But Idea was saying it allaround, corporate earnings are not like clouds in skies rather they are like mega tankers in the sea before trouble develops the engines sound warn you, their was no engine sound in Aug the FM's got cold feet...
New York, Nov. 25 (Bloomberg) -- Maybe all the good news isn't in the market.
For months, bulls and bears alike have carped that corporate earnings, a key driver of stock prices, are likely to be dismal next year. That fear helped knock 20 percent off the Dow Jones Industrial Average from mid-July to late August. Even after this week's rally to records, earnings remain a top concern.
Yet now, amid signs the economy's still growing, the long- awaited ''profits recession'' may not materialize after all.
''The fear for 1999 is vastly overdone,'' said Seth Glickenhaus, senior partner at Glickenhaus & Co., a New York money management firm that oversees $4.5 billion. ''The minuses will be balanced by the pluses.''
The major minuses are recessions in Asia and a slowdown in Brazil that already weigh on U.S. profits. Earnings for companies in the Standard & Poor's 500 Index fell 3.2 percent in the three months ending Oct. 31, according to First Call Corp. It was the first quarterly earnings decline since the third quarter of 1991.
Yet with help from the pluses -- declining interest rates and a U.S. economy that's expanded for almost eight straight years -- profits haven't been as bad as they first appear.
Oil companies suffered as commodity prices plunged, and banks and brokers lost billions as global markets collapsed. These were serious problems but if you exclude them as one-time events, earnings were up about 3.6 percent, said Salomon Smith Barney analyst Jeffrey Warantz.
''Those few companies are masking the fact that the quarter wasn't so terrible.,'' Warantz said. ''If you happened not to be invested in them, earnings were good and stock prices reflect that.''
Government Help
Government action is a big reason that profits haven't been as poor as expected. The Federal Reserve and other central banks cut interest rates in recent weeks, the Japanese government pledged to bail out the country's banks, and the International Monetary Fund promised $41.5 billion to Brazil.
Peter Canelo, market strategist at Morgan Stanley Dean Witter & Co., said the losses reported by financial and energy companies are unlikely to recur. ''If you just have these losses behind you, you'll have 5 percent earnings growth.''
And profit growth next year may be much more robust than that, Canelo said.
Many investors dismiss the profit bulls as dreamers. They point out that virtually no one believes industry analysts' estimates that S&P 500 profits will rise 19 percent next year. As those unrealistic estimates get ratcheted down, stock prices may follow.
''If analysts have to slash their estimates, that will be a drag on the market,'' said Chuck Hill, director of research at First Call.
Asia
Moreover, there are concerns that profits will contract as companies in Korea, Thailand and Malaysia flood the U.S. with cheap imports. ''The pricing structure is on the side of the consumer,'' said Ned Riley, chief investment officer at BankBoston, which oversees $25 billion.
And there are fears that U.S. consumers will ease their spending as their jobs begin to look less secure. U.S. companies hired 218,000 workers a month for the first 10 months of the year, down from 282,000 a month in 1997, according to the government. This year is also shaping up as the busiest year for corporate firings in a decade, according to ISI Group, a New York brokerage and economic consulting company. An estimated 60,000 people will lose their jobs this month, ISI said.
For now, though, the domestic economy continues to defy expectations. Yesterday, the Commerce Department said the country's total output of goods and services rose at a 3.9 percent annual rate. The National Association of Manufacturers said that while growth will slow to 2.3 percent next year, a recession's unlikely given the three cuts in interest rates by the Federal Reserve.
''We have a tremendous boom in construction and housing,'' said Canelo of Morgan Stanley. ''Economists who are calling for a recession are not paying attention. Things are not that bad.''
Dollar
Canelo added that the falling dollar should curtail imports and translate into a profit boost for U.S. exporters. And consumer confidence remains near a 20-year high.
Even if Canelo is wrong and profits are flat or shrink for the year, some stocks may still rise. Mark Lapman, a money manager with Independence Investment Associates, a Boston money management firm that oversees $30 billion, anticipates a ''flight to quality'' as investors continue to gravitate toward the country's largest companies.
''If we get unexpected difficulties around the world -- which is guaranteed -- large-cap growth stocks will do well,'' he said. ''Investors will say, 'I want to buy companies that will be here 10 years out.'''
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