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Sunday December 31, 3:45 pm Eastern Time
WALL ST WK AHEAD-Hangover of earnings warnings deepens gloom
By Emma-Kate Symons
NEW YORK, Dec 31 (Reuters) - New year cheer will be in short supply
this week on Wall Street, as investors brace for another round of
warnings of lower corporate profits and a fresh battering for U.S.
stocks.
2000 ended badly on the stock market, marking the demise of the five-
year bull run, when the Nasdaq Composite Index (^IXIC - news) clocked
the worst performance in its 29-year history, amid a slackening U.S.
economy.
History does not favor a robust opening to the year, given the sharp
slide in stock prices in November and December.
According to The Hirsch Organization Inc., ``January's first five
days usually decline in a new or continuing bear market.''
Add to this the hangover of earnings warnings that were delayed
because of the Christmas/New Year holiday period, plus a round of
downward forecasts - and the outlook is gloomy.
``Better nurse your New Year's hangover on Monday and take a long nap
through all those bowl games you were going to watch,'' said Chuck
Hill, research director at First Call/Thomson Financial, a compiler
of analysts' earnings estimates.
In 2000, 43 percent of fourth-quarter warnings came after Jan. 1,
Hill said.
The only bright spot on the horizon is the possibility of an interest
rate cut by the end of January.
``It's just hard to garnish a lot of enthusiasm for the market with a
softer economy and quarterly earnings warnings looming out there,''
said Peter Coolidge, managing director of equity trading at Brean
Murray & Co. ``People don't know what's coming next.''
DATA MAY PERK EARLY RATE CUT HOPES
The markets will be closed Monday for the New Year's Day holiday.
Tuesday will, however, will be business as usual, with a smattering
of earnings reports, key economic data, and of course the all-too-
familiar earnings warnings.
With an economic slowdown underway, investors are looking to see how
bad the economic horizon looks to guess by how much the U.S. central
bank may eventually have to reduce interest rates.
Analysts said some in the market who expect the Federal Reserve to
cut rates before its late January meeting are looking for a jump in
the unemployment rate to justify that view. Employment figures and
new home sales will be released on Friday.
``If we get through next week without any bombshells, we'll probably
wait until Jan. 31 and they'll only cut rates by a quarter of a
point,'' Mark Vitner, economist at First Union Corp said on Friday.
Wall Street now almost unanimously expects the central bank at its
late January meeting to cut its funds rate 25 basis points to 6.25
percent from the current 6.5 percent. The Fed last cut interest rates
in November 1998.
RETAILERS SHED LIGHT ON SOFT SPENDING
On Thursday, many retailers will report same-store sales, providing
insight into consumer confidence and the state of the economy - which
could be ``the biggest news of the week,'' according to First
Call/Thomson Financial's Hill.
Retailer Walgreen Co. (NYSE:WAG - news) will report quarterly
earnings on Tuesday, and Discount retail chain Family Dollar Stores
Inc. (NYSE:FDO - news) is due on Wednesday.
Last week, U.S. retail sales had a grim end for a glum year that has
been marred by a slowing economy, higher interest rates and deflated
consumer sentiment.
As the hopes for a slight swell in sales dwindled, a handful of Wall
Street analysts predicted that even some of the country's top
retailers would fail to meet December sales forecasts, and may also
see fourth-quarter earnings below expectations.
But despite the dreary prospects, retail stocks rose on the idea that
the worst may well be over. The Standard & Poor's retail index rose
35.39 points, or about 4.4 percent, to 838.46 late on Wednesday
afternoon.
Even No. 1 retailer Wal-Mart Stores Inc. (NYSE:WMT - news), which
last week warned that its December same-store sales would come in
below its previously expected 3 to 5 percent rise, saw its share
price surge more than 5 percent, or $2-5/8, to trade at $53-1/4.
Other companies scheduled to release quarterly results this week
include brokerages Bear Stearns and Lehman Bros - although the
outlook will be for the negative forecasts for the coming quarter.
Profit warnings again kept market sentiment bearish in the last week
of 2000. The nation's largest railroad, Union Pacific Corp.
(NYSE:UNP - news), joined such marquee names as Intel Corp.
(NasdaqNM:INTC - news) General Motors Corp. (NYSE:GM - news) and
Eastman Kodak Co. (NYSE:EK - news) in warning results will disappoint
investors.
The Nasdaq ended the last trading week of 2000 off nearly 2 percent.
It closed Friday down 87.24, or 3.41 percent, at 2470.52. Friday's
drop put Nasdaq's loss for 2000 at 39.28 percent, and the index was
down more than half from its all-time March high.
The Dow Jones industrial average (^DJI - news) ended up 1.4 percent
for the week, but it had its worst year since 1981, with a loss of
more than 6 percent. The Dow closed on Friday down 81.91 points, or
0.75 percent, at 10786.85.
The benchmark Standard & Poor's 500 index (^SPX - news) on Friday
closed down 13.94 points, or 1.04 percent, at 1320.28. In 2000, the
S&P shed 10.1 percent, its worst performance since 1977.
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