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Week Of June 9-15

June 09, 2003|Myron Levin | From Times Wire Services

Wall Street to Focus on Earnings Warnings

Hopes for an economic recovery this year have propelled stocks into bull market terrain. But even the bulls are worried.

The stock rally may cool this week as corporate America starts the so-called confession season, when it warns about earnings disappointments.

Although many strategists believe that the rally has yet to run out of steam, some are starting to caution that the stock market is ready for a "correction" -- a decline, in Wall Street jargon -- because it has risen too far, too fast.

"The case for a bull market is very strong, and the bear market is behind us. But the stock market is overvalued, and the time for a correction is past due," said Hugh Johnson, chief investment officer at First Albany Corp.

Since hitting their lows for the year March 11, the three major stock indexes have risen 20% or more through Friday's close -- meeting the definition of a bull market. The blue-chip Dow Jones industrial average has gained 20.5%, the tech-driven Nasdaq composite index has climbed 28% and the S&P 500 has risen 23%.

With a light earnings and economic calendar this week, the focus will be on companies giving forecasts for the current quarter. Downward revisions in estimates could put a lid on investors' recent exuberance and lead to selling, analysts said.

In the first-quarter earnings season, most companies beat their own expectations, curbed sharply because of the Iraq war. But in the second quarter, analysts will look closely at companies' guidance for signs of a turnaround.

This week, analysts also will watch for a weekly retail sales report Tuesday, monthly retail sales data Thursday and the U.S. producer price index, a gauge of wholesale prices, Friday. The University of Michigan's consumer sentiment index, a closely watched barometer, also will be released Friday.

Analysts expect the market to brush off weak data for the next few weeks until July, when June data come out.

Here is a partial list of key economic events this week:

Monday: Two reports on WorldCom Inc. -- one by U.S. Bankruptcy Court, another by directors -- to be released.

Tuesday: House Energy Committee holds hearings on natural gas shortage, with witnesses to include Federal Reserve Chairman Alan Greenspan; Nokia Corp. gives mid- quarter update.

Wednesday: The Fed releases its so-called beige book survey of regional economic conditions.

Thursday: Commerce Department reports on retail sales for May and business inventories for April; Labor Department reports on weekly jobless claims; mortgage company Freddie Mac reports on mortgage rates.

Friday: Commerce Department reports on international trade for April; Labor Department reports on producer price index for May; University of Michigan releases its consumer sentiment index.

From Times Wire Services


Smoker's Suit AgainstPhilip Morris to Begin

A lung cancer victim from Marina del Rey goes to court this week against Philip Morris USA, in the first tobacco case to be tried in California since a key ruling by the U.S. Supreme Court aimed at limiting punitive damages.

Opening arguments are set for Wednesday in Los Angeles County Superior Court in the suit by Fredric Reller, 64, who smoked Marlboro and Benson & Hedges menthols for 36 years before he was found to have lung cancer in November 2000.

Reller's lawyer Michael Piuze has scored huge victories over Philip Morris in two prior cases in Los Angeles, persuading juries to award record punitive verdicts of $3 billion and $28 billion. Trial judges later pared the awards to $100 million and $28 million, respectively. The cases are on appeal.

The top U.S. cigarette maker is hoping that the Supreme Court decision in April in Campbell vs. State Farm will improve its chances or at least limit the size of any punitive damage award.

In the Campbell ruling, the court said the ratio of punitive to compensatory damages usually should not exceed 9 to 1--though it declined to set a strict mathematical formula, leaving room for bigger awards in cases of extreme injuries or misconduct. The ratio of punitive to compensatory awards in the Los Angeles tobacco cases were 18 and 33 times, respectively, even after the post-trial reductions.

In the Campbell decision, the high court also said punitive awards should be based on direct injury to the plaintiff, rather than general harm to society.

Anti-tobacco plaintiffs have regaled juries with incriminating internal documents suggesting that the industry conspired to keep the public from knowing the truth about the dangers and addictiveness of smoking. Tobacco lawyers are hoping to exclude some of these exhibits on the strength of the Campbell decision.

The trial is expected to last several weeks.

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