Banking & Capital Markets

Voyage to the Bottom of the V

Earnings results due out this week will likely shape the equity market for the next few months.
John GoffJanuary 22, 2002

This week should provide an interesting ride for capital-market watchers. Over the next several days, scores of high-profile companies will be coming out with their fourth quarter and year-end earnings statements. While year-end earnings will no doubt depress the hell of most investors–and send the equity markets downward–many observers will be more interested in Q4 results. Stronger-than-expected corporate performance in the fourth quarter–particularly a strong showing by marquee companies–could indicate that US businesses are finally getting close to the bottom of the V.

Indeed, a raft of high-profile technology companies are slated to issue earnings statements today. On that raft: Computer Associates, Lucent Technologies, Motorola, NCR, Storage Tech, Earthlink, and Applied Micro Circuits. Although the announcements from Lucent and Motorola will draw plenty of attention, their releases may get lost in the hubbub surrounding the Q4 earnings statement put out today by online merchant Amazon.com. The online seller of books and videos posted its first-ever quarterly profit, albeit a slim one (one penny per share). Still, Amazon’s operating income for the fourth quarter of 9 cents a share was a big surprise to Wall Street. Analysts had been predicting Amazon.com would record a loss of 7 cents a share for the past quarter.

Amazon.com’s performance is good news for managers of privately held technology companies, many of which are running on fumes right now. Managers at a number of those private companies had plans to cash up with IPOs in 2001. The plans were put on hold when the share prices of tech stocks hit the rocks this year. Some observers believe a run up in the share prices of tech stocks will trigger a tech stampede in the IPO market this spring. They point out that many venture capital firms have been waiting for two years to exit their positions in technology startups. Obviously, it’s hard to make your ROI numbers if you can’t cash out of your investments.

Here are some of the other big-name companies scheduled to issue earnings statements this week:

Wednesday: Archer-Daniels-Midland, Boeing, Cirrus Logic, Coca-Cola Enterprises, E.I. du Pont de Nemours, Exxon Mobil, General Dynamics, Kerr-McGee, LSI Logic, Raytheon, Sunoco, Weyerhaeuser.

Thursday: American Home Products, Conoco, Eastman Kodak, Gateway, Georgia-Pacific Corp., Hershey Foods, ITT, JDS Uniphase (that should be interesting), Kimberly-Clark, Maytag Corp., Occidental Petroleum, PeopleSoft, Pepsi Bottling, Phillips Petroleum, Qwest Communications, R.J. Reynolds Tobacco Holdings, Sara Lee Corp., SBC Communications, Starbucks, Tribune Co., Western Digital.

Friday: Ashland, Cypress Semiconductor, Knight-Ridder, Lockheed Martin, Safeway Inc., Washington Post.

Speak Clearly, Mr. Chairman

Will he or won’t he?

That seems to be the question on many CFO’s minds right now, as they try to determine if Federal Reserve Board Chairman Alan Greenspan will lower interest rates one more time. The Fed chairman, who has already reduced the Fed fund rate 11 times, is scheduled to testify before the Senate Budget Committee on Thursday.

Hopefully, the Central Banker will speak his mind a bit more clearly than he did two weeks ago. As you probably recall, in a Jan. 11 speech, Greenspan sounded a fairly pessimistic note in discussing the prospects for a U.S. economic recovery. His comments, in turn, sent the equity markets into a bit of a tailspin.

Since then, however, Fed officials have privately confided that Greenspan’s perceived pessimism did not truly reflect the Chairman’s true feelings about the economy. Some news reports indicated that some higher-ups at the Central Bank were taken aback by investor response to Greenspan’s speech

Anyway, growing consumer confidence in the economy, plus a likely economic stimulus package from Congress, may lead the Fed chairman to leave rates alone. Fed fund futures seem to indicate Greenspan will not lower the rate come Jan. 29, the next time the Fed holds a policy meeting. Given current prices of those futures, traders are only factoring in about a 40 percent chance the Fed will cut rates for the twelfth time in less than two years.

Still, a recent poll of economists conducted by Bloomberg revealed that 21 of the 24 respondents believed Greenspan would lower the Fed Fund rate to 1.5 percent. In case you’re keeping score at home, that would be the lowest interbank rate since 1962. Singapore wasn’t even a country then.

Reasons to Be Cheerful

Two more signs the equity market may soon be headed up.

The government is scheduled to release its survey of leading economic indicators today. That number is expected to rise 0.8 percent, up from a 0.5 percent increase in December.

In addition, the University of Michigan’s latest poll on consumer sentiment shows that consumers are downright giddy about the economy. The index came in at 94.2 this month. If you were around last month–or you went to the University of Michigan–you no doubt realize that’s a 5.4 point jump. It’s also the highest number registered on the survey in a year. Economists surveyed by Bloomberg News had expected the index to rise to a mere 90.

What’s really remarkable here is that somebody actually bothered to take a survey about the expected outcome of a survey. Don’t economists have anything better to do with their time, like pay bills or something?