RPT-Wall St Week Ahead: 'Cliff' concerns give way to earnings focus

NEW YORK, Jan 6 (Reuters) - Investors' "fiscal cliff"
worries are likely to give way to more fundamental concerns,
such as earnings, as fourth-quarter reports get under way this
week.
Financial results, which begin after the market closes on
Tuesday with aluminum company Alcoa, are expected to be
only slightly better than the third-quarter's lackluster
results. As a warning sign, analysts' current estimates are down
sharply from what they were in October.
That could set stocks up for more volatility following a
week of sharp gains that put the Standard & Poor's 500 index
on Friday at the highest close since Dec. 31, 2007. The
index also registered its biggest weekly percentage gain in more
than a year.
Based on a Reuters analysis, Europe ranks among the chief
concerns cited by companies that warned on fourth-quarter
results. Uncertainty about the region and its weak economic
outlook were cited by more than half of the 25 largest S&P 500
companies that issued warnings.
In the most recent earnings conference calls, macroeconomic
worries were cited by 10 companies while the U.S. "fiscal cliff"
was cited by at least nine as reasons for their earnings
warnings.
"The number of things that could go wrong isn't so high, but
the magnitude of how wrong they could go is what's worrisome,"
said Kurt Winters, senior portfolio manager for Whitebox Mutual
Funds in Minneapolis.
Negative-to-positive guidance by S&P 500 companies for the
fourth quarter was 3.6 to 1, the second-worst since the third
quarter of 2001, according to Thomson Reuters data.
U.S. lawmakers narrowly averted the "fiscal cliff" by coming
to a last-minute agreement on a bill to avoid steep tax
increases last week - driving the rally in stocks - but the
battle over additional spending cuts is expected to resume in
two months.
Investors also have seen a revival of worries about Europe's
sovereign debt problems, with Moody's in November downgrading
France's credit rating and debt crises looming for Spain and
other countries.
"You have a recession in Europe as a base case. Europe is
still the biggest trading partner with a lot of U.S. companies,
and it's still a big chunk of global capital spending," said
Adam Parker, chief U.S. equity strategist at Morgan Stanley in
New York.
Among companies citing worries about Europe was eBay
, whose chief financial officer, Bob Swan, spoke of
"macro pressures from Europe" on the company's October earnings
conference call.
REVENUE WORRIES
One of the biggest worries voiced about earnings has been
whether companies will be able to continue to boost profit
growth despite relatively weak revenue growth.
S&P 500 revenue fell 0.8 percent in the third quarter for
the first decline since the third quarter of 2009, Thomson
Reuters data showed. Earnings growth for the quarter was a
paltry 0.1 percent after briefly dipping into negative
territory.
On top of that, just 40 percent of S&P 500 companies beat
revenue expectations in the third quarter, while 64.2 percent
beat earnings estimates, the Thomson Reuters data showed.
For the fourth quarter, estimates are slightly better but
are well off estimates from just a few months earlier. S&P 500
earnings are expected to have risen 2.8 percent while revenue is
expected to have gone up 1.9 percent.
In October, earnings growth for the fourth quarter was
forecast up 9.9 percent.
In spite of the cautious outlooks, some analysts still see a
good chance for earnings beats this reporting period.
"The thinking is you need top-line growth for earnings to
continue to expand, and we've seen the market defy that," said
Mike Jackson, founder of Denver-based investment firm T3 Equity
Labs.
Based on his analysis, energy, industrials and consumer
discretionary are the S&P sectors most likely to beat earnings
expectations in the upcoming season, while consumer staples,
materials and utilities are the least likely to beat, Jackson
said.
Sounding a positive note on Friday, drugmaker Eli Lilly and
Co said it expects profit in 2013 to increase more than
Wall Street had been forecasting, primarily due to cost controls
and improved productivity.
(Wall Street Week Ahead moves every Sunday. Comments or
questions on this one can be sent to

Read More..

