Fully Invested Bears Quake Before an Exuberant Earnings Slate

These valuations can't hold, can they? Guess we'll find out.
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People already know a lot about the earnings season that's going to begin in the coming week. They know that analyst forecasts are for the

S&P 500

to grow by more than 11%. They know that company analysts low-ball estimates by about 2.5%. They know that earnings will come in above the forecast. They know that the preannouncement season lacked the big-name blow-ups that the market's seen over the last year, and that suggests companies could beat estimates by more-than-the-usual margin. And they know that when companies get on that conference call and talk about what business looks like going out, they'll probably have good things to say -- expectations are that the third quarter will be even better than the second.

In short, this is going to be one terrific earnings season.

But what people don't know is how much of that is already in the market. Even in May, there was talk about how as soon as the

Federal Open Market Committee

meeting was done, attention would turn to earnings and the summer rally would commence. And sure enough, since the FOMC finished its meeting, the

S&P 500

has gone up more than 5% -- even as bond yields stayed high and people who still secretly read

Graham & Dodd

tore their hair out over valuations. And so again there are people worrying about how the market is priced for perfection and how this earnings season, stock may sell off on the fact. Even as they hold onto their stock for fear of missing a rally.

The stock market story of the late 1990s: Everybody's a fully invested bear.

"It seems to me like this thing, whether you agree with it or disagree with it, it still wants to go up," said Ned Collins, vice president of U.S. stocks at

Daiwa Securities America

. "We've all been looking for a summer rally, and maybe we've already had it, but you sure don't want to go short."

No, when CEOs and CFOs high-five each other to a chorus of "Congratulations on a terrific quarter" from the analyst community, short doesn't sound like the safest thing to be.

On the economic front, there are a couple of big reports set for release that, so long as they come in as well as expected, shouldn't do anything to drown out the big sucking, er, cheering sound from all those analysts. The two key June inflation reports, the

Producer Price Index

and the

Consumer Price Index

come out Wednesday and Thursday, respectively.

But though he thinks the headline numbers should be benign,

Morgan Stanley Dean Witter

chief U.S. economist Richard Berner worries that signs of nascent inflation may begin to show up in the PPI and CPI. "What's important to watch these days -- particularly in the Producer Price Index -- is whether or not the indexes at earlier stages of the pipeline confirm the increase in prices we're seeing in the

Purchasing Managers'

price diffusion index and other inflation measures. My bet is that it will start to do that."

Berner does not think that things are about to get downright inflationary, but rather that as a result of the rebound in global growth, inflation will return to a run rate of 2% to 3%. "That's not bad, but it's higher than what's built into the marketplace," he said. Berner expects the

Fed

to take back all of the cuts it made last year.

Whether the Fed really is going to raise rates again is a subject of great debate. So far, the market is acting as if it will not. That will likely remain the case until the

Alan Greenspan

gives his

Humphrey-Hawkins

testimony before

Congress

July 22. A long way off as far as the stock market's concerned. Let the earnings party begin.

Date

Company

Quarter

First Call View

Yr-Ago EPS

No. of Analysts

July 12

Gannett Company

2

0.86

0.78

13

July 12

Pfizer

2

0.17

0.15

24

July 12

Synovus Financial

2

0.19

0.17

7

July 12

Grainger (W.W.)

2

0.63

0.60

11

July 13

Associates First Capital

2

0.49

0.42

22

July 13

AmSouth Bancorporation

2

0.40

0.36

15

July 13

BB&T

2

0.48

0.43

21

July 13

Dow Jones

2

0.61

0.56

11

July 13

Enron

2

0.50

0.42

17

July 13

Fannie Mae

2

0.91

0.80

19

July 13

Firstar (Post Mercantile)

