By KAREN RICHARDSON
June 26, 2008; Page C1
It is confessional time in the quarter -- the moment every three months when companies are most likely to come forward to acknowledge their profit shortcomings to investors. So far, no news might be good news.
With just a few days left until the end of the second quarter, 81 companies in the S&P 500-stock index have issued profit warnings. That's included companies like United Parcel Service, Ford Motor and Citigroup. Meanwhile, 41 have preannounced positive results.
The mix of positive warnings and negative warnings is pretty much in line with historical levels, says John Butters, director of U.S. earnings at Thomson Reuters. Just ahead of the end of the first quarter, for example, 88 companies warned they would miss expectations, while 39 companies said they would beat them.
That suggests the second quarter could be shaping up to look a lot like the past few quarters: truly dismal for the likes of banks, auto makers and home builders, but not so bad -- all things considered -- for the rest.
Excluding the battered financial sector, the S&P 500 is expected to report second-quarter earnings growth of 8.1%. That compares with 7% in the first quarter, and 11.7% in the fourth quarter of last year, according to Mr. Butters. Strip out energy, too, and S&P 500 profits are expected to be up 3.9% this quarter, compared with 2.7% in the first quarter.
It isn't great news for bulls, who don't get great earnings to push stocks higher. But it also looks like the bears won't soon get the big bust they've been waiting for.
How Much to Blame Fed For Bouncing Bubble?
There's a bubble theory about the miseries afflicting the economy and financial markets right now. It goes something like this:
Ever since the tech-stock bubble burst at the end of the 1990s, the Federal Reserve has kept the economy from feeling too much pain by using low interest rates to push that bubble from one asset class to another. First it went from tech stocks to housing, keeping consumers spending and the economy more or less afloat. Now, some say, the bouncing bubble has landed in a place that's not so helpful: commodities.
"For 10 years, we've been rolling forward every piece of bad news, and finally we've run out of things to roll forward to," says Howard Simons, a strategist at Chicago-based Bianco Research. "We've kept creating bubble after bubble after bubble. Now instead of asset inflation we have consumer inflation."
The next bubble might also be floating to the alternative-energy sector, which raised nearly $14.8 billion in initial public offerings of stock last year -- more than the $11.6 billion that tech-stock IPOs raised in 1998, according to Dealogic.
To be sure, much about the energy boom is out of the Fed's control. It doesn't drive economic growth in China, India and other emerging markets, a source of commodities demand.
But the Fed certainly could go a long way toward hurting commodity prices by raising rates until the global economy cracks. Wednesday's actions made clear it's in no hurry to do that.