Wall Street cheers "cliff" deal, but only for now

When lawmakers delivered a long-delayed, last-minute agreement on the budget, Wall Street celebrated. And it would be easy to think that the surge in the Dow the following day meant that investors had put their concerns about Washington's political gridlock behind them.
The Dow Jones industrial average surged on the news, but that doesn't mean the volatility is over. In fact, there could be more turmoil in the market soon because decisions on cutting the federal budget deficit have been put off until March, when the government will reach its borrowing limit. Republicans have already said they will demand cuts to spending as a condition for extending the limit.
"The uncertainty is still there, the key issues are spending cuts and entitlement reforms and, for the most part, those were not addressed," says Terry Sandven, chief equities strategist at U.S. Bank Wealth Management. "This sets the stage for sharper rhetoric and increased market volatility as these discussions evolve."
The last time lawmakers tussled over the debt limit, the stock market plunged and the U.S. government lost its AAA debt rating. The Dow fell almost 7 percent in the two weeks before an agreement was reached Aug. 3, 2011.
Many business leaders objected to the agreement lawmakers reached late Tuesday. The Business Roundtable, an association of chief executive officers of leading U.S. companies, said that although it addressed some of the immediate negative consequences that the economy would have faced going over the "fiscal cliff," it failed to address the "serious and fundamental" reforms the economy needs. The National Retail Federation said that the deal was welcome, though it was only the first step in necessary tax reform.
Companies are likely to remain wary of investing until they get more clarity from Washington, says Joe Heider, a principal at Rehmann Financial in Cleveland, Ohio. He likens the current U.S. business climate to a sporting event where the referees tell the players to take the field before telling them that the rules of the game will only be decided on once the final whistle has been blown.
"Washington needs to get out of the way of the financial markets and American business," said Heider. "They need to create some certainty over how businesses should best deploy all the cash that they're sitting on."
And corporations are sitting on a lot of cash. Companies have been steadily building up their reserves over the last five years and are now sitting on record cash piles. By the end of the third quarter of last year, S&P 500 companies had accumulated more than $1 trillion in cash, according to data from S&P Dow Jones Indices.
At least for now, companies are unlikely to invest much of that money back into their businesses simply because demand just isn't strong enough, says U.S. Bank's Sandven. Instead they will spend it on acquisitions, stock buy-backs and pay higher dividends. Those are all actions that should boost stock prices in the near term, despite the ongoing uncertainty and increased volatility that will be caused by political wrangling.
Investors should take advantage of any volatility in the market created by the political wrangling to seek out stocks that have a history of growing their dividends, says Sandven. He estimates that half of the stocks in the S&P 500 have a dividend yield that is higher than the current 10-year U.S. Treasury note. The 10-year Treasury note was at 1.90 percent Friday.
He also recommends that investors buy the stocks of companies that have exposure to emerging markets that have a growing middle class and don't have the same debt issues as the U.S.
Joseph Tanious, a global markets strategist at J.P. Morgan Funds, says investors would be wise to remain calm when the negotiations in Washington around the debt ceiling start to heat up this spring.
The stock market dropped sharply in the weeks after the election Nov. 6 as investors worried that a divided government wouldn't get a deal done in time to meet a budget deadline by the end of the year, but it has rebounded since then. The S&P 500 is now 2 percent higher than it was on election day, even after falling by as much as 5 percent in the two weeks following the vote. On Friday it closed at 1,466, the highest since December 2007.
"When push came to shove, Congress did come together to reach an agreement," says Tanious. "Many people were saying you should be out of the market ... (that) markets are going to capitulate, and that didn't happen."
Stocks have rallied over the last three years as investors remain optimistic that the economy will maintain a slow, but steady, recovery from recession, as the housing market improves and as the outlook for jobs gets better.
And while investors also see the wisdom in addressing the nation's long-term debt problems, they point out that businesses and consumers have been aggressively paying down their own debts in the aftermath of the 2008 financial crisis. That leaves more flexibility for people and companies to shop, invest, and spend money, helping to lift the economy — and the stock market — even if Washington's political dysfunction worsens.

Read More..

