Uncertainty Clouds Corporate Earnings Outlook

Uncertainty over the impact of slower economic growth and the financial crisis in Asia on American companies' earnings has pushed investors toward caution, causing major stock market indexes to decline for the first time this week. Despite positive earnings surprises from companies like Intel and Apple Computer earlier in the week, mixed results from Eastman Kodak and Unisys tempered the market's optimism. Analysts warn that investors are struggling to determine the extent to which these headwinds will affect corporate earnings, with some companies being more optimistic about growth prospects than others.

Key Takeaways:

• Major stock market indexes, including the Dow Jones industrial average and the Standard & Poor's 500 stock index, fell for the first time this week, with the Dow Jones declining 92.92 points (1.2 percent) to 7,691.77 and the S&P 500 slipping 7.21 points (0.8 percent) to 950.73.
• The Nasdaq composite index, however, closed slightly lower, down 1.70 points to 1,547.06, after a strong performance earlier in the week, driven in part by a better-than-expected earnings report from Sun Microsystems.
• The mixed earnings results from Intel, Unisys, and Eastman Kodak, which reported one-time charges but generally met earnings expectations, contributed to the market's decline, with investors uncertain about the impact of slower economic growth and the Asian financial crisis on corporate earnings.
• Analysts suggest that companies with a strong domestic focus may fare better in this environment, citing the modest decline in Morgan Stanley's index of consumer-oriented companies, which is down 1.1 percent compared to a 2.6 percent decline in the firm's index of cyclical stocks.
• Health care companies, drugstore chains, and food retailers are expected to perform well in this environment, according to analysts.