The pre-announcements of quarterly earnings that captivate Wall Street heated up Tuesday as more companies sought to avoid shareholder surprises-and class-action lawsuits-when the actual numbers come out in a few weeks.
Led by a negative earnings forecast by Caterpillar late Monday, the Dow Jones industrial average fell 13.37 points, to 4767.04, after being off nearly 50 points early in the day. Volume on the New York Stock Exchange was heavy, 371 million shares.
It was the second straight day that the Dow industrials recovered from a swoon. Broader stock indexes gained amid a bullish tone in the bond and currency markets and upbeat earnings news by several computer technology companies. The Nasdaq composite index climbed 10.14 points, to 1060.32.
Computer-technology stocks had a good day, as investors brushed aside a downbeat earnings announcement Monday by Adobe Systems. Adobe closed at $54, up $3.25, after trading as low as $50.25.
Tuesday’s late-news earnings headline came from Polaroid, which announced after the close of trading that 1995 profits would be “substantially below” the company’s late-June forecast and not much higher than 1994’s results.
Polaroid blamed poor sales in Russia and the effects of currency-exchange rates. For the third quarter, the company predictd net income of 81 cents a share, slightly less than the consensus forecast of 84 cents compiled by Zacks Investment Research, Chicago.
Benjamin Zacks, executive vice president of the research firm, said the rate of year-over-year gains in quarterly corporate profits will show a significant slowdown when the official third-quarter numbers are posted. In the aggregate, the earnings of the Standard & Poor’s 500 companies are expected to be up 17 percent, a decline from the second quarter’s 23 percent gain.
In recent quarters, the actual profit results generally have exceeded Wall Street forecasts, prompting analysts to upgrade their estimates for subsequent quarters, thereby boosting stock prices. That happy result may not recur this time, because the effects of the economic slowdown in the first half of the year are beginning to show up on corporate bottom lines, Zacks said.
Other companies with downbeat pre-announcements of earnings Tuesday were Crown Cork & Seal, which fell $5.37, to $38.75, and Mylan Laboratories, which slid $3, to $20.62.
Elsewhere, anticipation of a meaningful fiscal stimulus package by the Japanese government Wednesday encouraged Japanese investments in dollar-denominated securities and the dollar itself.
A rebounding Japanese economy likely would purchase more U.S. exports and help strengthen the dollar. Also, traders expect the Bank of Japan, and possibly the U.S. Federal Reserve as well, will push the yen lower in conjunction with the announcement of the stimulus program.
In late New York trading, the dollar was quoted at 104.63 yen, up from 103.35 yen late Monday.
U.S. bond prices rose and yields declined, partly in response to non-U.S. investing. To the extent that the Japanese economic stimulus package rekindles inflation and higher interest rates in Japan, U.S. bonds will seem a wise alternative to fixed-income Japanese investments.
The yield on the 30-year Treasury bond fell to 6.48 percent from 6.53 percent Monday. The 30-year bond yield has gyrated around the 6.50 percent mark for days.
Leeson lesson: Hot-shot derivatives trader Nicholas Leeson, who single-handedly bankrupted Britain’s Barings Bank, has been called a “rogue trader.” Would that he were. It’s more likely he’s just one of the pack.
In that vein, a new survey by the Big Six accounting firm Ernst & Young suggests that investment funds place too much confidence in individual portfolio managers to handle the risk they create by engaging in such highly leveraged derivative trading as futures, options and forward currency contracts. Many mutual fund holders have little or no idea of the extent of this activity in their fund.
Ernst & Young, which offers financial risk-management services to clients and therefore has a marketing purpose in conducting this survey, said that only 25 percent of the 143 investment firms it polled had a separate management function to oversee the derivatives trading exposure of the firm and the derivative trading activities of individual portfolio managers.
Whereas the price of traded stocks and bonds can be readily determined, the value at any moment of an investment fund’s position in derivatives can be difficult to determine-especially regarding derivatives concocted and traded apart from organized futures and options exchanges. The last person you want with sole authority to judge these values may well be the portfolio manager.
Local news:A federal court in Delaware rejected a motion by Hillside-based Wallace Computer Services to dismiss a suit by hostile bidder Moore of Toronto. The suit seeks to invalidate Wallace’s legal defenses against an unwanted takeover. Moore’s tender offer of $56 a share for Wallace is set to expire Nov. 8. Wallace said only 1.6 percent of its shares had been tendered as of Monday night. The stock closed Tuesday at $56.50.
– Educational-services firm DeVry of Oakbrook Terrace has filed to have its stock listed on the New York Stock Exchange. DeVry currently trades on the Nasdaq market.
– Abbott Laboratories was upgraded to the recommended list by the investment firm Goldman, Sachs. Abbott gained 87 cents, to $42.25, after hitting an intraday 52-week high of $42.62.
