Wall Street's Final Hour Free Fall
Wednesday, October 22, 2008SUSIE GHARIB: Another sharp sell off for stocks today, on fresh concerns about a global recession and a mixed batch of earnings reports. The Dow tumbled 514 points closing at the 8,500 level. The NASDAQ lost 81 points and the S&P 500 dropped 58 to its lowest level since 2003. Investors dumped shares of Dow components Boeing and Merck after the companies reported disappointing quarterly numbers. They also punished AT&T and McDonald's which had positive news. As Scott Gurvey explains, the key for investors is what corporate America says about future earnings.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Third quarter earnings reports are giving investors headaches, not so much for what they say about the quarter just ended, but for what they forecast about quarters to come. Earnings growth estimates for the fourth quarter have been falling but are still positive. While that sounds strange given the talk of recession, it's because last year's fourth quarter was unusually weak. Thomson Reuters research director Ashwani Kaul says fourth quarter growth guidance now stands at 37 percent.
ASHWANI KAUL, DIRECTOR OF RESEARCH, THOMSON REUTERS: It's a sharp drop from 80 percent that we were expected three months ago. And we expect that number to continue to fall as companies give more guidance and have more visibility into the fourth quarter.
GURVEY: Earnings growth for the first quarter of next year is expected to be even worse. Those expectations have also been falling. Some improvement is seen for the second quarter and Kaul expects still more improvement in the third quarter of next year.
KAUL: I don't think anybody should be really surprised. I think we're like in the middle of what you would call a sort of a quote/unquote recession. So you know it's only ... we're in the middle of it. We're still going to have a couple more quarters of pain, so I'm not surprised at all to see these numbers really come down.
GURVEY: For investors looking for a market bottom, there is actually good news in lowered guidance. Strategist Gail Dudack says the market decline simply means the market is doing its job.
GAIL DUDACK, CHIEF INVESTMENT STRATEGIST, DUDACK RESEARCH GROUP: If we actually hit $60 earnings and we put an average multiple to that of 15 times, then you come up with an S&P of 900. So we've traded below 900 in this recent low. So I think the market has done a big job of discounting a lot of earnings disappointment as of the middle of October.
GURVEY: In fact, Dudack says for long term investors, the more guidance is reduced, the better.
DUDACK: I think we're actually in the process of discounting a lot of negative earnings that probably we'll get to the point, hopefully, where we might actually see that we might have some positive earnings surprises.
GURVEY: Dudack says if the market continues to test 900 on the S&P 500 and it holds, it will be a good sign a bottom has been found. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
