Strong Earnings Data Expected by Analysts
If fundamentals matter once again on Wall Street, investors will have plenty to focus on this week, in the form of first-quarter corporate earnings reports.
Whether those reports will help stabilize the market after last week’s plunge is anyone’s guess, but the numbers are, at least, expected to be robust.
“As earnings reports continue to pour in, it’s clear that the first quarter is on track [for] very strong growth,” said Chuck Hill, research chief at earnings-tracker First Call/Thomson Financial in Boston.
Companies in the blue-chip Standard & Poor’s 500 index--almost 200 of which will report their results in this holiday-shortened week--are on track to post average operating earnings growth of 22% this quarter versus a year ago.
“The one thing that gives me some hope [for stock prices] is that earnings are pretty good,” said Richard Sokol, who manages money for the Westcore Funds unit of Denver Investment Advisors, which oversees about $10 billion. “At the end of the day, stock prices generally follow earnings, and the earnings picture still looks pretty bright.”
Within the battered technology sector, reports are due today from Texas Instruments, Vitesse Semiconductor and Novellus Systems.
On Tuesday, such tech giants as America Online, IBM, Intel and EMC will report.
The problem, analysts say, is that many tech shares still are priced at extremely high levels relative to underlying earnings per share, even after last week’s record 25.3% plunge in the Nasdaq composite index.
Camarillo-based Vitesse, a fast-growing maker of integrated circuits for the telecom industry, is expected to earn 66 cents a share in the current fiscal year, up 57% from last year.
But the company’s stock--at $54.69 on Friday already down 53% from its winter peak--still is priced at 83 times analysts’ consensus estimate of this year’s earnings per share.
Still, some analysts saw signs that institutional investors were beginning to view some stocks as bargains by the end of the day Friday, with the Nasdaq composite index down nearly 10% for the session.
Nasdaq bounced up 1.7% in the final half hour of trading from a low of 3,265 to close at 3,321.29.
The Dow Jones industrial average, down more than 700 points in late afternoon, clawed about 100 points higher by the close.
Traders, too overcome to take much comfort in the tentative change of direction, merely scrambled to complete their last-minute orders before heading home for the weekend.
But with hindsight, some analysts were holding out hope that the market may have hit rock bottom on Friday.
“The close was vitally important,” said Gary Kaltbaum, chief technical analyst at J.W. Genesis Securities in Boca Raton, Fla. “For several days, we saw selling peak in the last hour as major institutional investors just got out of the way.”
On Friday, the institutional investors appeared to be responsible for the late-hour upturn.
Past market dips have given a nation mad for stock investing the chance to buy highly regarded stocks at more-affordable prices. Bargain-hunting investors were largely responsible for lifting the market out of steep corrections in 1997 and again in 1998.
But last week, buyers of any sort were hard to find. The utter lack of enthusiasm left some analysts pessimistic about the market’s chances in the near term.
“It’s not a funeral. But it is a crisis,” said Jim Griffin, chief investment strategist at Aeltus Investment Management in Hartford, Conn.
The market faces several potential roadblocks to a fast rebound. For one thing, margin calls, which contributed to the steep declines of the past two weeks, could draw more money from the market.
In recent sessions, brokerages have been calling clients to demand cash to cover accounts that were pumped up with borrowed money. In many cases, the stocks bought on margin are the ones that have been tanking, and traders can’t find buyers for those shares to raise the needed cash.
But some traders said margin calls may have peaked last week, as brokerages targeted clients that had relatively large margin positions.
Meanwhile, it will be a quiet week for government economic reports--which may be a blessing, given that Friday’s market crash was in part triggered by news of a greater-than-expected jump in March consumer prices.
Whatever happens this week, it will have to happen in four days: Markets will be closed for the observance of Good Friday.
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Associated Press and Bloomberg News contributed to this report.
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* ‘BUBBLE’ MARKET
The decline is now largely about human psychology, experts say. A1
