Flying Without Guidance

Corporations are reluctant to commit to forecasts, leaving investors wary about buying stocks

By Joseph Lisanti

Fourth-quarter reported earnings have not been too bad. But the market has continued to slide as the reporting season progresses.

It's not the recent earnings performance that has investors concerned, but rather the tepid guidance that corporations have been giving for the near future. A few companies have warned that coming quarters will be weak. Some have set a new policy of not providing guidance to analysts and investors. But much of the nervousness has been the result of "poor visibility" on future sales and earnings.

In plain English, these companies are saying that there are too many uncertainties (consumer confidence, capital spending and international tensions, for example) to predict with any confidence what will happen in their businesses. That's keeping many buyers on the sidelines. And the weaker dollar means that foreign investors will not soon be taking up the slack, since their U.S. investment returns will be trimmed when converted back into their own currencies.

December and January are traditionally two of the strongest months for the S&P 500. The 6% drop last month looked like it would be reversed in the first days of trading in January. But the early gains have evaporated in subsequent trading sessions. That worries S&P chief technical analyst Mark Arbeter, who notes that a down first month in 2003 would make three weaker-than-average December-January periods in a row for stocks.

Technically, the market action has been sloppy, but we still believe that stocks will be higher by the end of 2003, boosted by an improved economy and the resolution of international problems. Nevertheless, the path to higher prices will be far from straight.

The recent market retreat has somewhat tempered our bullishness. We now expect the S&P 500 to reach 930 at midyear (down from our previous estimate of 990) and 1005 at yearend (from 1050). Our forecast still represents a 14% gain from yearend 2002 to the final trading day of this year.

Lisanti is senior editor of Standard & Poor's weekly investing newsletter, The Outlook

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