Analysis - U.S. fiscal crisis seen hurting tech earnings

Warning to investors: major U.S. technology companies could miss estimates for fourth-quarter earnings as "fiscal cliff" worries likely led some corporate clients to tighten their belts last month and refrain from spending all of their 2012 IT budgets.
Tech companies usually enjoy a spike in orders in December as corporations use money left over in their budgets to buy goods on their wish lists - information technology products that are nice to have, rather than essential.
But the so-called year-end budget flush was not as deep in 2012 as in typical years, according to tech analysts and other experts citing conversations with corporate technology buyers and sales sources. They said companies held back on IT purchases in December in part because of Washington's protracted negotiations to avoid the fiscal cliff, which is a package of automatic tax hikes and spending cuts that could have pushed the already soft U.S. economy into recession.
It took until late on January 1 for House Republican lawmakers led by John Boehner to agree to a bill to avert the cliff, which President Barack Obama signed into law the next day.
"CIOs and CFOs were not making investments," said Andrew Bartels, an analyst with Forrester Research who advises corporate technology buyers. "If Boehner and Obama had been able to strike a deal by around December 15, we would have had end-of-quarter investments."
Analysts say they expect tech spending to remain subdued through at least the first quarter, as businesses wait to see if Congress can resolve another looming fiscal fight, this time over the debt ceiling and federal spending cuts.
Wall Street has already significantly lowered expectations for the tech sector, which has been underperforming the overall market.
The Street now expects tech companies in the S&P 500 to report a 1.0 percent drop in fourth-quarter earnings, against an average 2.8 percent rise for companies in the full S&P 500. Three months ago, analysts were expecting tech sector earnings to rise 9.4 percent in the fourth quarter, according to Thomson Reuters I/B/E/S.
First-quarter tech profit growth estimates have also been lowered to 2.6 percent, from 9 percent three months ago, according to Thomson Reuters I/B/E/S.
Greg Harrison, a corporate earnings research analyst with Thomson Reuters, said he expects analysts will cut their predictions further after tech companies report fourth-quarter results.
Intel Corp will report its quarterly earnings on January 17, the first of a group of big tech companies reliant on enterprise spending. Intel will be followed by IBM, Microsoft Corp and EMC Corp later in January. Cisco Systems Inc, Dell Inc and Hewlett-Packard Co close their quarterly books in about a month.
Mark Luschini, chief investment strategist at Janney Montgomery Scott, which manages about $54 billion (33.7 billion pounds), said he generally expects fourth-quarter tech results to disappoint, but has yet to determine by how much.
He expects the sluggish performance to continue into the first quarter, then improve in the second half of the year, assuming Democrats and Republicans reach a deal on the debt ceiling and spending cuts.
"So far we only have one piece," he said of the fiscal cliff deal.
USE IT OR LOSE IT
Even if Washington politicians eventually resolve their differences over fiscal issues, that is not expected to fully restore losses already caused to tech spending, experts said.
Technology projects that were axed at the end of last year will not likely be resumed any time soon because annual tech budgets are allocated on a "use it or lose it" basis, according to experts who advise companies on technology investments.
"These budgets are based on how the business is doing at the time. All of these are postponable decisions," said Howard Anderson, a senior lecturer at the MIT Sloan School of Management and frequent adviser to chief investment officers at Fortune 500 companies.
Analysts said that makers of hardware, from computers to networking gear, likely missed out on the year-end budget flush because businesses can postpone upgrades for years by buying new software that is compatible with older equipment.
They said they expect some companies to have postponed the purchase of new PCs in the fourth quarter, which could hit the results of Windows and Office maker Microsoft, along with PC makers Dell and HP, as well as chipmakers Intel and Advanced Micro Devices Inc.
Nucleus Research analyst Rebecca Wettemann said some businesses likely delayed buying new PCs to avoid having to upgrade to Windows 8, which was introduced late last year.
"A new operating system causes huge disruptions for businesses," she said. "Who wants to take that on in the face of all the other uncertainty?"
Microsoft, Dell, HP and Intel declined to comment. AMD did not return requests for comment.
Beyond concerns about the U.S. economy, corporate IT buyers are also worried about the potential for further weakness in Europe and Asia.
Last Thursday, Forrester cut its closely watched forecast for 2013 global IT sales, citing the fiscal cliff debacle as one reason. Forrester now expects global IT sales to rise 3.3 percent to $2.2 trillion this year, down from its previous forecast for 4.3 percent growth.
VIRTUAL STORAGE
Analysts say the weak economy may boost adoption of recently introduced data storage technologies that allow companies to put more data on the equipment they already own, reducing the need for them to buy more hardware.
Some companies have already paid for that technology, but have yet to implement it because staff are not yet comfortable using it, said analyst Cindy Shaw of investment research firm Discern.
Shaw said that executives at those companies are likely to tell their IT staff to implement that technology to get full use out of existing equipment before they can buy more.
Storage equipment makers NetApp Inc and EMC, along with hard drive makers Western Digital Corp and Seagate Technology are likely to suffer the most from more use of the new technologies, which include storage virtualization. NetApp and Western Digital declined to comment. EMC and Seagate could not be reached for comment.
Defenders of the tech industry say the fallout from the fiscal cliff is already factored into share prices. The S&P 500 Information Technology Index has climbed 1.6 percent over the past month, below the 4.0 percent increase in the broader S&P 500 Index.
Some technology companies appear poised to outperform the pack.
Oracle Corp said on December 18 that it expects software sales growth to stay strong in 2013 despite fears about the fiscal crisis. The company's earnings beat Wall Street forecasts in its most recent quarter as strong software sales offset a sharp drop in hardware revenue.
Analysts said that IBM, whose quarter ended December 31, may have fared better than other big technology companies, because it is has a large amount of recurring revenue from its services and software divisions.
"Oracle and IBM both have super strong sales teams that can bring home what they need to year after year," said Kim Forrest, senior analyst of Fort Pitt Capital.
IBM and Oracle could not be reached for comment.

