Transcripts

Can Earnings Season Soothe The Volatile Markets

SUSIE GHARIB: Investors are eagerly awaiting the start of earnings season because it could provide some relief for a nervous stock market. But as Suzanne Pratt reports, experts say even solid corporate profits may not be enough to lift stock prices.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Summer is in full force on Wall Street and yet a summer rally for stocks is still elusive. Most market pros blame the Federal Reserve and its incessant raising of short-term interest rates. Others say the mixed outlook for the economy and inflation has made nervous investors even more tentative. Now, however, with earnings season beginning, many experts believe the stock market will finally get a much needed dose of good news.

ANTHONY DWYER, EQUITY STRATEGIST, FTN MIDWEST SECURITIES: The market tends to go over time with the direction of earnings which are remaining positive. Earnings are going to continue to be positive for probably years to come. So, you may have these choppy periods, which we`ve had recently, but ultimately stocks should trend with earnings.

PRATT: Analysts expect companies in the Standard & Poor`s 500 to show on average a 12.3 percent gain in profit growth for the second quarter. That would make the 12th straight quarter of double-digit gains, the longest winning streak since the mid 1990s. As always, investors will also be watching what companies have to say about future earnings. While most analysts expect corporate profits to remain strong in the second half, they do expect the economy to slow. Nevertheless, some are forecasting less volatility for stocks in the coming months.

DWYER: We think it will be more consistent because it will be apparent that the economy has slowed down. The Fed will have stopped raising interest rates and earnings will continue to trend higher. All of those put together should equal from a macro standpoint much higher stock prices.

PRATT: From a technical standpoint, however, the outlook for stocks in the second half is somewhat less promising. FRANK GRETZ, CHIEF TECHNICAL ANALYST, SHIELDS & CO.: The most important trend in the market right now is actually a negative one in terms of the average stock. I mean, the averages have had their correction. They`ve come back reasonable well. They look like they could go higher indeed. But as a matter of fact, while this is going on, most stocks have not acted nearly as well as the averages. They have not acted nearly as well as the commodity stock leadership and I think eventually that`s going to lead to problems for us.

PRATT: Others say the biggest problem for stocks in the coming months is still the Fed. If policymakers continue raising rates beyond September, market pros say the outlook for the stock market would become even more problematic. Suzanne Pratt, NIGHTLY BUSINESS REPORT," New York.