (LU: news, chart, profile) was upgraded by Schwab Soundview to "outperform" from "neutral," citing improving fundamentals in its optical and wireless businesses.
The firm also raised its price target on the stock to $5 from $3.50. He believes the networking equipment firm's shortcomings in Europe and in its voice-over-Internet protocol business has already been priced into the stock. The stock, however, tumbled 1.5 percent to $3.98. Its volume of 79.62 million was tops on the New York Stock Exchange, more than 50 million shares of the next most heavily traded issue, Nortel. See full story.
Avici Systems was among the weakest stocks on the Nasdaq after the networking equipment maker indicated that first-quarter revenue would fall short of expectations due to "uneven customer order patterns." The shares (AVCI: news, chart, profile) dropped more than 21 percent..
The company now expects revenue of $6 million to $8 million, below the average analyst forecast compiled by Thomson First Call of $10.8 million.
Mark Cotton is a markets reporter for CBS.MarketWatch.com |
