Is There a Cure for
the Summertime Blues?
By Peter S. Iuvara
We are in the heart of earnings season, what
should investors look for in earnings releases from these
companies? Although it's important for the company to
at minimum meet the street, and preferable beat the street
on both their earnings and revenue numbers, guidance going
forward seems to be what the street is really focusing on.
Investors are so focused on this guidance because our economy
has yet to show pronounced signs of a recovery. I have heard
ranges from analysts and economists on our economy's recovery
ranging from as early as 3rd Quarter, 2001 to as late as 2nd
Quarter, 2002. This range leaves a lot to be desired in terms
of certainty, or at least a rough estimate.
So, When will our economy finally recover? We are looking
to the middle of the 1st Quarter, 2002, around February 2002.
According to rate cut models, the Federal Reserves interest
rates cut on Jan. 3 should be entering the system right now.
After that we have a minimum of 5 more rate cuts that should
further fuel the economy in an accelerating manner. Hopefully,
if things go as planned, the lower interest rates should increase
the amount of borrowing and spending, which leads to expansion
and growth. And on a Marco level, this expansion and growth
creates a cycle of more expansion and growth as the need for
more employees' increases and prices go up. This is what the
economy should do once we have formed a bottom, and once CEOs,
executives, IT managers, etc. decide to take the first steps
to business spending.
Are we at the bottom? Yes, I think we are. Although
Mr. Greenspan's speech last week lead us to believe that we
have more rate cuts in our future, he also notioned to the
fact the, "the rate of deterioration is slowing and we
are seeing signs that the bottom is beginning to structure
itself." For the past couple weeks on the Nasdaq for
instance, we have been trading somewhere between 2000 and
2200, and at these levels it seems like the market is trying
to formulate a bottom.
So what advice do you have for investors during this bottoming
process? For short-term traders I would suggest buying
on dips during this traders market, be wary of current quarter
earnings, and try to trade with as much discipline as possible.
The longer-term investor should focus on company's earnings,
especially their guidance going forward. Focus on market leaders
in optimistic sectors, with solid revenue and earnings streams,
and companies that recently reported well with good guidance.