War complicates analysis of earnings
By Amy Baldwin
Associated Press
NEW YORK — When companies report their first-quarter earnings this month, Wall Street will have a harder time than usual trying to determine what the numbers mean.
For many companies, business was hurt by the anticipation and fear of war. Now analysts and investors have to ascertain how much of a corporation's sub-par performance was due to war-related factors, such as a drop in sales, higher oil prices or weaker demand overseas, and how much it reflects the firm's overall health.
"Virtually every industry and every company that we cover is going to be affected in some way by the war. In some cases, it will be a minimal impact and in some cases it will have a major impact. ... It is going to be very difficult to look through the fog of the war and really determine the underlying health of individual companies and the overall economy," said Brian Bush, director of equity research at Stephens Inc. in Little Rock, Ark.
It's easy to predict the companies that will produce some of the worst results. Airlines will be among the biggest first-quarter losers, hit by a big drop in demand, particularly for overseas travel, due to terrorism fears in the face of war and to worries about the mystery illness spreading in Asia. Retailers are also bound to post weak sales and profits as many consumers, already curbing their spending because of the weak economy, pulled back further.
Determining the war's effects on other businesses like chemical companies or chip makers will be trickier, although in a global economy every sector suffers during geopolitical uncertainty.
But earnings won't even make it on the radar of some investors, many of whom are focused on day-to-day developments in the war. Earnings reports, already expected to be disappointing, will be the least of their concerns.
"I think most investors are going to be far more willing to look beyond negative earnings announcements than they would in the past," Bush said.
Indeed, Wall Street will have trouble moving ahead until investors feel certain that the war is over, said Michael Murphy, head trader at Wachovia Securities in Baltimore.
"The market's movement is driven by the ground movement in Iraq; it is so volatile. ... With the uncertainty out there with Iraq and the economy, people aren't going to chase stocks," Murphy said.
That means the market will continue to vacillate between rallies and selloffs and trading volume will remain extremely thin as it has been for weeks.
"We're all trading from headline to headline," said Brian Pears, head equity trader at Victory Capital Management in Cleveland. "It's very difficult, because it's nothing we can anticipate. Normally traders are geared toward earnings and economic releases with a time element associated with them, and we know the range of possible results."
Pears added, "Unfortunately, war is not like that. It makes it difficult to trade."
Wall Street's major indexes ended the week higher. For the week, the Dow Jones industrial average rose 131.38, or 1.6 percent. It closed Friday at 8,277.15.
The Nasdaq composite index had a weekly gain of 13.91, or 1 percent, closing at 1,383.51 on Friday.
For the week, the Standard & Poor's 500 index advanced 15.35, or 1.8 percent, to finish at 878.85.
The Russell 2000 index, the barometer of smaller company stocks, had a weekly gain of 4.61, or 1.3 percent, closing at 373.28.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,320.00, up 134.42 from the previous week. A year ago, the index was at 10,551.43.
