Transcripts

Despite The Market Retreat Experts Remain Optimistic

SUSIE GHARIB: Despite today's market retreat, the recent anxiety on Wall Street seems to be diminishing. Many experts believe that the worst of the financial crisis is over, but the fallout will impact first quarter earnings. Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: While there was no follow-through today from yesterday's huge rally, many Wall Street pros are still encouraged about the outlook for stocks. Since St. Patrick's Day on March 17, the Dow has surged nearly a thousand points or about 8 percent. Veteran strategist Gail Dudack thinks the worst may be over for stocks, but believes the market will remain in a trading range for months.

GAIL DUDACK, MANAGING DIRECTOR, DUDACK RESEARCH GROUP: I'm looking for kind of a staircase kind of recovery for the stock market. There's a lot of - there's been a lot of beaten up stocks and there's a lot of issues yet to be resolved. Again, what is the real earnings growth rate for any sector?

PRATT: It's widely expected that some of those first quarter earnings will be disappointing. Industry analysts now forecast first quarter profits at S&P 500 firms to decline nearly 11 percent from a year ago. That's much worse than what they predicted January 1 and it's likely to be the third straight quarter of negative earnings growth for the S&P 500. But some experts are encouraged that profit woes have not spread much beyond financial and consumer discretionary companies, particularly home builders. Thomson Financial's Bob Kaiser points out that in the last recession, earnings troubles were more widespread.

ROBERT KAISER, VP OF RESEARCH, THOMSON FINANCIAL: Earnings weakness was much more broad-based throughout the 10 sectors of S&P than we are seeing today. So historically, in times of recession, you see weakness across at least half of the sectors in the S&P, as opposed to the two sectors where we're seeing it currently.

PRATT: And while modestly negative earnings growth is expected for the second quarter, forecasts for the third and fourth quarter of 2008 look a lot better. Experts say that's not only because head winds from financials may calm down, but because of easier comparisons. Brown Brothers Harriman strategist Brian Rauscher does not think the market has yet priced in an earnings recovery in the second half of this year.

BRIAN RAUSCHER, PORTFOLIO STRATEGIST, BROWN BROTHERS HARRIMAN: For earnings generally speaking, I think the market is too pessimistic, so any earnings upside would, I think, be market positive.

PRATT: Dow component Alcoa kicks off earnings season Monday with the release of its first quarter results. Other big name U.S. companies will release their numbers beginning the week of April 14. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.