Star-Bulletin news services Saturday, July 10, 2004
Latest round of positive
earnings not expected
to shake market much
NEW YORK >> Got a vacation planned this month? Go ahead and relax, you probably won't miss much. Analysts have high expectations for earnings season, but few believe second-quarter results will breathe much life into the market.
About 50 members of the Standard & Poor's 500 are to release earnings this coming week, with some of the most highly anticipated reports coming from four of the 30 companies that make up the Dow Jones industrial average. Analysts surveyed by Thomson First Call expect a quarterly growth rate of about 19.5 percent for the S&P 500.
Earnings from chip bellwether Intel Corp. will be of particular interest to investors in the battered tech sector. Citigroup Inc., Johnson & Johnson and International Business Machines Corp. are also reporting results. But with Wall Street stuck in a sober mood, analysts say any positive reaction is likely to be muted.
"Nobody is going to get turned on by these numbers coming out next week. The question is, will they get turned off?" asked Larry Wachtel, market analyst with Wachovia Securities. "I think people are starting to ratchet down their expectations. We're not going to break out of the doldrums this summer based on what happens in the next three weeks."
There are signs the pace of economic growth may be slowing somewhat -- employers hired fewer new workers in June than economists anticipated and retail sales are down. And investors, beset by worry over terrorism, rising interest rates and with the presidential election still ahead, have kept the major indexes in a tight trading range so far this year.
But after last year's outstanding performance -- the S&P 500 surged 26 percent -- analysts say a bit of a slowdown makes sense.
"The rate of growth in earnings will have to come down, but it will remain positive," said Randy Lert, chief portfolio strategist with the Russell Investment Group. "You may see it take a while for the market to get some traction, until there's a greater sense of how the election will play out."
In election years, the market tends to move most sharply in the final quarter, Lert said. With the Russell 3000 -- an index of the 3,000 largest U.S. stocks -- up 3.6 percent through the end of June, the market is on track for an 8 percent to 9 percent gain for the year, Lert said.
It's early yet, but so far this quarter, some companies have managed to beat expectations, including General Electric Co., which reported earnings yesterday that were a penny above Wall Street's per-share estimate. Those that have merely matched forecasts or offered less-than-stellar outlooks have been severely punished, however.
Yahoo! Inc. met estimates and nearly doubled its second-quarter revenue, but its stock plunged 8 percent after it reported earnings Wednesday because the Internet search company failed to beat forecasts or raise its outlook as aggressively as it had in the past.
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