Joseph Battipaglia
Joseph Battipaglia
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Whenever companies come out with warnings, it reminds investors about the perilous nature of the earnings environment at the moment,
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This earnings season, instead of getting a ripple effect on positive news, you're seeing that particular company's stock react, but very little spillover, like with IBM today. The negative news has tended to spill over to the rest of that sector, and in some cases, the broader market.
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Oil prices at these levels are providing all kinds of dislocation issues for stocks. Earnings and the economic data are O.K., but with oil where it is, the market is unable to make a decision, long or short, and there's certainly no real catalyst for buying.
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But if you step back, it seems to me that we're still in the trading range we've been in for some time. There's still the push and pull between rising earnings and rising interest rates.
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Investors are not put off now by the onslaught of disappointing earnings expectations. I think we're well through the inflection point where the market will continue to recover, even though earnings estimates will continue to be cut for the next several months.
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The economy has proved itself to be vibrant. Inflation is clearly in the bottle. The dollar is back on track. Japan is struggling again. The Europeans want to get out of recession. Rates don't go up in that environment. We've got a market that is going to go off of earnings with a lot of positive momentum and start to hit new highs.
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The market's done really well considering it's September, ... I think that reflects the changing fundamentals and the fact that analysts are expecting better things from the earnings and therefore raising estimates and issuing upgrades, in particular, in the technology sector.
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The market is being very rational where it's placing capital and the companies that can grow their unit volume, get revenues and earnings going at a 30 to 40 percent clip are being rewarded accordingly, ... I see nothing irrational about it.
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What's going to be positive here is delivered earnings, a fairly bright outlook for the second half by corporations, and a growing comfort among investors that perhaps the tightening initiative by the Fed is coming to a close,
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The techs on balance have put in a fairly decent performance, ... We're getting a sense that there's a bottoming going on in the semiconductors. Some of the bellwether companies like Cisco are talking about a better environment in the future.
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Right now, the slowdown in PC sales I tie to the Pentium III,
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CPI data was benign but the data was prior to Hurricane Katrina, ... Still, no one is quite sure about what the Fed is going to do going ahead. So the market is not showing much conviction.
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There's ongoing, underlying strength in the economy, and that's important because as rates move higher, the durability of growth and the endurance of the momentum is very important for investors.
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We have a lot of difficulty with the telecom service sector, ... It looks like the bad news is localized in that company and that sector. We're at a point where most of the major shocks have been had and the market action today, after the gains over the last few days, is very constructive.