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WEEKLY OUTLOOK, July 6
By Jody Osborne, Optionetics.com
7/6/2003 7:30:00 PM

http://www.optionetics.com/articles/article_full.asp?idNo=8651

The bulls returned to the market place last week, despite a number of disappointing economic reports. In fact, almost all the indices that we track rose after falling in the previous week. The Dow ($INDU) added just 0.90 percent, but this was enough to move back above the key 9,000 level. The S&P 500 ($SPX) did manage to gain about one percent, closing at 985.70. The Nasdaq ($COMPQ) saw the biggest gains, rising 2.35 percent to close the week at 1,663.46. On Wednesday, the Naz reached a 52-week closing high, though it came off this level on Thursday.

Economic news was abundant last week, with Thursday seeing the release of the June employment report. Not only were more jobs lost than anticipated, the unemployment rate also raised more than expected. Thursday was a holiday-shortened session, but stocks held up better than one would expect nonetheless. Adding to the negative news was a worse than expected weekly jobless claims report. This coming week will be short on economic news, but below are the reports scheduled for release:

Monday: None

Tuesday: Chain Store Sales, Richmond Fed Survey, Consumer Credit

Wednesday: ABC News/Money Magazine Consumer Comfort Index, Wholesale Trade, MBA Mortgage Applications

Thursday: Chain Stores Sales Monthly, Jobless Claims, Import and Export Prices, Manufacturers Alliance/MAPI Survey

Friday: International Trade, PPI

Overall, though economists are split on their view of the future of the economy, they do agree there have been some improvements. Nonetheless, with this week’s slate of reports light, traders are likely to focus more on second quarter earnings and third quarter outlooks.

As the economy has tried to recover, analysts have kept telling us that earnings are going to get better, especially the second half of the year. Now it is time to put up or shut up. If third quarter earnings’ outlooks don’t live up to expectations, stocks could be in for a serious decline. However, if corporate America steps up to the plate and announces strong earnings ahead, stocks might not see much selling before trekking higher. This week is the start of second quarter earnings season, with the following stocks on tap to report:

Monday: Lone Star Steak (STAR), Unifirst Corp (UNF)

Tuesday: Alcoa (AA), Pepsi Bottling (PBG)

Wednesday: Brown & Brown (BRO), Genentech Inc (DNA), Fastenal (FAST), Ruby Tuesday (RI), Yahoo (YHOO)

Thursday: Abbot Labs (ABT), Commerce Bancorp (CBH), Cintas Corp (CTAS), VISX Inc (EYE), Infosys (INFY), Juniper Networks (JNPR), Pepsico (PEP), Powerwave Tech (PWAV), Sonus Networks (SONS), Suntrust Banks (STI), Tenet Healthcare (THC)

Friday: Accenture Ltd (ACN), General Electric (GE), Shaw Group (SGR)

There aren’t a lot of reports due, but some key ones nonetheless. Alcoa will get the Dow components started when it announces on Tuesday. On Wednesday, Internet company Yahoo will release its quarterly report. Thursday will see the release of reports from both Abbot Labs and Juniper Networks, with Friday giving us earnings news from General Electric.

Tax cuts, low interest rates and hope have pushed stocks higher this year, but this type of stimulus can’t last forever. Eventually, demand needs to pick up enough to spur more supply, which will lead to capital spending and hiring. However, if the economy keeps inching along, corporate America will not have the need or desire to increase spending with capacity utilization so low already.

Overall, Thomson First Call expects second-quarter earnings to grow 5.4 percent on a year over year basis. However, they do expect energy and the technology sectors to see much strong gains, with estimates of 36 percent and 20 percent respectively. Many analysts believe that lofty stock prices have created a tough market for the bulls because earnings projections will need to be strong in order for stocks to continue rising. Last week, Trim Tabs moved its short-term view of the market to extremely bearish due to the large number of corporate offerings that are occurring, which takes money from equities.

The Dow and SPX have a little room to make up before reaching recent highs, though the Naz is sitting just below is 52-week high. Keep an eye on the CBOE Market Volatility Index ($VIX), as it continues to flirt with the important 20 level, closing last week at 21.61. However, the VIX did move to a low of 20.55 Thursday before moving higher late in the session. Though the VIX can stay in this range for an extended period of time without the market moving sharply lower, it is something to keep an eye on, especially during earnings season.


Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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