The Coming Week: Hang On, Sloopy! This Election's Not Over Yet
After the
Florida Supreme Court's
announcement that all 67 Florida counties must do a hand recount of all the undercounted ballots in the presidential election, dimpled chads and all, it looked like the market could be headed for a difficult coming week.
But on Saturday, the
U.S. Supreme Court
stepped in and halted the recount, which may force market participants to take a wait-and-see approach before bailing out. Oral arguments before the highest court in the country begin Monday at 11 a.m.
The market's most recent preoccupation -- weighing the benefit of falling interest rates against recent earnings warnings -- could again be put on hold, while the latest chapter in the race for the White House unfolds.
The major indices closed prior to Friday's announcement by the Florida high court. In the past few weeks, the markets have maintained that what they don't like is uncertainty, but the swift reaction in the futures market following the close (and grumbling comments from a few sources) shows it's possible that, at least on a short-term basis, the market doesn't like
Al Gore
much, either.
Or, at least, the politically minded daytraders in the audience are going to attempt to profit from the news by squeezing stocks like
Microsoft
(MSFT) - Get Microsoft Corporation Report
on Monday. The software giant that, as the thinking goes, likely would be treated more kindly by a Republican administration, slipped in postclose trading Friday, dropping 38 cents to $52.75.
Ultimately, with the Dec. 18 date for electors to certify the election fast approaching, strategists do see a resolution to this issue: Gore or Texas
Gov. George W. Bush
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(because "neither" is not an option). Some believe the wrangling is mostly only interesting anymore for short-term trading opportunities. Several important companies, including Dow component
Merck
(MRK) - Get Merck & Co., Inc. Report
, have analyst meetings scheduled for next week.
Oracle
(ORCL) - Get Oracle Corporation Report
reports earnings, and there's a
Fed meeting in a week and a half.
"I had a broker call me and ask me what he should do based on the court outcomes," said Phil Dow, director of equity strategy at
Dain Rauscher
. "I said, go to Vegas, you'll have better odds there. Somebody is pushing the buttons when it looks negative on a short-term basis."
The election tussle is going to grab all the headlines next week (unless the beloved Cuban boy resurfaces, of course), but looking beyond that, Dow and other strategists are looking for choppy action that perhaps tilts slightly upward. The election issue may be resolved by Monday or Tuesday, but traders are going to step gingerly into next week. The same trends apply, but the market may be less active.
Sentiment Has Improved
This is funny, because the market was just starting to feel good about itself again.
Intel
(INTC) - Get Intel Corporation Report
warned Thursday, and the market didn't flinch; in fact, it rallied. Some had declared the bear market over because of a positive reaction to negative news.
Credit
Alan Greenspan for this. Despite what is expected to be a glum preannouncement season and a weak earnings period in January, the stock market is looking ahead to the possibility of interest-rate decreases and a more accommodative stance from the Federal Reserve. Greenspan's words Tuesday, in essence telling the market that he recognizes an economic slowing when he sees one, put investors on more solid footing.
Aside from Oracle, warehouse store retailer
Costco
(COST) - Get Costco Wholesale Corporation Report
also will come out with its quarterly results. Strong results out of Costco should bolster the faith of the market a bit, even if it erodes some expectations for Fed rate cuts.
"Oracle will give us a good read on the software business, and with Costco, that'll give you a feel for how consumers are doing," said Brian Gilmartin, portfolio manager at
Trinity Asset Management
.
Also, several companies are holding analyst meetings next week. Some, like
Pfizer's
(PFE) - Get Pfizer Inc. Report
, are expected to be upbeat, but others could hold surprises along the lines of what
Bank of America
(BAC) - Get Bank of America Corp Report
did this week when it warned of an earnings and revenue shortfall in the fourth quarter. The company appeared that day at a
Goldman Sachs
conference, but due to new
Securities and Exchange Commission
rules regarding selective disclosure, released an earnings warning midday Wednesday.
Meetings scheduled include
Tellabs
(TLAB)
,
Eastman Kodak
(EK)
(which issued an earnings warning last quarter), Merck and
Corning
(GLW) - Get Corning Inc Report
. Dow component
McDonald's
(MCD) - Get McDonald's Corporation Report
will release November sales Monday.
So, election aside, the tug-of-war between corporate earnings and the monetary policy/interest-rate outlook has been renewed after three months of the fish shooting investors into a barrel. The market is now anticipating a day when the Fed cuts the 6.50% funds rate.
Which factor will win out? In the summer, when second-quarter earnings reports were coming in strong and the ranks of those cautioning of slowed demand for technology equipment were a brave few, the market still had a hard time getting going, simply because of persistent expectations of more rate snugging by the Fed.
Investors are now increasingly convinced that the Fed will provide the market some relief. But the Fed's actions, whenever they show up, cannot retract bad bank loans, inspire consumers to buy more personal computers or spur technology investment from companies facing a large debt burden and eroding profits.
"It's probably going to take until the middle or end of the first quarter before a round of earnings estimates increases," Dow said. "My guess is the market remains tentative for at least one to three months."
So the market can't operate on its expectation of the Fed's good intentions alone. It'll have to see a strengthening in the economy after what will be two poor quarters of earnings growth. It's possible, however, that there's more seasonality to this slowing than cyclicality, but it's impossible to prove that theory now. More skittishness, on the other hand, is to be expected.
