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Strategies & Market Trends : The Stock Market Bubble -- Ignore unavailable to you. Want to Upgrade?

To: Robert E. Bruss who wrote (2301)	11/7/1998 9:19:00 AM
From: Box-By-The-Riviera™	Read Replies (1) \| Respond to of 3339

Saturday November 7 6:29 AM ET Profit Ball-Gazing Gives Investors A Headache By Huw Jones NEW YORK (Reuters) - As the Dow recovers to within striking distance of its record highs, analysts have begun taking a closer look at next year's corporate earnings picture, which looks confusing at best. It all boils down to who investors want to believe -- the rosy bottom-up forecasts of sector analysts, or the bleak top-down views of economists and strategists. The gap is the widest in at least three years, analysts said. Determining how interest rate cuts and a weaker dollar affects the profit outlook makes forecasting even trickier. The Federal Reserve's rate-setting committee meets next on Nov. 17. Most analysts expect another cut before year-end. Friday, the Dow closed up 59.99 at 8,975.46, not far from its July 17 record high of 9,337.97, and well above its summer session low of 7,400. The blue-chip index has made a stunning comeback after the Fed cut rates twice and worries about global markets eased. Morgan Stanley Dean Witter said the consensus of top-down strategists and economists is for operating earnings of the Standard & Poor's 500 companies to grow 3.6 percent in 1999. Strategist John Manley of Salomon Smith Barney is firmly in the bear camp. ''The continued earnings deterioration exhibited in the first three quarters of this year reinforces our, and our economists' belief, that we are headed toward a period of two to three years of flat to slightly negative earnings growth,'' Manley said. Arun Kumar, Lehman Brother's senior U.S. equity strategist is almost as bearish, expecting S&P500 earnings to be flat this year and up 2 percent in 1999, with lower interest rates shoring up stocks to counter weak profits. ''Most of the good news on the equity front is going to come from price/earnings ratios expanding because interest rates are going to keep going down to make sure the slowdown does not become anything worse than a slowdown,'' Kumar said. I/B/E/S International, which tracks bottom up analysts' earnings estimates, said the latest consensus is for S&P500 profits to grow 17.9 percent in 1999. Earnings grew nearly 10 percent in 1997, but are expected to be flat this year with the third quarter the worst in seven years, I/B/E/S said. Still, the analysts themselves already realize that 17.9 percent growth is unlikely, but will wait until January, when fourth-quarter earnings are reported, before slashing 1999 estimates. ''For them to cut their earnings estimates now, they don't have the proof they need, but the general feeling is the estimates are too high. The analysts just don't know how much to cut,'' said Joseph Abbott, U.S. equity strategist at I/B/E/S. But analysts may be right after all according to one leading strategist who has just broken rank with his peers on Wall Street. In five of the past six years, analysts' predictions made around October for earnings in the year ahead have been closer to the mark than those of the economists and strategists, said Peter Canelo, U.S. equity strategist at Morgan Stanley Dean Witter. ''We believe this might be so again in 1999,'' Canelo said. Profits next year will be boosted by lower interest rates making it cheaper for companies to pay debt; a weaker dollar stemming the drop in exports by U.S. companies; the domestic economy staying in good shape; and nonrecurring losses in 1998 boosting gains in 1999, Canelo said. So where does Canelo see profits next year? ''I think the truth is somewhere in the middle, around 10 percent,'' he said. ''For earnings to keep growing 10 percent, you can have the market gaining 10 percent from here. You can sustain fair to 10 percent overvaluation in stocks as long as you have moderate earnings.'' But the stock market will see its highs for 1999 in the first half, after which worries about year 2000 computer problems and other issues will cause stocks to retreat, Canelo said.

To: Robert E. Bruss who wrote (2301)	11/7/1998 9:28:00 AM
From: Box-By-The-Riviera™	Read Replies (1) \| Respond to of 3339

THE WEEK AHEAD: DISCONNECT DAILY SCREEN ¡Viva Univision! FUND INSIGHT Size Matters ASK SMI Stock Trade-In FUND INSIGHT Look Before You Leaf FUNDS TODAY Whitman Visits the Junk Yard Another Small-Cap Fund Reopens Bear Funds Head South Finally, Some Bargain Bank Stocks MARKET TODAY The Week Ahead: Disconnect Chip Stocks Without a Map Market Digest SmartMoney Gainers and Losers ARCHIVE Complete 5-Day View ARE WE BALANCING on the knife-edge of recession? Certainly, most economic indicators are signaling a slowdown. Thursday's employment report showed that hiring has slowed, while wages grew less than expected, says Doug Schindewolf, senior economist at Salomon Smith Barney. Whither the stock market? Well, its direction depends upon two things. Interest rates and earnings. After all, it was Alan Greenspan's two rate cuts last month that got the market climbing again. But the Federal Reserve Open Market Committee doesn't meet again until Nov. 17, and Greenspan is giving few clues about what he'll do. That leaves earnings. Most companies have already reported their third-quarter numbers. (Though PC maker Dell Computer (DELL) and PC retailer CompUSA (CPU) will report this week.) As for the fourth quarter, analysts have greatly slashed earnings estimates for companies in cyclical industries like forest products, oil, capital equipment, railroads, airlines and financial services. In fact, according to First Call, analysts expect earnings growth of just 3.4% for the S&P 500 in 1998. But when it comes to 1999, their outlook is still sanguine. Unreasonably so. Wall Street analysts expect S&P 500 earnings to jump a whopping 18.7% in 1999, according to First Call. Obviously, with the economy puffing along at 2% growth or less, those estimates will need to be revised. In fact, economists at Salomon Smith Barney recently wrote that they expect 1998 S&P 500 earnings to rise just 0.3% and to decline 2% in 1999. So what will happen when Wall Street analysts begin slashing their 1999 earnings estimates? We shudder to think. But it could mean an end to the rally that has sent the S&P 500 up 15% and the Russell 2000 up 19% in the past month. Looking ahead to next week's earnings reports, investors will most likely see another stellar quarter from Dell Computer after the market close Thursday. CompUSA is scheduled to report fiscal first-quarter earnings before the market opens Tuesday. But don't take these increases and apply them elsewhere. Next week's economic calendar is light. LJR Redbook reports weekly retail sales on Tuesday. Three reports that bear watching are released Friday. The Department of Commerce's retail sales and the Bureau of Labor Statistics' producer price index are expected to show weakness in the month of October. Also on Friday, the University of Michigan releases its preliminary reading on consumer sentiment for November. The Treasury market will be closed Wednesday for Veteran's Day. -- By Karyn McCormack