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Technology Stocks : CAWS - Wireless Cable (New and Improved) -- Ignore unavailable to you. Want to Upgrade?

To: Bill Ounce who wrote (5737)	10/30/1998 10:13:00 AM
From: Joseph Moran	Read Replies (1) \| Respond to of 5812

The stock market has rallied over the past two weeks for several reasons: 1) the Federal Reserve lowered short-term interest rates, 2) global economic turmoil appears less threatening, and 3) third quarter earnings reports have come in better than expected. All of these have a fair degree of validity. Unfortunately, the forest has been lost for the trees on the earnings reports. The earnings picture is not pretty. Everyone Beats Wall Street has a vested interest in making sure that most companies beat published earnings estimates. A company that reports earnings "a penny ahead" of estimates usually sees the stock go up. Miss by a penny, though, and a stock can get hit hard. Therefore, Wall Street makes sure to keep published estimates conservative enough so that most companies can clear the hurdle. This leads to the phenomenon of "whisper numbers" which reflect what analysts, and Wall Street, are really expecting. It also means that every quarter without fail, about twice as many companies report earnings above estimates as report earnings below published estimates. This quarter is no exception. So far for the third quarter, with 388 companies in the S&P 500 reporting, 50.7% have beaten expectations and 23.2% have missed. That is close to the typical 55% to 27% ratio of those beating to those missing. The market frequently rallies as earnings reports come out. Individual stocks get a boost as they report "better than expected" earnings. Sounds great, doesn't it? The market rallies as it has the past few weeks. Yet, the overall earnings picture is rather bleak. Earnings Earnings growth is a misnomer. There is no growth. Depending on whether one looks at as-reported (true, all inclusive earnings) or operating earnings, earnings have either been declining for several quarters, or at the least, the growth rate has been declining.