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Stock market
may be priced
to perfectionInvestors will be studying
earnings reports and outlooks
in order to keep the rally going
NEW YORK -- Investors' appetite for stocks slowed this past week amid a spate of bad news, including weak retail sales, a brokerage downgrade of Texas Instruments Inc. and a downbeat revenue outlook from Nokia Corp.
While some retreat was to be expected given Wall Street's six-month run-up, analysts fear stocks could be in for a deeper correction if increasingly demanding investors are disappointed by third-quarter profits. Investors are intently scrutinizing earnings reports and outlooks, and details like a drop in handset sales or software licenses can be enough to send the entire market lower.
"It is tough to be priced for perfection in a less-than-perfect world ... and the earnings preannouncement season looms," said Bryan Piskorowski, market commentator at Wachovia Securities.
Analysts say that with investors paying line-by-line attention to company reports, the market will be able to sustain its current high levels only if the quality of earnings -- not just the numbers themselves -- also improves.
For example, investors will look for earnings growth based on higher revenues -- consumers and companies buying goods and services -- not because of cost-cutting or favorable currency conversions. They'll also want outlooks for the fourth quarter and beyond to remain strong, especially with an expected rise in interest rates that could threaten to dampen consumer spending.
"It depends entirely on economic growth and corporate profits rebounding on a sustained basis," said Joseph Keating, chief investment officer at AmSouth Asset Management.
Investors' uncompromising attitude this past week led to a lower finish for the three main gauges. The drop ended the Dow Jones industrials' five-week winning streak, and a four-week advance for the Nasdaq composite and Standard & Poor's 500 indexes.
Indeed, Wall Street has priced in a robust rebound in the economy and earnings with the major stock gauges standing well above the lows for the year that they hit March 11. The Dow is now up 26 percent, the Nasdaq has surged about 46 percent and the S&P 500 index has climbed 27 percent.
The Dow ended the week down 31.79, or 0.3 percent, closing yesterday at 9,471.55.
The Nasdaq had a weekly loss of 3.21, or 0.2 percent, closing at 1,855.03 yesterday. The S&P declined 2.76, or 0.3 percent, for the week, closing at 1,018.63.
For the week, the Russell 2000, the barometer of smaller company stocks, inched up 0.19, or 0.04 percent, closing at 509.06.
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