As each day passes, estimates for how bad Q2 earnings will be grows. According toThe Wall Street Journal, "analysts estimate S&P 500 operating earnings -- income excluding one-time items -- fell 11.5% in the second quarter."
While the paper points out that earnings often come in a bit worse than expected, this quarter could be a bit different. Everyone expected the numbers to be bad in sectors including banking, brokerage, insurance, autos, and airlines. But the real question is whether business and consumer spending have been hit harder than predicted.
If spending is down, even companies which are expected to do fairly well such as Apple (NASDAQ: AAPL) and Cisco (NASDAQ: CSCO) could face rough earnings reports as big business and the little consumers defer purchases which they feel they cannot afford. That means that tech earnings, which were expected to be OK, could take a big hit.
If tech falters, what is left? Energy and commodities companies? Perhaps, but that is thin ground on which to build an earnings season.
Douglas A. McIntyre is an editor at 247wallst.com.
The Wall Street Journal reports that the stock market finished the second quarter just above Bear market territory. Does that mean everything's great or that things are going to get worse from here? I think the worst is yet to come and that investors should hold onto their stocks unless they and/or the companies they've bought are going bankrupt. And they might look to buy stocks in the coal and fertilizer industries.
The Journal reports that the Dow Jones Industrial Average (DJIA) began its march downward, ending the quarter (including Monday's slim 3.50-point gain) with an overall loss of 912.88 points, or 7.4%, at 11350.01 -- and perilously slightly less than the 20% decline from a recent high that is considered the start of a bear market. It was the third straight quarterly decline and the worst second quarter since 2002.
I think the 20% decline that designates a Bear market is pretty arbitrary. People know that the market has been a disaster. And if earnings matter, it's likely to get worse. The Journal notes that analysts expect earnings at S&P 500 companies to be down 11% for the second period, led by a 60% plunge in financial-sector earnings. Estimates fell sharply as the quarter progressed. On April 1, analysts were expecting a 2% drop in S&P earnings and a 31% decline in the financial sector.
No sooner than we got used to the huge writeoffs and thought most of the fallout is behind us, that Goldman came today and whacked us on the head. "Over?" it laughed, "you wish!" It then proceeded to downgrade investment banks from Attractive to Neutral. Specifically, it downgraded Citigroup (NYSE: C) to Sell, urging investors to short sell it!
Citigroup will have another $8.9 billion in writedowns, William Tanona, the Goldman analyst said, and added Citigroup to Goldman's "Americas conviction sell" list, cutting his price target on the stock to $16 from $20. Citi shares are down 5.5%.
Merrill Lynch (NYSE: MER) has already been subject to rumors last week it would have to write down more assets. Today, the same Goldman analyst said it will likely incur $4.2 billion of write-downs in the second quarter. MER stock is down 4.5%.
At least Goldman shares have not been immune and are declining nearly 2.7% along with the rest of the investment banks and the market.
Nothing seems to be going right for Citigroup (NYSE: C). In fact, this week the stock price hit below $20 to $19.30 (there was a 4.31% drop on Friday).
With its many acquisitions over the years, there was supposed to be a globally diversified platform – which would deal with downturns. Unfortunately, that experiment has been a failure. If anything, Citigroup's massive size is becoming a hindrance in dealing with the new realities.
Now, according to the Wall Street Journal [a paid publication], Citigroup has some more bad news. It looks like the company will slash jobs in the investment banking division – perhaps as much as 10%. The current size of the group is about 65,000.
Of course, these are high-paid folks. But, then again, they haven't been bringing in much business lately. Instead, Citigroup continues to pile up mega losses.
So, the layoffs should not be a surprise (the activity for buyouts and IPOs has plunged). Yet, it's another sign that things aren't likely to get better soon for Wall Street.
Investors looking for good news today can take solace knowing that Friday the 13th is not especially unlucky.
Indeed, researchers in the Netherlands have determined that fewer accidents and reports of fire and theft occur on Friday the 13th than other Fridays. And stocks are actually trading up in early market action. Still, some people won't care. About $800 million to $900 million will be lost in business today because people will not do things they normally do.
Investors need to remember that there are many ludicrous theories about the stock market. There is the Super Bowl Indicator where people figure that if a team from the old American Football Conference (now the American Football Conference) wins, the market is headed down, while a win for the old NFL (now the National Football Conference) means good times are ahead. People believe that bad things happen in October and that May is the time to sell and go away.
Sometimes these theories "work." Other times they don't. None of them should serve as the sole basis for any investing decision. I understand their appeal because they seem to take the guesswork out of figuring out the gyrations of the market. Real life, though, does not always fit into theories.