2

0.30

0.22

4

July 13

Intel

2

0.53

0.33

31

July 13

International Paper

2

0.23

0.29

14

July 13

Merrill Lynch

2

1.46

1.31

12

July 13

Motorola

2

0.41

0.01

28

July 13

MGIC Investment Corp

2

0.93

0.81

11

July 13

Phelps Dodge

2

NA

0.69

9

July 13

Paine Webber Group

2

0.94

0.82

11

July 13

SLM Holding

2

0.82

0.84

7

July 13

Suntrust Banks

2

0.96

0.88

21

July 13

Willamette Industries

2

0.46

0.21

12

July 13

MBNA

2

0.26

0.21

20

July 14

Apple Computer

3

0.64

0.50

19

July 14

Advanced Micro Devices

2

(1.26)

(0.45)

17

July 14

Bestfoods

2

0.61

0.58

14

July 14

Columbia Energy Group

2

0.25

0.27

10

July 14

Ford Motor

2

1.95

1.91

15

July 14

Fleet Financial Group

2

0.73

0.65

21

July 14

Huntington Bancshares

2

0.48

0.43

13

July 14

Polaroid

2

0.33

0.03

9

July 14

Rowan Companies

2

(0.05)

0.50

21

July 14

Southtrust

2

0.63

0.55

16

July 14

State Street Corporation

2

0.75

0.66

14

July 14

Time Warner

2

0.06

0.02

13

July 14

U.S. Bancorp

2

0.54

0.48

21

July 14

Wachovia

2

1.22

1.09

23

July 14

Whirlpool

2

1.24

1.05

9

July 14

Weyerhaeuser

2

0.70

0.34

15

July 15

Alcan Aluminium

2

0.25

0.44

15

July 15

AlliedSignal

2

0.70

0.61

14

July 15

Andrew

3

0.16

0.28

9

July 15

Boeing Company

2

0.48

0.26

13

July 15

Boise Cascade

2

0.44

(0.04)

11

July 15

BankBoston

2

0.77

0.80

19

July 15

Ceridian

2

0.24

0.21

10

July 15

Champion International

2

0.25

0.26

12

July 15

Comerica

2

1.02

0.92

18

July 15

Capital One Financial

2

0.41

0.32

19

July 15

Cummins Engine Company

2

1.21

1.38

8

July 15

Deluxe

2

0.60

0.52

3

July 15

Dover

2

0.40

0.38

10

July 15

Fifth Third Bancorp

2

0.58

0.50

15

July 15

FPL Group

2

1.04

1.02

11

July 15

Freddie Mac

2

0.71

0.56

18

July 15

Gillette

2

0.26

0.33

14

July 15

Guidant Corporation

2

0.33

0.32

32

July 15

Hasbro

2

0.10

0.03

7

July 15

Johnson Controls

3

1.17

0.90

8

July 15

Keycorp

2

0.59

0.56

21

July 15

Coca Cola

2

0.38

0.47

16

July 15

McGraw-Hill

2

0.44

0.39

10

July 15

Maytag

2

0.97

0.71

9

July 15

National City

2

1.11

0.99

20

July 15

NEXTEL Communications

2

(1.35)

(1.45)

17

July 15

New York Times Company

2

0.45

0.40

13

July 15

Office Depot

2

0.21

0.17

19

July 15

Owens Corning

2

1.29

1.02

10

July 15

PPG Industries

2

0.97

1.16

10

July 15

Raychem

4

0.38

0.46

5

July 15

Seagate

4

0.36

0.11

11

July 15

Summit Bancorp

2

0.70

0.66

15

July 15

Unisys

2

0.33

0.24

11

July 15

Union Planters

2

0.71

0.90

12

July 16

Archer Daniels Midland

4

0.06

0.10

5

July 16

Caterpillar

2

0.81

1.20

19

July 16

Constellation Energy

2

0.37

0.39

8

July 16

Dominion Resources

2

0.61

0.61

12

July 16

Edison International

2

0.41

0.40

6

July 16

Potlatch

2

0.30

0.35

3

July 16

Tribune

2

0.87

0.75

14