Earnings reports encouraging but market's response isn't

July 27, 1994|By Knight-Ridder News Service

NEW YORK -- With roughly half of second-quarter corporate earnings reports in, results thus far appear stunning; year-over-year profits have risen nearly 18 percent, according to a sampling conducted by First Albany strategist Hugh Johnson.

Mr. Johnson said that of the slightly over 400 companies First Albany follows, earnings, on a weighted company basis, have thus far risen 17.9 percent above those reported in second-quarter 1993.

While earnings have generally been superior, the stock market has failed to move dramatically higher since reports began to arrive in numbers early last week. Mr. Johnson gave three possible reasons for this.

"The first is that the stock market has had other things to think about -- the dollar, interest rates and the [U.S. Treasury] bond market," he said.

"Secondly, earnings themselves have not told the whole story. There has been a great deal of attention to softness in revenues and pricing pressures, for example," he explained.

"Finally, earnings at the current juncture are primarily interesting to Wall Street's analysts insofar as they say something about the third and fourth quarters," since the stock market is primarily a discounting mechanism that attempts to imagine what conditions will exist six to nine months into the future.

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