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History won't repeat itself
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Just as earnings season hits full swing this week and investors get their first full taste of how the housing meltdown affected corporate profits, Wall Street will take a moment to recall how the Dow plunged nearly 23 percent on "Black Monday" 20 years ago.
The earnings season gets going full blast with results expected from more than 80 companies in the Standard & Poor's 500 Index, as well as hundreds of mid-sized and smaller companies.Expectations are low, with Reuters Estimates saying S&P 500 profits are expected to grow just 3.2 percent.That's why I believe we will have a good week in stock market.The results might be better than expected.However if the future earnings expectation worsens than we won't have a pretty week.It is a difficult call.
Late summer credit market seizures as the housing sector spiraled out of control will come into focus when Citigroup Inc and Bank of America Corp report results, providing more clues on how the mayhem hit the financial sector.The mix includes several pharmaceutical companies such as Eli Lilly and Co, Pfizer Inc, Wyeth and Johnson & Johnson.
Actual earnings for the recently completed third quarter, companies' forecasts of future profits will be more crucial.I think what is probably going to move the market more is how many companies lower their earnings expectations going forward.If there are a significant number of them, I don't think the market will treat that very kindly.Companies deriving earnings from overseas sources will have an edge. Any company that is largely depending on their revenues coming exclusively from the U.S. is subject to potential earnings warnings going forward.
The Dow Jones industrial average finished the past week up 0.2 percent, the S&P 500 rose 0.3 percent and the Nasdaq Composite Index gained 0.9 percent.
For the year so far, the blue-chip Dow average is up 13.1 percent, while the S&P 500 is up 10.1 percent and the Nasdaq is up 16.2 percent.
MEMORIES OF 1987 MARKET CRASH
In addition to the blitz of numbers this week from earnings reports and economic indicators, Wall Street will face on Friday the 20th anniversary of the 1987 stock market crash. Friday's date commemorates "Black Monday," as October 19, 1987, came to be known, when the blue-chip Dow Jones industrial average fell 508 points, or 22.6 percent, in what is still the Dow's biggest percentage drop.I think a recurrence is unlikely. The economic backdrop was very different in 1987, with higher interest rates and a recession looming then.
Among the coming week's economic data, September housing starts, due Wednesday, will be closely watched as that industry remains mired in what many describe as a recession.
In a Reuters poll of economists, the median forecast is for housing starts to slip to an annual pace of about 1.285 million units, down from 1.331 million in August.From my point of view,the housing slump is definitely not over.I am especially concerned about the resetting of adjustable rate mortgages, which will mean bigger monthly payments for borrowers.It's not a question of liquidity, it's a question of credibility.
I expect the stock market to add to its gains between now and the end of the year despite a slowing economy.
In addition to the housing starts, Wednesday will also feature the release of the September U.S. Consumer Price Index and the Federal Reserve's "Beige Book" on business activity in the 12 Federal Reserve Bank districts.
Economists polled by Reuters expect both the overall CPI and the core CPI, which excludes volatile food and energy prices, to rise 0.2 percent.
The Fed's Beige Book will be studied for clues on whether the Fed will cut interest rates again or hold steady when it meets at the end of October.
Figures on industrial production and capacity utilization are due Tuesday. The consensus view is for a rise of 0.1 percent in industrial production. Capacity utilization is seen holding steady at 82.2 percent.
Thursday's data includes an index of leading U.S. economic indicators. A rise of 0.3 percent is expected in September, the Reuters poll showed.
The Philadelphia Federal Reserve Bank's index of business conditions in the U.S. mid-Atlantic region in October is also due Thursday. The Philly Fed index is expected to decline to 7.3 in October from 10.9 in September. Index readings above zero show growth in manufacturing in the region. |
| Tarih
: 15.10.2007 |
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© 2006 Mert TOKER All Rights Reserved. |
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