Transcripts

Why Investors Remain Worried Despite The Rescue Plan

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Suzanne Pratt. The day after one of the biggest stock market rallies ever, investors were having second thoughts. While there's optimism about a systemic solution to the financial crisis, there are fresh worries about fundamentals like the economy and corporate profits. Market pros warn investors those issues are likely to provide little positive news in the near term. For Catalpa Capital's Joe McAlinden, it means a stretch of choppy trading.

JOSEPH MCALINDEN, CHIEF INVESTMENT OFFICER, CATALPA CAPITAL: The fourth quarter will see a lot of zigging and zagging. I think we may have made the lows in terms of the level. We may re-test them as we get into November and December, but I don't think we're going to make new lows.

PRATT: Experts say the iffy state of the economy is likely to be a huge roadblock for stock investors. Data measuring retail sales, the housing market and auto sales will show wounded consumers and the effects of tight credit. Labor statistics will detail the chilly state of the job market. Constrained and worried consumers don't spend, and that means economic growth is likely to be negative.

MCALINDEN: The economic consequences of the credit freeze should start showing up in the data. It hasn't shown up a lot yet. In the data, though, over the next several months, and that will mean a ratcheting down of earnings expectations.

PRATT: Experts say lower earnings expectations will be the other big headwind for stocks. Earnings reports have begun to flood Wall Street, and expectations get worse every day. Right now, analysts expect third-quarter earnings for companies in the S&P 500 to drop 7.5 percent. That's down sharply from September 1st. Jefferies strategist Craig Peckham is worried that expectations may still be too high.

CRAIG PECKHAM, EQUITY TRADING STRATEGIST, JEFFERIES & COMPANY: It's a little too early to tell because we've got a lot of really important earnings reports still coming up. But the bias from where we sit is that the negative revisions aren't fully priced in.

PRATT: Experts say they would rather see investors focusing on ugly fundamentals rather than a frozen credit market, or the collapse of the financial system. That's because they say those ugly fundamentals will, in time, improve. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.