String of strong economic data could push stocks higher this week.
NEW YORK (CNN/Money) - U.S. investors wanted the evidence, and they were overwhelmed by it. A series of key economic indicators showed a trend towards recovery at the same time that "Enron-itis" grew into a big ugly green monster. Market pros say a battle of the nerves will ensue on Wall Street this week as the bulls and the bears poise for a classic face-off.
"Either you believe the markets or so don't believe the markets. There's no in-between here. The bulls are very vigorous and the bears are very vigorous," said Barry Hyman, chief investment strategist with Ehrenkrantz King Nussbaum.
"The bears come out of the woodwork when we had the accounting stories, and the bulls say look at the economy. As long as we don't get many new stories, the markets will go day by day this week. I don't think there's a selloff when there's no new news," Hyman added.
Barry Hyman, chief investment strategist with Ehrenkrantz King Nussbaum.
The Enron fallout gave birth to an infectious case of guilt by association, which contaminated a diversified crew of companies, including Tyco, Williams, PNC Bank, Anadarko Petroleum and Elan. The markets reacted by plunging to three-month lows Tuesday.
But unexpected growth in fourth-quarter GDP and the Federal Reserve's decision to keep interest rates unchanged seemed to revive investor confidence and boost. A drop in the unemployment rate for January and strength in consumer sentiment also gave support.
"No more cuts is terrific news. It brings the trust back and we've seen beaten stocks like Tyco and Williams recover and do better. That could continue," said Linda Jay, NYSE specialist with LaBranche & Co.
And the feeling among market watchers is that as long as the investors don't get many new stories, the main story will remain the strong economic data, which perhaps allowed markets to withstand the barrage of accounting-related nightmares last week.
"The market get very accepting of a story that's repeated more than once. If the story next week becomes more of Enron, or Elan, or Tyco, we're not going to have anything significant to the downside. What's out there doesn't limit how much we go up," said Hyman.
At the finish line Friday, the Dow Jones industrial average rose 0.7 percent, but the Nasdaq slipped 1.4 percent, and the Standard & Poor's 500 lost 1 percent.
For the month, the Nasdaq composite index fell 2 percent, while the Dow dropped 1.1 percent. The S&P index dipped 2.3 percent.
According to the so-called January Effect which says, "As January goes in terms of the S&P, so does the rest of the year," this could be another tough year for the markets. But the markets have not experienced three down years since the Great Depression, and the barometer hasn't always worked.
So just how seriously should investors take this indicator?
"It doesn't really determine that this year is going to be a down year. What it really indicates is the confusion over whether we're in a growth economy or not," said Hyman.
Corporate confession season winds down
Investors enter the home stretch of the 2001 fourth-quarter confession period this week. More than 70 percent of the S&P 500 companies reported results last week Friday and another 14 percent will do the deed this week.
"The earnings season is basically winding down. Most of the Dow components have already reported. The major report this week is Worldcom. It came under heavy pressure last week and probably will continue to do so until Thursday as investors wait to see whether the company can project revenue growth or will scale back going forward," said Peter Cardillo, stock market strategist with Global Partners Securities.
Online travel service Priceline.com (PCLN: up $0.02 to $6.32, Research, Estimates) reports fourth-quarter results Monday. The company is expected to deliver a profit of 1 cent a share from a loss of 15 cents a share a year ago.
Also reporting Monday is the No. 3 long-distance carrier Sprint (FON: down $0.48 to $17.22, Research, Estimates), expected to post a profit of 29 cents a share, compared with a profit of 41 cents a share a year ago, while Sprint PCS (PCS: down $0.79 to $15.59, Research, Estimates), the company's wireless telephone unit, is expected to post a loss of 30 cents, compared with a loss of 53 cents a share in the year-earlier period.
Wednesday's lineup includes networking gearmaker Cisco (CSCO: down $0.59 to $19.21, Research, Estimates) reporting its second-quarter results. The company expects to post earnings of 5 cents a share, versus earnings of 15 cents a share a year ago.
Brewer Anheuser-Busch (BUD: Research, Estimates) and soft-drink company PepsiCo (PEP: Research, Estimates), the two top competitors for today's Super Bowl advertising bonanza, also are on tap to report quarterly results. Anheuser-Busch is expected to log a profit of 26 cents a share, up from 23 cents a year ago, while PepsiCo is expected to post a profit of 42 cents a share, up from 38 cents a share from the year-earlier quarter.
Among the retailers, clothing designer Jones Apparel (JNY: Research, Estimates) is scheduled to report fourth-quarter earnings of 21 cents a share, down 32 cents from the year-ago period. J.P. Morgan last week upped its rating on the stock to "buy" from "long-term buy," citing a turnaround in the company's footwear and retail businesses in 2002.
Worldcom (WCOM: down $0.44 to $9.61, Research, Estimates) reports Friday. The long-distance telecom firm is expected to log record earnings of 14 cents a share, compared with a profit of 25 cents a year earlier.
Retailers
Consumer spending, the backbone of retail sales, and the life blood of the U.S. economy, came in last week with an expected drop of 0.2 percent in December. Analysts quickly pegged the contraction to the receding impact of low-financing offers by automakers.
"It wouldn't be surprising if there was a little bit of a pullback in consumer spending in the first quarter as well because of the zero-percent financing in the fourth quarter, which makes for a very difficult comparison," said Charles Lieberman, chief economist and chief investment strategist with Advisors Financial.
"But I think the underlying trend in terms of consumer spending and overall economic spending is actually up," Lieberman added.
Those are welcome words for the nation's retailers on tap to announce quarterly results as the tail-end of the reporting season gets under way.
But analysts debate whether the heavy promotions of the 2001 holiday season actually hurt or helped the sector.
According to Dana Telsy, retail analyst with Bear Stearns, the holiday sales surge that continued into January has enabled retailers to basically shrink inventory levels. "Retailers are entering 2002 very clean," Telsy said.
On the other hand, consumers have shopped though the downturn, including a big influx of Christmas sales, and there's no pent-up demand, said Pamela Stubing, retail analyst with Ernst & Young. "Retailers are going to take longer to recover because of that. Department stores will be hurt, specialty retailers will be hurt. Discounters, with the exception of Kmart, will do well. I'm not expecting a lot of momentum in quarterly results in terms of profitability," said Stubing.
From the investors' point of view, this is how the forecast data reads on the fourth quarter: Retail earnings are expected to increase by 7.1 percent from a decline of 11.6 percent in the same quarter a year earlier, and rise to 12.2 percent in the first quarter, according to earnings tracker First Call.
Economic reports dry up
It's a dry spell for economic reports with any market-moving potential this week. Two reports due out Tuesday are worth a mention.
The Institute for Supply Management releases its survey on the services sector. Economists surveyed by Briefing.com expect the index to show a decline to 50.5 for January from 54.2 in December. Analysts say a number above 50 shows the services sector is expanding.
Investors get another update on manufacturing when the Census Bureau reports on the December factory orders -- goods and services made in U.S. factories. Economists surveyed by Briefing.com forecast a 0.5 percent increase in December from a 3.3 percent decline in November.
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