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10/05 6:46P (RT) Wall St Week Ahead - Stocks to fall on profits
gloom
Story 3215 (SUNW, COST, PEP, MOT, .SPX, .IXIC, .DJI, I/US, I/STX,
I/TEL...) By
Chelsea
Emery
NEW YORK, Oct 5 (Reuters) - Wall Street is looking
for
stocks to pull back in coming days, snapping a two-week
rally
as investors prepare for the worst corporate profits in
a
decade to start pouring
in.
Next week marks the beginning of the third-quarter
earnings
season, when companies report financial results and hint
at
what is to come later in the year. The earnings reports
are
expected to show the sagging U.S. economy, as well as
slower
consumer and capital spending, slammed profits last quarter
--
and will continue to weigh into next
year.
Analysts now forecast third-quarter profits will fall
an
average of 21.3 percent from the same period a year
ago,
according to Thomson Financial/First Call. That's the
worst
performance since the second quarter of
1991.
It gets worse. Currently, analysts expect full-year
profits
to be down 13.8 percent. But First Call strategists say
those
analysts' forecasts will probably come down about 3
percentage
points more, making 2001 the worst year since at least
1969.
"Earnings are going to be lower than the
consensus
estimates and that means there's still a
downside risk
to
stocks," said Nick Sargen, global market strategist for
J.P.
Morgan Private Bank, which oversees $300 billion. He's
telling
clients to move 5 percent to 10 percent of their
equity
holdings to high-quality bonds. "We believe there will be
a
recovery next year. But it's too early to jump over the
abyss
right
now."
Also, money managers say they will likely lock in
profits
by selling stocks that have gained over the past two weeks
as
they worry about recent jobless
reports.
"We've had a decent rally here. Will it continue over
next
week? I doubt it," said Gil Knight, a small-cap stock
fund
manager for Allied Investment Advisors, which oversees
$12
billion. "Announcements of massive layoffs will eventually
make
people more cautious about
spending."
The Labor Department on Friday reported the steepest
job
losses in a decade in September. The same day, network
computer
maker Sun Microsystems Inc. <SUNW.O> said it would slash
almost
4,000 jobs and report a wider-than-expected
loss.
All stock-market predictions are off if the United
States
takes military action against the suspected perpetrators of the
terror attack on the World Trade Center and the
Pentagon.
Investors said stocks could rise or fall, based on the
success
of the possible retaliation. In addition, economic reports
on
consumer spending and confidence will be closely
watched.
Some firms scheduled to report quarterly financial
results
next week include retailer Costco Wholesale Corp.
<COST.O>,
soft-drink maker PepsiCo Inc. <PEP.N> and the U.S.
wireless
technology giant Motorola Inc.
<MOT.N>.
Bond markets will be closed on Monday for the Columbus
Day
holiday. But U.S. stock exchanges will be open regular
hours.
A DELUGE OF ECONOMIC
DATA
Friday will bring a slew of economic data, which may
help
illuminate a cloudy
outlook.
September retail sales and the University of
Michigan's
preliminary survey of consumer sentiment are expected to give
a
sign of whether consumer spending, which props up
about
two-thirds of the U.S. economy, is holding up. The
Producer
Price Index (PPI) is also expected, but investors said
the
inflation indicator will take a back
seat.
In addition, any U.S. military action against the
suspectedperpetrators of the terror attack on the World Trade Center
and
the Pentagon will affect stocks, investors
said.
The United States sent troops to Uzbekistan,
Afghanistan's
northern neighbor on Friday, as Washington readied its
response
to last month's attacks on New York and Washington,
D.C.
Afghanistan's Islamic purist Taliban rulers are
sheltering
militant Osama bin Laden, Washingon's prime suspect in
the
attacks that left nearly 5,600 people feared
dead.
BRACING FOR BAD EARNINGS
NEWS
Investors expect bad news next week, as companies
begin
reporting earnings and giving forecasts for the rest of
the
year. About 31 companies in the Standard & Poor's 500
<.SPX>
are scheduled to report financial results next week,
according
to First
Call.
"People are going to be focusing on what companies
say
about the fourth quarter," said Sargen. "We think the bad
news
about the economy, (falling) corporate profits and layoffs
is
not priced in" to the market
yet.
Last week, stocks eked out a gain as investors snapped
up
battered stocks two weeks after they fell to three-year lows onworries
the Sept. 11 disaster would push the U.S. economy
into
a
recession.
Stocks gained on Friday after President George W.
Bush
proposed a tax-relief program of at least $60 billion to
help
the economy
recover.
For the week, the Nasdaq composite index <.IXIC>
was up
7.1
percent, while the S&P 500 gained 2.9 percent. The Dow
Jones
Industrial average <.DJI> rose 3.1
percent.
Many economists and strategists say the economy will
shrink
over the third and fourth quarters, but they also say they
are
looking for a recovery next year. First Call said
analysts
expect 2002 earnings to be up 18.2 percent from the
year
before.
That optimism has some investors betting stocks are a
good
value even
now.
"Given the slightest opportunity, the market will
go
higher," said Andrew Abrams, a fund manager with CWH
Associates
Inc. in New York. "If we see good, or even
mediocre
announcements next week, the market will trend
higher."
But others
disagree.
"You've got the optimists saying the bad news will be
overby the end of the year -- but we've heard that before,"
said
Sargen. "This period of economic weakness is translating
into
layoffs and weak profits into next year. Let's not get ahead
of
ourselves."
(( -- Chelsea Emery, Wall Street Desk, 646-223-6115 --
))
REUTERS
Rtr 18:46
10-05-01
Additional Codes ( I/RESF, I/ECI, I/JOB, I/DRV, I/GB, I/FED, I/BEV,
I/RET, I/FOD, I/WASH,
I/NEWS, I/VIO,
M/NO)
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