Extended profit pinch forecast on Wall Street
NEW YORK It's no secret that making money is a lot tougher these days for U.S. companies. And with the economy softer than an overripe tomato, analysts say the profit pinch isn't likely to end anytime soon, despite positive first-quarter profit "surprises" from tech giants Amazon.com and Dell Computer.
"The storm hasn't hit yet," warns Richard Bernstein, chief quantitative strategist at Merrill Lynch. "The full impact of the earnings slowdown has yet to be felt."
With the first-quarter earnings-reporting season under way, that doesn't bode well for an imminent recovery in stock prices, despite already steep declines.
But that hasn't stopped investors starved for good news from latching on to any signs that the "profits recession" is nearing an end. "There is some positive news trickling in," said Joe Kalinowski, strategist at Thomson Financial/First Call.
Yesterday, investors drove shares of Amazon.com up 34 percent after the Internet retailer said it would lose less money than expected. Amazon said its first-quarter operating loss would be less than $50 million, or 22 cents a share, versus a loss of $99 million, or 35 cents a share, a year ago.
Similarly, Dell Computer said on Thursday that it would meet lowered profit goals, boosting the Nasdaq 8.9 percent.
However, a slew of tech profit warnings Friday halted the rally.
Future rallies may falter as well, since positive surprises are expected to be in short supply. Analysts have been ratcheting down their earnings forecasts for all types of companies. Tech earnings are expected to plunge 36 percent in the first quarter. For the full year, tech earnings are expected to decline 25 percent.
More troubling is that the earnings pinch is not confined solely to tech. Of the 11 S&P 500 sectors, energy is the only one that has seen its first-quarter earnings estimates increased by analysts.
While much of the bad news may already be reflected in techs, that's not the case for stocks in the broader market, said Mary Lisanti, chief investment officer at ING Pilgrim Investments. "Stocks in the Dow and S&P 500 can come down more," she said.