Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Mark[ox5] who wrote (4277)	12/22/1997 12:42:00 AM
From: Chris	Respond to of 42787

briefing.com comments Potentially Volatile Week Daily commentary updated for December 22, 1997 There are very few scheduled releases this week, no trading on Thursday, and half days on Wednesday and Friday. It will be slow, but it could be volatile. The market is still struggling between two competing forces: 1) the belief that the U.S. remains the safest investment in the world and the the recent sell-off presents a buying opportunity and, 2) the reality that the Asian crisis has and will impact earnings for U.S. companies at a time when valuations remain very high. Both arguments have validity, and the markets could react strongly on any given day to whichever argument is temporarily dominant. Risks are High During Earnings Season The market also faces a great deal of risk the next two weeks. The last two weeks of a calendar quarter are "earnings warning" time. This is when companies that realize they aren't going to meet Wall Street estimates typically make a pre-announcement to that effect. This quarter, there have already been a large number of firms warning that earnings will fall short of expectations, and more are certain to come. There were already signs that earnings growth would slow from the recent torrid pace of 15% even before the Asian crisis hit. Now, that has clearly compounded problems. We will leave aside for the time being just how much of an impact on U.S. corporate earnings the Asian turmoil will have, but we can guarantee this: it is a net negative. So is the stronger dollar, and that may even be worse. Just a few weeks ago, the consensus earnings estimates for the S&P 500 for the fourth quarter in aggregate (year over year) was over 12%. Now, it is down to about 8%. Rack it up to whatever you want, but that is significant. And the repercussions for 1998 have not yet sunk in. For the first quarter, estimates are still above 15%. That is highly unlikely. This means that many companies have to start guiding Wall Street estimates lower if Wall Street doesn't do it on their own. If the fourth quarter comes in around 8%, and the Asian credit problems start to spread, the consensus estimate for all of 1998, currently close to 15%, has to come down. The S&P 500 still trades at a very high 23 times trailing earnings, based in large part on expectations of continued strong earnings growth. The stock market will have to deal with a steady stream of earnings estimates reductions for 1998. The last couple of weeks in a quarter are always high risk, but often set the stage for an earnings season rally. This week, with light volume, the market could be particularly subject to volatile swings. [ Index ]