The Dow Jones industrial average and the NASDAQ Composite Index are both down more than 8% this year. Gasoline prices have topped $4, sending many trucking companies to the brink of bankruptcy. Soaring commodity prices have squeezed profits of businesses ranging from Dow Chemical Co. (NYSE: DOW) to the local pizzeria.
If you want to invest, do your homework. Of course, people still need to avoid black cats crossing their path, stepping on sidewalk cracks and breaking mirrors.
Some investors thought that tech shares would fall apart like financial and transportation stocks have. One by-product of the recession would be a slowing of consumer and business purchases of PCs and enterprise equipment like routers. Internet businesses would suffer from a drop in online ads.
It may be that things are not working out that way. The Nasdaq jumped almost 5% over the last month.
As The Wall Street Journal writes (subscription required), Dell Inc. (NYSE: DELL) jumped late in the week on better-than-expected earnings. The largest of the internet companies, Google Inc. (NASDAQ: GOOG), rocketed after good earnings and has kept most of those share price gains. Consumer electronics bellwether Apple Inc. (NASDAQ: AAPL) has kept moving higher as investors expect a new iPhone and Macs continue to sell well.
Overall, the market may continue to fall. Certainly most companies still run great risks with higher inflation and slowing GDP. Tech seems to have dodged those bullets.
Every economic problem or setback seeks a scapegoat -- someone decision makers, pundits, and others can blame (unjustifiably) for a turn of events that's preferred by virtually no one.
The criticism is parsimonious, unfair, and injurious -- but that hasn't seemed to stop practitioners from venturing forth with charges that are often tenuous, if not absurd.
Scapegoat-of-the-moment
The ever-incisive FT columnist Martin Wolf points out that former U.S. Federal Reserve Chairman Alan Greenspan is being cast as 'the villain' for the housing bubble, its bursting, and consequent impact on credit/bond markets and credit availability. All of it is unfair, Wolf notes, and he provides ample evidence to support his point.
Chiefly: Greenspan did not create low, long-term interest rates. The low, long-term rates were caused primarily by a global savings glut, Wolf said. (See: China's savings rate.) The Fed had little control over this -- Greenspan even creatively and accurately referred to the Fed's inability to force long-term rates higher despite the Fed's best effort: he called it "a conundrum." Given the surplus savings sloshing around in global markets at that time, among other factors, those low rates would have occurred regardless of who was Fed chairman.
NASDAQ has released its short interest for the end of March, with a March 31, 2008 cut off date. Overall short interest fell by a rate of some 1.2% on NASDAQ for the two-week period to 9,657,092,223. Interestingly enough, there were a few standouts that saw some major gains in short selling.
The percentage terms on Level 3 are not that great, but the raw number of shares is significant.
These were not the only gainers out there, but the bets against some of these rising short interest stocks were staggering. You can check NASDAQ short interest on any of these stocks or others at the NASDAQ Trader site dedicated to short interest.
As investors await today's start of earnings season, they should remember that Wall Street's equity analysts blew it in the fourth quarter, overestimating profit by 33.5 percentage points, the biggest miss ever, according to Bloomberg News.
"Merrill Lynch & Co.(NYSE: MER), Bank of America Corp. (NYSE: BAC) and the rest of the securities industry aren't losing credibility because of anything sinister," the story says. "The problem is they didn't get their math right after credit markets froze nine months ago."
I am not terribly optimistic that analysts have improved much in the first quarter. Earnings estimates are probably still way too high. Many, many companies are going to miss their earnings estimates. This will erode Wall Street's credibility even further.
Richard Weiss of City National Bank told Bloomberg that first quarter results will be a "big wake-up" call for some analysts. Some may lose their six- and seven-figure jobs because of it.
The lesson here is for investors to do their own homework. Anyone who doesn't have the time or motivation to do it should either hire an adviser or buy index funds.
These days, you can't take Wall Street's word for anything.
After three months it is time to face the facts: two of the three indices beat my picks handily. I have not made a good showing so far and unlike most investment idea sources, I feel obliged to air my dirty laundry for all to see.
My riskiest stock pick Newcastle Investment Corp (NYSE:NCT) is down almost 37% this year, and the energy stocks did almost as poorly even though fuel prices are near all-time highs. The downers were not offset by this months' repeat winners.
March was a seesaw battle, but in the end there was not much to show for it. However, unlike the last day of January (down 370 points in the Dow) and February's last trading day (down 315 points), March had a final day of plus 46.49, which is not very meaningful.
Most of my picks sagged a little more, while two remain in positive territory. Raytheon Co. (NYSE: RTN), the high tech defense contractor is up and Reliance Steel & Aluminum (NYSE: RS) is way up.
