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Hulumas ( Date: 03-Oct-2009 22:40) Posted:
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WALL STREET INSIGHT
US investors hope earnings can reignite stalled rally
Key gauges point to wobbly path for economy's recovery
By ANDREW MARKS
NEW YORK CORRESPONDENT
THE third-quarter corporate earnings reporting season is about to hove into view this week, and Wall Street's bulls are hopeful that the latest round of quarterly profit reports will once again climb the wall of worry over the shape of the economic recovery, which has risen markedly higher in the last week, and spur investors to take their cash off the sidelines and put it to work in the stock market.
The previous two quarterly profit reporting cycles - in April and July - have produced powerful rallies and big gains for stocks. But the worried voices on Wall Street wondering if stocks have rebounded too far and too fast over the last six months have been rising rapidly in the past two weeks, given new ammunition as several key economic gauges indicated that the the path of the economy's recovery could be stumbling off the straight line upwards they had been travelling of late.
Last week, those voices rose to a shout, and US stocks tumbled, when manufacturing orders and the monthly employment figures, two key economic indicators, came in substantially below Wall Street economists' estimates.
'All of a sudden we're getting economic data that calls into question Wall Street's optimistic views on the recovery and their reliance on the thesis of sequential improvement in the data to support soaring stock market valuations. Now investors are being forced to remove their rose coloured glasses and the momentum-driven rally is shifting into reverse,' observed David Rosenberg, economist and chief market strategist at Gluskin Sheff, who's been banging the bearish drum for several months now.
Traders and money managers have been deeply divided over when the equity market rally that had brought the S&P 500 nearly to a 60 per cent rebound from its March lows and almost brought blue chips back to the psychologically important 10,000 level last seen a year ago on October 3 will end.
But in the last two weeks, the bearish view that a full-fledged correction - one which could shave 10 per cent or more off the major market indexes - is at hand has won a rising number of converts on the Street.
Despite all that, and two weeks of retreat featuring broad-based losses in eight of the last 10 trading sessions, it might be unwise to assume that investors are ready to slam on the brakes just as the third quarter earnings reports unofficially begin on Wednesday, when Alcoa is scheduled to announce its profit picture.
'When you get into earnings season all that conjecturing about whether the economy's recovery is going to be 'U'-shaped or 'W'-shaped or 'L'-shaped will give way to the almost exclusive focus on a much simpler question: whether companies can beat estimates and continue showing sequential improvement in their earnings,' said Ben Hovnanian, market analyst at Vector Trading.
Indeed, many Wall Street analysts, even those who have been sceptical of this latest leg of the rally and believe stocks have risen to unsustainable levels, believe the market's new bearish perspective could very well prove to be short-lived, and even switch back to bullishness as companies offer up third quarter earnings and their outlooks for the fourth quarter.
'The third quarter is going to be a good one for companies, and once again analysts have been lowering their estimates, which is setting us up for another wave of estimate-beating profit reports,' noted James Awad, a managing partner at Zephyr Asset Management.
The second quarter profit reporting season, in which 73 per cent of S&P 500 companies beat estimates, helped stocks quickly recover from a 9 per cent swoon in late June and early July and post a 15.7 per cent gain for the third quarter.
This time around, said Mr. Awad, it's unlikely that companies will surprise Wall Street analysts to that degree. 'People have been talking about how much improvement there's been in the economy last quarter for a couple of months now,' he said.
Still, analysts' consensus estimates for the S&P 500's quarterly growth in the third have been revised down from negative- 20 per cent in early September to nearly negative-25 per cent as of October 1, according to Thompson Reuters Research, which tracks earnings estimates. That conservative swing could prove to be a big help for many companies, traders noted.
Additionally, the ratio of negative pre-announcements to positive pre-announcements for the S&P 500 for the third quarter is 1.5. 'That ratio is below the long-term average of 2.1, indicating the potential for more positive earnings surprises this quarter,' said John Butters, Thompson Reuters' senior analyst.
Perhaps investors had those heartening thoughts in mind on Friday, when stocks finished only modestly down despite an unexpectedly weak September jobs report. The Dow Jones Industrial Average declined 22 points, or 0.23 per cent to close at 9,487.7 on Friday, its fourth straight down day, as well as its seventh negative finish in the last eight sessions, but finished well above its lows of the day, recovering more than 60 points after an early slump.
The S&P 500 lost almost five points, or 0.45 per cent, to 1,025.2 and the Nasdaq dipped 9.4 points, or 0.46 per cent, to a close of 2,048.
For the week, blue chips lost 1.8 per cent, giving the Dow a loss of 3.4 per cent in the past two weeks, and more than 4 per cent since coming within 70 points of 10,000 during intraday trading on Sept 23. The S&P 500 fell 1.8 per cent and the Nasdaq lost 2 per cent .
The coming week is light on heavyweight economic data, allowing investors to focus all the more on earnings, and on any pre-announcements from companies ahead of their earnings reports.
Today, ISM non-manufacturing data is due for release. Consumer credit is scheduled to be reported on Wednesday. On Thursday, retailers will be releasing their sales data for September, and weekly jobless claims and wholesale trade are also on tap. International trade figures will be released on Friday.
Despite the kick-off of third quarter earnings season, the profit report calendar is also light this week, however.
Tomorrow, Yum! Brands and Pepsi Bottling report. Then Alcoa is scheduled to release its numbers on Wednesday shortly after the bell, followed by Monsanto, Costco and Family Dollar Stores.
Hotel operator Marriott reports on Thursday, along with PepsiCo. Friday has no companies scheduled to offer their numbers.
'This is a transition week,' said Mr Hovnanian. 'Expect the market to be choppy after a rough couple of weeks and with so little hard information to sink it's teeth into, but I'm optimistic that we regain momentum as earnings season heats up,' he said.
rabbitfoot ( Date: 04-Oct-2009 15:58) Posted:
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Could it be one of those, "It will get a little worse, before it will get better." thing ?
Keep hearing them say " Buy somewhere in October but never say , mid or end Oct ". After bad job report, Dow Jones still can trim early losses. My Gut Feel is STI will correct till 27 Oct for next cycle-up.
rabbitfoot ( Date: 02-Oct-2009 20:41) Posted:
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