Us Jobs Were Up But Sellers Rule The Day
Sydney Morning Herald
Monday October 7, 2002
Americans like to stick to the game plan. So, until the whistle goes, the trend is down.
Wall Street's brand of E-pain may spread through the markets again this week.
The ``E" refers to corporate earnings and, in the US market, the shortage of them is dominating investor psychology.
Friday saw the best piece of information about the US economy for weeks: a surprise decline in September's unemployment rate, from 5.7 per cent to 5.6 per cent, achieved through the creation of 107,000 new jobs, about three times as many as expected.
Investors ignored the job numbers and pushed the market down by more than 2 per cent, mainly because of disappointing third-quarter earnings results from Boeing, drug maker Schering-Plough and others.
Based on projected earnings for the full year, Wall Street shares now look quite cheap, with the Standard & Poor's index, for example, now at just under 16 times earnings.
But the price-earnings ratio on the S&P basket of shares is still above 20 times based on historical earnings, too high for the bottom to confidently be called when earnings are persistently confounding predictions.
The situation could turn around quite quickly. Markets are normally earnings predictive and will be again if the earnings disappointments stop flowing. There is almost universal bearishness on Wall Street and that has been a classic signal that the bottom is near in the past.
But if US corporate earnings do rebound in coming months company bosses will be among those who are surprised. According to a September-quarter survey by the Conference Board, the main US business lobby, nine out of 10 chief executives believe the economy is slowing.
American executives are not predicting a recession: two-thirds of those polled expected US economic growth next year would be between 1.5 and 3 per cent. But only 29 per cent of them reported that business conditions had improved in the past six months, down from 62 per cent in the June quarter.
The scepticism about earnings is pushing the US market down to a point where it is in danger of once again losing its compass, as when prices plunged in July.
The S&P 500 index closed on Friday 2.24 per cent lower, at 800.58; that is 165.2 points or 17 per cent underneath the low the index set in the wake of the September 11 terrorist attacks but, more importantly, is within a whisker of a low of 797.7 set on last July 23.
The July benchmark for the S&P is important because other key US indices have already breached their July lows.
There is less concern about the quality of earnings in Australia and our market has fallen less heavily.
The ASX 200 index is down 12.6 per cent this year, less than half the 30.3 per cent fall of America's S&P 500.
But Wall Street's bears are calling the tune, and this market is also edging back into dangerous country. Friday's 7.7-point slippage left the ASX 200 at 2991.6, uncomfortably close to three important benchmarks: a September 30 low of 2970.9, an early August low of 2985.6 and the September 24, 2001, low of 2883.
Greenwich Associates compiles what is probably the most highly regarded survey of Australia's stockbroking industry and its latest effort confirms UBS Warburg's rise to the top of the pack this year.
UBS was ranked number four for overall research, sales and trading quality by Australia's 20 biggest institutional investors in 2001, behind JB Were, Salomon and CSFB, and ahead of Merrill Lynch.
In the latest survey, UBS has replaced Were as the top-ranked brokerage firm. CSFB ranks second, followed by Salomon and Were and then Macquarie, which has replaced the downsized Merrill outfit in the top five.
Among the top 20 investors, Salomon and UBS were most often ranked as a ``top 3" broker with 13 mentions apiece. This is an important indicator, because most institutional investors conduct their dealing through ``panels", or broker short lists. JB Were, Macquarie and CSFB tied for third with 11 ``top 3" mentions from the top 20 investment houses.
Graphs that Greenwich produces to express overall client satisfaction with the service they are receiving show, however, that the entire industry is less popular than it was a year ago.
That is a double-barrelled bear market phenomenon: some rankings have drifted because firms have reduced their commitment to this market during the year a diminished Merrill Lynch being a case in point.
More generally, the broking industry is, deservedly, copping some of the blame for the losses the funds managers are sitting on in this bear market.
David Knott took over as chairman of the Australian Securities and Investments Commission in November 2000 and his first report card was mixed. ASIC was more active in the year to June 30, 2001, launching 7 per cent more investigations, but the number of successful court cases fell by 5 per cent. Knott has produced significantly better numbers for the year to June 30, 2002, however. A total of 205 court cases were concluded, up from 150 in the previous year, and the success rate in cases was much higher, at 92 per cent compared with 71 per cent. There were 246 investigations launched during the year compared with 214 previously and the number of stop orders also rose, from 81 to 96.
This is partly because Knott has turned up the wick inside ASIC.
But corporate regulators everywhere have been working overtime to sort through the debris left by the collapse of the boom and ASIC is no exception. The increased workload is signalled by other statistics, including a jump in the number of complaints about financial misconduct from 6946 to 7827, and a jump in the number of visits to the main ASIC website from 2.37 million to 3.37 million. mmaiden@theage.com.au
© 2002 Sydney Morning Herald