August 24  - Will The Earnings Goose Begin Running Out Of Golden Eggs Come October?
By Brady Willett & Todd Alway

To those of you who like just one cup of coffee in the morning, a nice stroll in the park before eggs benedict, and a glass of freshly squeezed  orange juice, the last few weeks have not been disappointing.  The sedated markets have offered investors plenty of time in the morning to enjoy the finer things in life without having to worry about the state of  their portfolios. What can be effectively coined as 'unpredictable mayhem' back in April has churned into a predictable period of calm.

The markets are in a state of unresolved anticipation; partly because many  traders have gone on vacation and partly because no one is at all certain how the earnings-Fed-economy debate is going to end.  As for this debate, it looks ready to heat up come October, the second worst month for  the markets behind September, a month quaintly referred to as the Crash month.

The markets have become about trading ranges and investor perceptions. What will influence these ideologies will be corporate earnings which begin arriving en mass  again in October.  The estimates from First call are down since July 1, falling for the first time in 2000 heading into e-season.  But what is interesting is that 2001  earnings estimates (15.6% for the year) are beginning to stabilize and 1Q01 and 2Q02 have actually begun to advance.   This could either mean the analysts have  mapped out a specific time frame for the 'soft landing' to take place in (3Q00-2Q01) or that the analysts are misapraising what the numbers will come in at; in  contradiction with recent history since estimates are usually topped.




Could it be that the analysts are the last ones to know about the possibly precarious  earnings situation over the next 6-12 months?  Or the last ones to admit they know?  What we might have here is a failure to communicate: the Fed wants things  (meaning money supply, stock prices, consumer spending, and job creation) to remain calm, stocks are sideways for one of the longest periods during this bull run  and inflation (heating oil and natural gas come winter of course) is in the pipeline but being siphoned away from our eyes via crafty government accountants and the  deadening spray from productivity pistols.  Will the economic slow down go perfectly?  If it doesn't second quarter  2001 estimates, or the mark signifying the softest part of the earnings landing, could end up being the hump that broke the investors who believe the analysts back. 

Come October we will get the first taste of this market's heart, whether it be warm and beating or cold and bleeding.  As for those worry free mornings, they will be no more. It is going to be a volatile ride with election  prophets and economic slow down enthusiasts prompting many rallies on both exchanges. But whether or not  these rallies hold any water will be up to corporate earnings and, but of course,  how investors perceive these  earnings going forward. 'Perceive' is a vague word, isn't it...a word perhaps given clarity only by the term 'bear', a term the markets will have a difficult time misunderstanding...