Read More..

Reports: sled crash kills 6 on Italian ski slope

ROME (AP) — Italian news reports say a motorized sled making a night run down an Italian ski slope slammed into a fence and flipped over into a ditch, killing six tourists and severely injuring two others aboard.
RAI state radio reported early Saturday that the sled's occupants were Russian tourists. The crash occurred on an unlit slope late Friday on Mount Cermis in northeast Italy. Victims' names were not immediately available. Cause of the crash was under investigation.
In 1998, a U.S. Marine jet, flying low on a training run from a nearby air base, accidently sliced a ski gondola's cable on Mount Cermis, sending the cable car crashing to the ground and claiming 20 lives.

Read More..

Italy: 6 Russian tourists die in snowmobile crash

ROME (AP) — Italian news reports say six Russian tourists were killed and two others were injured after their snowmobile slammed into a fence and flipped over into a ditch during a night run down an Italian ski slope.
RAI state radio reported early Saturday that the crash occurred on an unlit slope late Friday on Mount Cermis in northeast Italy. Victims' names were not immediately available. Cause of the crash was under investigation.
In 1998, a U.S. Marine jet, flying low on a training run from a nearby air base, accidently sliced a ski gondola's cable on Mount Cermis, sending the cable car crashing to the ground and claiming 20 lives.

Read More..

