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 : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (14790)	3/8/1998 1:32:00 PM
From: Gary Strike	Read Replies (1) \| Respond to of 94695

This may have been posted already but may be worth repeating. Any predictions for tomorrow? Saturday March 7 7:47 AM EST US Stocks Face Test as Earnings Climate Cools By Pierre Belec NEW YORK (Reuters) - Wall Streeters have taken a look at their crystal balls and have seen an ugly picture of corporate profits. That could mean bad news for a stock market that expects companies to roll up another year of great earnings. Intel Corp., the world's largest maker of computer chips, set off the first landmine of the reporting season, telling investors this week that its earnings for the first quarter will miss the mark because of a 10 percent plunge in sales. The news triggered a selloff in stocks, halting the Dow Jones industrial average's five-day run to record highs. By the end of the week, stocks had climbed back, despite more bad news, this time from Motorola Inc. But the experts said the rally was unsustainable in the face of what promises to be a bumper crop of earnings warnings in this quarter. Motorola said its sales took a hit in economically depressed Asia and its earnings will be well below expectations. The real headline grabber, however, was Intel. Its heads up announcement shook investors because it came from a high profile company, which has been viewed as a gauge of the health of Corporate America. The news was also troubling for investors who have priced stocks to expect near perfect earnings. Chuck Hill, First Call's director of research, a Boston-based firm that tracks analysts' earnings predictions, said Wall Streeters are quickly lowering their expectations. They see a growth rate for the earnings of the Standard & Poor's 500 companies of just 3.7 percent in the first quarter, a steep drop from expectations for an increase of 11.4 percent in January. In the 1997 first quarter, profits jumped 15.1 percent. "Wow, is the correct word for it," Hill said. "This is unusual because the cut is deeper and is coming sooner than normal." Now, the experts are wondering if perhaps they had been wrong in dismissing the impact of the Asian crisis, which has pretty much killed off the once wealthy Pacific Rim region as a source of revenues for U.S. multinational companies. A downturn in profits could also signal that the companies are exhausting their productivity gains, having used up the magic tricks -- sweeping restructurings and job cuts -- that made their earnings look good over the last couple years. Hill said the earnings story started to unravel in last year's fourth-quarter. "The numbers were coming down and have continued to the point where we're now down to 3.7 percent and we're not even into the full blown pre-announcements season," he said. Indeed, first-quarter results could be a good clue as to what to expect for the rest of the year. "Flat earnings would certainly be terrible for the stock market," Hill said. For the full 1998 year, analysts are looking for an 11 percent rise in earnings, down from last year's growth rate of 15.1 percent. He said that the market may not have fully factored in the Asian crisis' erosion on profits. The Pacific Rim's economies disintegrated late last year when a speculative bubble burst, wiping out up to 40 percent their currencies' values. Although some of the fallout from Asian problems surfaced in the fourth quarter, most of the early damage was from currency translations, which the analysts were able to easily calculate, he said. Analysts believe the market is at an important crossroads. Even without the Asian problem, U.S. companies were facing reduced earnings because of their inability to raise prices, which is squeezing their profit margins. Some experts said that the shrinking earnings will not trip up the galloping bull market. "Earnings, by themselves, will not bring down this market," said Hugh Johnson, chief investment officer for First Albany Corp. "What will bring this bull market to a close will be a series of unexpected events that will significantly change the outlook for the economy and earnings such as tighter monetary conditions and deteriorating bank lending and money growth." He said the market is looking beyond the first quarter earnings season. "What matters for Wall Street is perception of future earnings, a year ahead of time," Johnson said. "The stock market is sending us a message that the economy is going to recover next year from the Asian crisis." Still most people agree that the market is overvalued. "With the earnings numbers coming down, there's a great deal or risk of significant earnings disappointments," Hill said. "And it's fair to ask the question that in the face of that risk, is it proper for the stock market to be a record multiple?" The forward-looking earnings multiple or price/earnings ratio are the highest in history at 21.2, beating the old record of 18.5 set at the end of the first quarter of 1991. The multiple or P/E ratio is the price of a stock divided by its earnings per share. It gives investors a snapshot of how much they are paying for a company's future earnings. "The high price earnings ratio of stocks is a sign of speculation and a dangerous thing for the market," Johnson said. The Dow index rose 23.67 points last week to 8,569.39. The Nasdaq composite index was down 17.02 points at 1,753.49. The Standard & Poor's composite index of 500 stocks rose 6.35 to 1,055.69. a new high. The NYSE composite index of all listed common stocks was up 5.38 at 549.64, a new high.

To: Tommaso who wrote (14790)	3/8/1998 6:41:00 PM
From: paulmcg0	Read Replies (2) \| Respond to of 94695

Tommaso -- The more the bulls push the market up, the worse the effects of the correction (crash?) will be. These people live in a fantasy world that ignores the real risks. They also are ignorant of historical speculative bubbles like the Dutch Tulipmania, the British South Seas Company affair, the stock market crashs of 1929, 1987, and the Japanese market crash. Or, they seem to think it won't happen again. Decreased earnings are going to hit the market hard, and even that most bullish of publications on tech stocks, Upside magazine is warning of a bear market in their March 1998 issue. The real destroyer is going to be debt. Most people, companies, and even governments are over their heads in debt. It's as if America has gone on a national shopping spree with a credit card, with the feeling that either they'll never have to pay the money back, or that economic conditions in the future (for example, the stock market) will make them rich, so they don't have to worry about their debts. Most people have negative net worths -- they owe more than the value of their assets. I choose to live debt-free, but an increasing number of people are letting their debts get out of control. For instance, last year, more than 1.5 million Americans filed for bankruptcy in the midst of this so-called economic boom. I suppose that if economic conditions get really bad, I'm going to be one of the people who gets blamed for the crash, because I won't be buying any overpriced stocks from bulls who are desperate to sell, (can you say "Stampede!" ??), but instead will be trying to make money off the market's decline. Paul McGinnis