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Message subject : Wall Street wary despite rebound

This message was posted by ben on April 23, 2000 :

April 23 source CNBC— Was last week’s impressive rebound in technology stock prices a sign of stability returning to the market or just a sucker’s rally?

THAT IS THE QUESTION vexing market analysts — and it will be weeks before the answer becomes clear.
Analysts and investors remain nervous, with another likely Federal Reserve interest rate hike less than a month away. And now investors can add concern about Microsoft’s results to their list, as an extremely cautious outlook from the software giant is expected to weigh on technology stocks Monday.
After fears of a market meltdown April 17 proved groundless, the Nasdaq composite index instead bounced back with two record one-day point gains, adding nearly 10 percent for the week. But the technology-heavy index remains 28 percent off its record closing high of March 10, and once-high-flying Internet-focused companies like Yahoo!, Amazon.com, Ariba and Commerce One are 50 percent or more off their record highs.

“Right now the consensus on the Street is very wary,” said Larry Wachtel, market analyst for Prudential Securities who said he remains bullish about the stock market’s long-term outlook. “We had a five-week decline culminating in the worst point decline in history for both the Dow and the Nasdaq. You don’t come out of that and then say everything is fine.”
Despite the steep decline of the past six weeks, price-to-earnings ratios remain relatively high for technology stocks, even after factoring out their higher-than-average growth prospects. That has left many investors running for cover in cyclical “old economy” stocks that has until recently had been out of favor.

Thursday — came in below reduced expectations. Then the company’s new chief financial officer, John Connors, warned analysts and investors in a conference call that growth was likely to be slower than expected in the year ahead, due in part to sluggish sales of personal computers to business customers. (Microsoft is a partner in MSNBC.)
“It’s one thing to print blowout numbers and then offer a conservative outlook,” said analyst David Readerman of Thomas Weisel Partners in San Francisco. “It’s another thing to come in below (expectations) and then offer a conservative outlook.”
Readerman, a longtime Microsoft bull, said he was reconsidering his outlook for the company and its stock. “I’m glad I have three days to sort that out,” he said.

One thing that makes Connors’ comments puzzling is that other leading technology companies including chip-maker Intel have not reported similar concerns about PC sales growth. Hardware giant Compaq Computer reports earnings Tuesday, providing another missing piece to the puzzle, but analysts now have to wonder whether Connors was merely giving voice to Microsoft’s traditional caution about growth prospects or whether perhaps the highly touted Windows 2000 series of products may fall short of blockbuster expectations.

EARNINGS CUT BOTH WAYS
While plenty of companies in Microsoft’s sphere of influence may suffer Monday amid the uncertainty, rivals like Sun, Oracle and leading Linux companies could benefit from the latest sign of weakness in Redmond, Readerman said.

In general, earnings have been better than expected, with S&P 500 companies on track to report a 23-percent increase over last year’s first quarter, compared to the 22 percent originally expected, said Chuck Hill, research director for First Call, which tracks estimates.

But he noted that strong earnings could be yet another piece of evidence for central bankers looking to stamp out any hint of overly strong growth — and the price inflation it can introduce into the economy.
“Right now, the Fed’s pretty much off the center stage, and earnings are front and center,” Hill said. But by May 16, when Fed policy-makers next meet, the situation will be reversed, he said
In addition to the last really big set of first-quarter earnings reports, including a flurry of major oil and telecom companies, investors in the coming week again will be focusing on economic indicators led by gross domestic product on Thursday. The GDP report is expected to show that the economy grew at a robust 6 percent rate in the first quarter, nearly twice as fast as the Fed’s target rate of 3 to 3.5 percent, although a slowdown from the superheated 7.3 percent pace of the final quarter of 1999. Any report of growth over 6 percent could hammer stocks, several analysts said.
David Blitzer, chief investment strategist for Standard & Poor’s, said it was still too early to tell whether the market selloff is over. He expects a lot of “churning” in the months ahead.
“The rebound is very nice,” Blitzer said. “People didn’t rush to get out of the market, and I think that’s a big plus. But I wouldn’t rush to buy at this point. I think I would rush to watch.”

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