Excavators head to Myanmar to find WWII Spitfires

LONDON (AP) — An airplane-obsessed farmer, a freelance archaeologist and a team of excavators are heading to the Myanmar city of Yangon on Saturday to find a nearly forgotten stash of British fighter planes thought to be carefully buried beneath the former capital's airfield.
The venture, backed with a million-dollar guarantee from a Belarusian videogame company, could uncover dozens of Spitfire aircraft locked underground by American engineers at the end of World War II.
"We could easily double the number of Spitfires that are still known to exist," said 63-year-old David Cundall, the farmer and private pilot who has spent nearly two decades pursuing the theory that a batch of the famous fighter planes was buried, in pristine condition, in wooden crates in a riverbed at the end of an airport runway.
"In the Spitfire world it will be similar to finding Tutankhamen's tomb," he told reporters Friday, ahead of his flight.
Not everyone is as convinced. Even at the conference, freelance archaeologist Andy Brockman acknowledged that it was "entirely possible" that all the team would find was a mass of corroded metal and rusty aircraft parts — if it found anything at all.
But Cundall said eyewitness testimony — from British and American veterans as well as elderly local residents of Myanmar — coupled with survey data, aerial pictures, and ground radar soundings left him in no doubt that the planes were down there. And others not involved in the trip have expressed cautious optimism.
"There is a high percentage chance that something is buried there," said Charles Heyman, who edits the reference book, "The Armed Forces of the United Kingdom." Heyman said it wasn't unusual for British forces to leave behind high-grade equipment in former war zones - even in recent conflicts such as Iraq and Afghanistan.
The Spitfire remains the U.K.'s most famous combat aircraft, its reputation cemented by the Battle of Britain, when the fast-moving, sleek-looking single-seater aircraft helped beat back waves of German bombers. Britain built a total of some 20,000 Spitfires, although the dawn of the jet age at the end of World War II meant that the propeller-driven planes quickly became obsolete.
Many were written off as the British war effort wound down, but why a batch of Spitfires would have been boxed and buried, as opposed to scrapped and dumped, remains the biggest question hanging over the project.
Cundall, who has long scoured crash sites to recover buried aircraft, said he first heard of the Myanmar theory from a fellow plane hunter Jim Pearce, who was at a party in Jacksonville, Florida, when two American veterans approached him with an unusual story. The men said they had worked as engineers in what was then known as Burma when they were tasked with carving out a large pit burial pit for the aircraft.
"It was the craziest thing you Brits asked us to do," Cundall quoted the men as saying.
Cundall said he believed the story immediately. Advertisements seeking more information were placed in magazines with names like FlyPast and Warbirds, and soon other witnesses came forward.
One, a British veteran named Stanley Coomb, described driving along the air field's perimeter while engineers lowered huge wooden boxes — described as the size of double-decker buses — into a pit. Radar soundings appeared to show large, plane-sized objects lurking roughly 25 feet (8 meters) below the surface, Cundall said.
But finding the site was just half the battle. Cundall said it took 17 years of lobbying to get permission to dig in Myanmar, a task complicated by European sanctions against the country's authoritarian government, and, more recently, its tentative steps toward democracy. Cundall beat out other groups in an effort to win exclusive rights to the dig, finally signing an agreement in early October.
Along the way he found an unlikely ally, a Belarusian company called Wargaming.net best known for its multiplayer titles including "World of Warplanes" and "World of Tanks." The company's American director of special projects, Tracy Spaight, said he got his company involved after hearing about the Spitfires in the news, promising $500,000 toward the dig and up to another $500,000 if the Spitfires were found.
Company spokesman Frazer Nash batted away repeated questions about what the video game maker in the country known as Europe's last dictatorship hoped to get out of the deal, saying the company had an "open bucket" to dispense cash if the dig was a success.
"Money's not an issue," he told journalists. "Have you seen the profits for gaming?"
The reporters seemed mollified.
"Can I have a job?" one asked.
The Spitfires — if any are ever found — would be divided between the Myanmar government, in line for about half the total, a local company, which would get another 20 percent, and Cundall, who would get roughly a third. The Myanmar government might decide to sell its planes, Cundall said, although he promised that his share would be coming back to the U.K., "where they belong."
"It was a tool of war, but I want to make it a tool of friendship to bring Myanmar and Britain closer together." Also, he said, "I would love to fly one!"
After a last round of television interviews at the hotel Friday, Cundall slipped a jacket over his black Wargaming.net T-shirt and rubbed his hands together against the cold, casting his mind to his upcoming trip, and the moment of truth.
"Only a matter of time now before we start digging and find out: 'What's in the box?'" he said.

Read More..

Hong Kong shares may trim strong 2013 start after Fed voices concern

HONG KONG, Jan 4 (Reuters) - Hong Kong shares could end a
two-day rally on Friday, tracking Wall Street weakness after
signs that the U.S. Federal Reserve has growing concerns about
its stimulative monetary policy.
Any losses could be limited if mainland China markets reopen
strongly on Friday, trading for the first day in 2013 after a
three-day New Year holiday.
On Thursday, the Hang Seng Index ended up 0.4 percent
at 23,398.6, its highest since June 1, 2011. The China
Enterprises Index of the top Chinese listings in Hong
Kong added 0.8 percent, reaching another peak since August 2011.
On the week, the indexes are up 3.2 and 5.5 percent,
respectively. The H-share index's relative strength index (RSI)
value suggests that it is now at its most overbought since
October 2010.
Elsewhere in Asia, Japan's Nikkei is up 3 percent in
its first trading session for the year, while South Korea's
KOSPI is down 0.4 percent at 0042 GMT.
FACTORS TO WATCH:
* Consolidation of Austria's cutthroat telecom market moved
ahead on Thursday when Hutchison Whampoa Ltd completed
its 1.3 billion euro ($1.7 billion) takeover of Orange Austria,
making it the country's third-biggest mobile operator.
* Hong Kong's Li & Fung Group agreed to acquire a
majority stake in South Korean children's apparel maker Suhyang
Networks for roughly 200 billion won ($188 million), a South
Korean newspaper reported on Thursday.
* Hong Kong November 2012 retail sales rose 9.5 percent from
a year earlier.
* Bestway International Holdings Ltd has cancelled
part of its mining area in Mongolia due to the implementation of
new regulations.
* Chinese property developer Kaisa Group Holdings Ltd
has issued $500 million in senior notes due 2020
bearing an interest rate of 10.25 percent per annum.
* Chinese property developer Country Garden has
issued $750 million senior notes due 2023 with an interest rate

Read More..