MOST NOTEWORTHY: Cisco Systems, NYSE Euronext, Nasdaq and Cognicase were today's noteworthy initiations:
Friedman Billings believes Cisco Systems (NASDAQ: CSCO) is well-positioned to take advantage of "Business 2.0" applications and to gain share in a slower economic environment. The firm initiated shares with an Outperform rating and $31 target.
NYSE Euronext (NYSE: NYX) and Nasdaq (NASDAQ: NDAQ) were assumed with a Neutral rating and $72 target and $44 target, respectively, at UBS. The firm cited increasing competition and moderating volumes.
Deutsche Bank believes Cognicase (COGI) is one of the few carriers offering high-capacity commercial Internet access to enterprise customers at a discount to nearly all of its competitors. Shares were initiated with a Buy rating and $23 target.
OTHER INITIATIONS:
China Housing (OTCBB: CHLN) was initiated at Merriman with a Buy rating.
Goldman started Juniper (NASDAQ: JNPR) with a Market Perform rating and $27 target.
Suntrust initiated hhgregg (NYSE: HGG) with a Buy rating and $16 target.
The Dow Jones industrial average soared almost 400 points today as a plethora of good news soothed the frayed nerves of investors. This is the best start for stocks in the second quarter since 1938, according to Bloomberg.
For once, the economic data wasn't all that bad either. Data from the Institute of Supply Management showed manufacturing activity slowed in March at a slower rate than February and the government also reported better-than-expected construction data for February.
Over the last quarter $100 billion has left equity funds. The FT says that data from Emerging Portfolio Fund Research shows that "investors pulled $70bn from US, Japan and Western Europe funds during the quarter." Some of that money went into funds which invest in emerging markets and a great deal of it went into safe money market funds.
The data means that many mutual fund companies will post bad first quarter figures, but the news is much more serious than that. Such a large amount leaving these funds means that stocks are being sold to provide the capital for redemptions. The process sets up a bad cycle. Stocks are sold to provide money to go into other assets. The sale of stocks continues to push equity indexes down. This leads to more withdrawals.
The only positive aspect to the news is that there is now hundreds of billions of dollars in money market funds, most of it very liquid. If the markets do begin to recover due to better news on earnings or a perceived end to problems in the financial sector, there is a great deal of "dry powder" to be put back in the market. That could further accelerate a market recovery.
But, if withdrawals from equity funds continues, that could be a long way off.
Douglas A. McIntyre is an editor at 247wallst.com.
Twice monthly we peruse short-selling trends in individual stock names and individual sectors. Broad-based short selling is a tool to use as well, although the amount seen in ETFs has been making this trend more difficult to use as ETFs have taken up more and more volume.
We ran the top five names from the NASDAQ 100 and the stocks all saw an increase in short selling. This was taken from NASDAQ data released last night. These were the changes seen from February 29, 2008 to March 14, 2008. This is listed as shares in the short interest and there is a percentage change given as well.
Some Wall Street analysts believe that most write-offs for subprime mortgages, LBO loans, and other credit paper are behind the big banks and brokerages. Goldman Sachs (NYSE:GS) analysts think otherwise.
According toBloomberg: "Wall Street banks, brokerages and hedge funds may report $460 billion in credit losses from the collapse of the subprime mortgage market, or almost four times the amount already disclosed."
If the analysis is true, it will cause two huge problems in the financial markets. The first is that banks and brokerages will probably have to raise more money. This capital may be hard to come by. Sovereign funds and private equity firms appear to have lost their appetites for investing in US financial companies while their stocks keep dropping. That leaves the Fed to provide more capital, which will have to come from someplace. That someplace is the tax base especially individual taxpayers.
The other byproduct of more losses is that banks will cut lending to customers even further instead of risking capital on consumer credit, auto loans, mortgages, and small business loans.
In other words, borrowing a dollar for a cup of coffee may be out of the question.
Douglas A. McIntyre is an editor at 247wallst.com.
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Investors looking for good news today can take solace knowing that Friday the 13th is not especially unlucky.
Every economic problem or setback seeks a scapegoat -- someone decision makers, pundits, and others can blame (unjustifiably) for a turn of events that's preferred by virtually no one. 
As investors await today's start of earnings season, they should remember that Wall Street's equity analysts blew it in the fourth quarter, overestimating profit by 33.5 percentage points, the biggest miss ever, according to 
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Some Wall Street analysts believe that most write-offs for subprime mortgages, LBO loans, and other credit paper are behind the big banks and brokerages. 
Alcoa's Q2 2008 earnings transcript
Anheuser-Busch (BUD) sues InBev, what's next?
Wal-Mart might help your portfolio during the recession
