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.

Non-Tech : Invest / LTD -- Ignore unavailable to you. Want to Upgrade?

To: Lucretius who wrote (5521)	11/20/1998 4:48:00 PM
From: MythMan	Read Replies (1) \| Respond to of 14427

This guy doesn't get it. Earnings don't matter.......Yawn! >>Friday November 20, 4:20 pm Eastern Time TALKING POINT-Rate cuts won't resurrect US profits By John Hanley NEW YORK, Nov 20 (Reuters) - The Federal Reserve's three rounds of interest rate cuts in seven weeks may not be enough to resurrect U.S. corporate profits, and the stock market may pay the price. Corporate earnings growth this year is expected to be a paltry 3.2 percent -- the weakest figure since 1991 -- and some Wall Street veterans are predicting single-digit growth in 1999 or even a decline in profits. ''I think the interest rate cuts are a mild positive,'' said Stephen Roach, chief economist at Morgan Stanley Dean Witter. ''But a big negative for earnings over the next six to nine months will still be the combination of rising labor cost pressures and a slowdown in gross domestic product or volume growth.'' A revival of U.S. corporate profit growth is considered crucial if the stock market is to continue its assault on record highs. But Asia's financial crisis and a slowing U.S. economy are seen preventing the biggest U.S. companies from returning to their average annual earnings growth of 15.7 percent in the years 1992-1997. Roach expects corporate profits to fall 3 percent next year. Operating income growth of 4.4 percent is the average forecast of a dozen Wall Street strategists, according to Boston-based First Call, which tracks such forecasts for the nation's 500 largest companies. Industry analysts -- almost always much more optimistic than Wall Street strategists -- see corporate profits rising 19 percent in 1999, said Chuck Hill, First Call's director of research. Hill believes analysts will have to whittle away at their profit forecasts in coming months. This could hurt the share prices of the companies involved, he said. Strategists tend to take a ''top-down'' approach to forecasting, analyzing general economic trends and then determining how companies would benefit. Analysts use a ''bottom-up'' approach, examining the fundamentals of an individual company before considering the impact of economic conditions. ''The concern is not only that profits will not be that good, but that the industry analysts' estimates are too high,'' Hill said. ''If the analysts are going to be slashing their numbers, as they have been doing all year long, then that is going to put some pressure on the market.'' The some 200 analysts surveyed by First Call expect first quarter 1999 earnings to be up 12.1 percent from a year earlier. They see 16.7 percent growth in the second quarter. Profits in the current quarter are seen up 6.6 percent. With 97 percent of companies reporting, third-quarter earnings are down 3.1 percent. On Tuesday the Federal Reserve, hoping to reassure shaky financial markets and insulate the U.S. economy from the global economic crisis, cut the federal funds rate and the discount rate by a quarter point. The fed funds rate, which banks charge each other on overnight loans, went to 4.75 percent, while the discount rate, which the Fed charges on emergency loans to banks, went to 4.5 percent. Lower interest rates reduce corporations' borrowing requirements and also make it cheaper for consumers to finance purchases of homes, cars and ''big-ticket'' items. As if on cue, in the last three weeks, Wall Street analysts have slowed their downward revisions in earnings estimates for the first and second quarters of 1999, according to First Call. Companies that could benefit from the rate cuts include the automakers Ford Motor Co. (NYSE:F - news) and General Motors Corp. (NYSE:GM - news); home appliance maker Maytag Corp. (NYSE:MYG - news); and Owens Corning (NYSE:OWC - news), known for its trademark Pink Panther fiberglass insulation. Leading U.S. banks, such as Citicorp (NYSE:CCI - news) and Chase Manhattan Corp.(NYSE:CMB - news), will also benefit from stronger economic growth and reduced borrowing costs, analysts said. ''There are modest positive effects on the operating side, especially for those companies that sell interest rate sensitive consumer products...We won't see a big boom but the slowdown will be mitigated,'' said Gunter Dufey, professor of international business and finance at the University of Michigan Business School.<<