Earning warnings, and the fear of more to come, continue to choke stocks According to a Lucent spokesman rumors that the company will soon file for bankruptcy protection are 'absolutely false'. Now that we have that out of the way, according to the horrible earnings season First Call has been predicting for weeks the verdict is now in: 'absolutely true'. There has been a record 756 earnings warnings this quarter, and certainly more will arrive before it is all said and done. The Dow gained 29 points with NYSE volume surpassing 1.4 billion shares traded, and the Nasdaq lost 34 on over 2.4 billion. Breadth was 18-11 negative on the Dow, and 9-8 in the red on the Nasdaq. New lows more than tripled new highs in tech land, but on the NYSE (or value land), new highs won the race 70-54. The VIX briefly ran above 40 before closing at 39.07, and yesterday the p/c ration nearly broke above 1 (0.99). The U.S. dollar index weakened for the third straight session today, and this occurrence has helped gold form a half-hearted attack at $260 an ounce. Despite gold's soft move, the XAU was up hard today (+5.23%). Question: perhaps China/U.S. tensions, soft U.S. equities, and the weakening dollar will continue to lead gold shares higher? Perhaps also this is another moment in time when gold stocks outperform the POG only to quickly tumble lower with no positive follow through? Dow After beginning the week with two triple point losses the Dow eked out a gain today. However, the session was anything but bullish as financial stocks did not join in the cyclical rally: the S&P bank index was off by 3.28%, and Dow components C, JPM, AXP continued to trade lower following American Express's earnings warning on Monday. American Express: $2.27 Citigroup: $3.08 JP Morgan Chase: $3.56 The above numbers represent the average earnings estimates for year-end 2001. Take out a pen, mark these numbers down on a piece of paper and place them into a sealed envelope. Open that envelope up in December 2002 when year-end results begin to filter in. Each of the above three companies has already encountered a handful of downgrades in the last three months. As for American Express, it blamed much of its shortfall on junk bond losses, but financial stock earnings woes could come from a variety of sources: a decline in mergers and acquisitions activity, investment gains turning into losses, reduced trading revenues, not so hot IPO's, continued bond blow-ups, and so on. Suffice it to say, if the U.S. slow down lingers the earnings estimates on the big three are still way too high. The current situation might well be comparable to tech analysts who claimed in mid-2000 that PC demand would pick up in the first quarter 2001. Has PC demand picked up? In many financial stocks the analysts may be holding on, and hoping the economy can improve quickly so they do not have to start slashing estimates… Nasdaq The Nas is down in every session in the second quarter, and the average scratched a new low of 1619.58 today. Small Question: Will we get a bounce before Friday? Big Question: How can any bounce be sustained until the earnings free-fall stops? "We believe the decline in share prices ... has gone well beyond what the fundamentals suggest". Cohen has predicted the S&P index, which was at around 1,114 at midday Wednesday, will hit 1,650 by the end of the year. She said the stock market was currently overshadowed by ``risk aversion.'' Investors were basing investment decisions on worst-case scenarios and ``that's when opportunities are the best,'' Cohen said at the World Economic Forum's U.S. meeting being held in Washington Let me see if I understand Abby correctly. Companies continue to warn at a record clip, and by some estimates we are headed for a 90% chance of a recession – and she thinks stock prices are overshadowed by 'risk aversion'? Has not the risk been real? Has not the truth come to pass, even as Abby has said it was a great time to buy stocks 54 times during the last year? Does she not continue to base her opinions on the assumption that investors will buy stocks above any, and all historical statistical averages (P/CF, PE, PEG)? In the last year we have seen G. Soros crack, and J. Robertson retire and claim he doesn't understand the market any longer. That said, we have still not yet seen Abby Joseph Cohen express any doubt over what is happening in the marketplace. Abby thinks the S&P 500 will rally 48.1149% by year-end – THIS DURING A TIME WHEN EARNINGS ON THE S&P 500 ARE EXPECTED TO BE FLAT! I think I am beginning to run out superlatives to express the disgusting feeling I get every time this lady speaks. One last, and serious question: Is she nuts? April 7, 2001 |