Confession Season Good for Stocks? (artigo)
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Confession Season Good for Stocks? (artigo)
Confession Season Good for Stocks?
Saturday June 7, 7:24 am ET By Vivian Chu
NEW YORK (Reuters) - Hopes for an economic recovery later this year have propelled stocks into bull-market terrain, but even the bulls are worried that the stock rally may cool down as corporate America starts the confession season when it warns about earnings disappointments.
In other words, confession may be good for the soul, but not necessarily for the stock market.
And though many strategists believe 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 (News), chief investment officer at First Albany Corp., who estimates the broader S&P 500 index is overvalued between 10 percent and 20 percent.
On Friday, the blue-chip Dow ended slightly higher, but the Nasdaq fell more than 1 percent as investors locked in recent gains. The S&P 500 finished slightly lower.
For the week, the Dow Jones industrial average (CBOT) gained 2.4 percent, while the broader Standard & Poor's 500 Index (CBOE) rose 2.51 percent and the technology-laced Nasdaq Composite Index (NasdaqSC) gained 1.97 percent.
STREET TO HEAR CONFESSIONS
Amid a light earnings and economic calendar next week, the focus will be on Corporate America's "confession" period, when companies provide forecasts for the current quarter. Downward revisions in estimate changes could put a lid on investors' recent exuberance and lead to selling, analysts said.
Among companies set to release earnings next week are Lennar Corp.(NYSE), one of the largest U.S. home builders; H.J. Heinz Co. (NYSE), a food maker whose brands include Heinz ketchup and Ore-Ida frozen potatoes, and Adobe Systems Inc. (NasdaqNM), a desktop publishing software company known for its Photoshop and PageMaker products.
In the first-quarter earnings season, companies mostly beat their own expectations, which had been sharply scaled back due to the Iraq war.
But in the second quarter, analysts will be looking closely at companies' guidance for signs of an economic turnaround.
Starting next week, "we're going to see more and more profit warnings for the second quarter, and a few large-cap companies say they're not going to hit their target," said Ozan Akcin, chief market strategist at institutional services firm Puglisi & Co. in New York. "Those warnings tend to generate negative sentiment and create small pullbacks."
Early signs of stronger second-quarter earnings are encouraging.
Of the 759 companies that have issued guidance to date, 53 percent have issued negative warnings, 25 percent have issued positive guidance, and the rest have confirmed Wall Street's consensus estimate, Akcin said.
RETAIL SALES, PPI ON TAP
Downbeat economic data have failed to deter the rally, as investors have largely ignored weak numbers as a by-product of the Iraq war. Investors have been preoccupied instead with hopes for a strong recovery.
Next week, analysts will be looking out for a weekly retail sales report on Tuesday, a monthly retail sales report on Thursday, and the release of the U.S. Producer Price Index, which measures wholesale prices, on Friday. The University of Michigan's consumer sentiment index, a closely watched gauge of consumer confidence, also will be released on Friday.
Analysts expect the market will continue to brush off weak data for the next few weeks until July, when June data comes out.
"Then it will be 'put up or shut up' time for the market" when excuses like bad weather, the Iraq war, and the SARS virus have been filtered out, said Rich Nash, chief market strategist at Victory Capital Management.
"The big risk out there is that this has been an expectations-based rally," Nash said. "If we don't see an improvement in the next month or so, people will get impatient and start questioning if those expectations were correct."
Saturday June 7, 7:24 am ET By Vivian Chu
NEW YORK (Reuters) - Hopes for an economic recovery later this year have propelled stocks into bull-market terrain, but even the bulls are worried that the stock rally may cool down as corporate America starts the confession season when it warns about earnings disappointments.
In other words, confession may be good for the soul, but not necessarily for the stock market.
And though many strategists believe 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 (News), chief investment officer at First Albany Corp., who estimates the broader S&P 500 index is overvalued between 10 percent and 20 percent.
On Friday, the blue-chip Dow ended slightly higher, but the Nasdaq fell more than 1 percent as investors locked in recent gains. The S&P 500 finished slightly lower.
For the week, the Dow Jones industrial average (CBOT) gained 2.4 percent, while the broader Standard & Poor's 500 Index (CBOE) rose 2.51 percent and the technology-laced Nasdaq Composite Index (NasdaqSC) gained 1.97 percent.
STREET TO HEAR CONFESSIONS
Amid a light earnings and economic calendar next week, the focus will be on Corporate America's "confession" period, when companies provide forecasts for the current quarter. Downward revisions in estimate changes could put a lid on investors' recent exuberance and lead to selling, analysts said.
Among companies set to release earnings next week are Lennar Corp.(NYSE), one of the largest U.S. home builders; H.J. Heinz Co. (NYSE), a food maker whose brands include Heinz ketchup and Ore-Ida frozen potatoes, and Adobe Systems Inc. (NasdaqNM), a desktop publishing software company known for its Photoshop and PageMaker products.
In the first-quarter earnings season, companies mostly beat their own expectations, which had been sharply scaled back due to the Iraq war.
But in the second quarter, analysts will be looking closely at companies' guidance for signs of an economic turnaround.
Starting next week, "we're going to see more and more profit warnings for the second quarter, and a few large-cap companies say they're not going to hit their target," said Ozan Akcin, chief market strategist at institutional services firm Puglisi & Co. in New York. "Those warnings tend to generate negative sentiment and create small pullbacks."
Early signs of stronger second-quarter earnings are encouraging.
Of the 759 companies that have issued guidance to date, 53 percent have issued negative warnings, 25 percent have issued positive guidance, and the rest have confirmed Wall Street's consensus estimate, Akcin said.
RETAIL SALES, PPI ON TAP
Downbeat economic data have failed to deter the rally, as investors have largely ignored weak numbers as a by-product of the Iraq war. Investors have been preoccupied instead with hopes for a strong recovery.
Next week, analysts will be looking out for a weekly retail sales report on Tuesday, a monthly retail sales report on Thursday, and the release of the U.S. Producer Price Index, which measures wholesale prices, on Friday. The University of Michigan's consumer sentiment index, a closely watched gauge of consumer confidence, also will be released on Friday.
Analysts expect the market will continue to brush off weak data for the next few weeks until July, when June data comes out.
"Then it will be 'put up or shut up' time for the market" when excuses like bad weather, the Iraq war, and the SARS virus have been filtered out, said Rich Nash, chief market strategist at Victory Capital Management.
"The big risk out there is that this has been an expectations-based rally," Nash said. "If we don't see an improvement in the next month or so, people will get impatient and start questioning if those expectations were correct."
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