WEEK OF JUNE 9-15
Wall Street to Focus on Earnings Warnings
Hopes for an economic recovery this year have propelled stocks into bull market terrain. But even the bulls are worried.
The stock rally may cool this week as corporate America starts the so-called confession season, when it warns about earnings disappointments.
Although many strategists believe that the rally has yet to run out of steam, some are starting to caution that the stock market is ready for a “correction” -- a decline, in Wall Street jargon -- because it has risen too far, too fast.
“The case for a bull market is very strong, and the bear market is behind us. But the stock market is overvalued, and the time for a correction is past due,” said Hugh Johnson, chief investment officer at First Albany Corp.
Since hitting their lows for the year March 11, the three major stock indexes have risen 20% or more through Friday’s close -- meeting the definition of a bull market. The blue-chip Dow Jones industrial average has gained 20.5%, the tech-driven Nasdaq composite index has climbed 28% and the S&P; 500 has risen 23%.
With a light earnings and economic calendar this week, the focus will be on companies giving forecasts for the current quarter. Downward revisions in estimates could put a lid on investors’ recent exuberance and lead to selling, analysts said.
In the first-quarter earnings season, most companies beat their own expectations, curbed sharply because of the Iraq war. But in the second quarter, analysts will look closely at companies’ guidance for signs of a turnaround.
This week, analysts also will watch for a weekly retail sales report Tuesday, monthly retail sales data Thursday and the U.S. producer price index, a gauge of wholesale prices, Friday. The University of Michigan’s consumer sentiment index, a closely watched barometer, also will be released Friday.
Analysts expect the market to brush off weak data for the next few weeks until July, when June data come out.
Here is a partial list of key economic events this week:
Monday: Two reports on WorldCom Inc. -- one by U.S. Bankruptcy Court, another by directors -- to be released.
Tuesday: House Energy Committee holds hearings on natural gas shortage, with witnesses to include Federal Reserve Chairman Alan Greenspan; Nokia Corp. gives mid- quarter update.
Wednesday: The Fed releases its so-called beige book survey of regional economic conditions.
Thursday: Commerce Department reports on retail sales for May and business inventories for April; Labor Department reports on weekly jobless claims; mortgage company Freddie Mac reports on mortgage rates.
Friday: Commerce Department reports on international trade for April; Labor Department reports on producer price index for May; University of Michigan releases its consumer sentiment index.
From Times Wire Services
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Smoker’s Suit AgainstPhilip Morris to Begin
A lung cancer victim from Marina del Rey goes to court this week against Philip Morris USA, in the first tobacco case to be tried in California since a key ruling by the U.S. Supreme Court aimed at limiting punitive damages.
Opening arguments are set for Wednesday in Los Angeles County Superior Court in the suit by Fredric Reller, 64, who smoked Marlboro and Benson & Hedges menthols for 36 years before he was found to have lung cancer in November 2000.
Reller’s lawyer Michael Piuze has scored huge victories over Philip Morris in two prior cases in Los Angeles, persuading juries to award record punitive verdicts of $3 billion and $28 billion. Trial judges later pared the awards to $100 million and $28 million, respectively. The cases are on appeal.
The top U.S. cigarette maker is hoping that the Supreme Court decision in April in Campbell vs. State Farm will improve its chances or at least limit the size of any punitive damage award.
In the Campbell ruling, the court said the ratio of punitive to compensatory damages usually should not exceed 9 to 1--though it declined to set a strict mathematical formula, leaving room for bigger awards in cases of extreme injuries or misconduct. The ratio of punitive to compensatory awards in the Los Angeles tobacco cases were 18 and 33 times, respectively, even after the post-trial reductions.
In the Campbell decision, the high court also said punitive awards should be based on direct injury to the plaintiff, rather than general harm to society.
Anti-tobacco plaintiffs have regaled juries with incriminating internal documents suggesting that the industry conspired to keep the public from knowing the truth about the dangers and addictiveness of smoking. Tobacco lawyers are hoping to exclude some of these exhibits on the strength of the Campbell decision.
The trial is expected to last several weeks.
Reller began smoking unfiltered Pall Mall cigarettes at age 15 before switching to Marlboro a few years later. His suit originally named Brown & Williamson Tobacco Corp., owner of the Pall Mall brand through its acquisition of the former American Tobacco Co. But B&W; was dismissed from the case several weeks ago.
Myron Levin
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U.S., Mexico to Hold Business Workshop
The United States and Mexico will play host to an entrepreneurial workshop in San Francisco this week, an extension of the Partnership for Prosperity begun in 2001 by the two countries.
The workshop will take place today and Tuesday, with U.S. Commerce Secretary Don Evans, Mexican Secretary of the Economy Fernando Canales and U.S. Treasurer Rosario Marin serving as hosts.
Investors and business owners from both countries will meet with university leaders, nongovernmental organizations and government officials to discuss opportunities in Mexico.
The workshop overlaps with Treasury Secretary John W. Snow’s trip to Mexico on Tuesday and Wednesday. Snow will meet with Mexican President Vicente Fox and other officials during his visit.
From Times Wire Services
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OPEC May Cut Back as Iraqi Output Rebounds
OPEC, which meets Wednesday, may need to reduce output in the third quarter because Iraqi production could reach prewar levels by the end of September, the organization’s president, Abdullah ibn Hamad al Attiyah, told reporters Sunday.
The Organization of the Petroleum Exporting Countries “will have to accommodate” Iraqi exports, said Attiyah, who is also Qatar’s oil minister.
Vice President Dick Cheney has said output should reach the prewar level of 2.5 million barrels a day, or even 3 million barrels, by the end of the year.
OPEC delegates will gather in Doha, Qatar’s capital, today to discuss their output strategy before the formal meeting. Oil prices have remained within OPEC’s target range of $22 to $28 a barrel since the group’s April meeting in Vienna. OPEC pumps a third of the world’s oil.
From Bloomberg News
