Quarterly reports raise anxiety
Associated Press
NEW YORK — One of the greatest fears on Wall Street is that the past few weeks of earnings warnings and triple-digit declines were just a rehearsal — and that the market is likely to endure more turmoil this month when companies actually issue their first-quarter reports.
The numbers that will start trickling in during the coming weeks are expected to be the weakest year-over-year quarterly results in about a decade. And while investors might think they're prepared for the worst, analysts expect Wall Street to react badly.
"We have not entered the phase yet where the market is going to disregard bad news," said A.C. Moore, chief investment officer for Dunvegan Associates in Santa Barbara, Calif. "There is a time when the nervous selling has been done, and when there is a scintilla of improvement ahead and when bad news tends to roll off. But we're not there yet."
A big question at this point is: What constitutes good or bad news?
If companies can simply meet lowered expectations, investors might consider that positive news, analysts say. It's less clear whether investors, reacting to such reports, will drive prices higher and, if they do, whether those gains can last.
"Six months ago, if you just said you were going to meet expectations, your stock would have been trashed," said Ronald J. Hill, investment strategist at Brown Brothers Harriman & Co. in New York. "Now meeting expectations is the best anyone can hope for. ... Just making numbers is probably going to be viewed as good news."
Last week, Dell Computer proved that just standing by weaker estimates can be enough to propel stocks higher.
Desperate for good news, investors sent the Dow soaring 402 points Thursday after Dell said it still expects to earn 17 cents a share on $8 billion in revenue. And the Nasdaq had its third-biggest one-day percentage gain.
Wall Street was so hungry that investors ignored Dell's note of caution that there's a month left in its first quarter, which ends May 4, and that it cannot offer earnings projections for the remainder of the year.
"The market was looking for some reason to bounce," said Charles White, portfolio manager for Avatar Associates, who characterized Thursday's run-up as a bear market rally.
The boost from Dell, a technology bellwether, was enough to erase Tuesday's earnings-related selloff, in which the Dow fell nearly 300 points on warnings from Ariba and Broadvision, two smaller tech companies.
Friday's session seemed to confirm that the Dell-inspired surge was indeed a bear market rally — another spate of warnings brought the Dow lower, sending it down 126.96 to 9,791.09 and handing the blue chips a loss of 87.69, or 0.9 percent, for the week.
The key to the market's gaining some stability is for companies to at least meet lowered estimates, Hill said. However, Hill's firm, Brown Brothers Harriman, said last week that it expects more companies than ever to miss already reduced forecasts.
And as for truly good news — in other words, better-than-expected earnings — it sounds as if investors can pretty much forget about it.
"There is a small chance you will get many upside surprises," Hill said. "There will be companies like Circuit City, Bed Bath & Beyond and Best Buy, all of which beat estimates, but they will be in the distinct minority."
