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Morning News

Finnerty: High Earnings Expectations Drive Market Volatility

Aired October 24, 2000 - 9:30 a.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BILL HEMMER, CNN ANCHOR: Investors keeping a close eye on corporate earnings, as trading gets under way today. That has been the case for the past several trading days.

Let's talk about that and other money matters. Brian Finnerty, a Wall Street veteran in charge of the Nasdaq desk at C.E. Unterberg, Towbin, live this morning in New York.

Hey, Brian, good morning.

BRIAN FINNERTY, C.E. UNTERBERG, TOWBIN: Hi, Bill. How are you?

HEMMER: I am doing just fine. Give us some solace out there, huh?

FINNERTY: Yes, well, I tell you, Bill. The earnings season is a volatile time of the year. This has been no different than any of the others.

HEMMER: I was checking Nasdaq.com before I came on. They report, as of this morning, 102 companies have exceeded earnings, 26 have failed to meet, roughly 25 percent with tough news. What does that indicate to you, Brian?

FINNERTY: Bill, in all honesty, it's not a whole lot worse than most quarters. It might be slightly worse. But I think what's happened is, you know, this new ruling, where companies can't disclose information except to everyone at the same time. So all the companies were trying to be very sure that they made their -- if they missed the quarter, that they told the world altogether all at once. They are trying to manage expectations of investors. So if they blew up, or didn't make their number, they got that out as quickly as possible.

HEMMER: Brian, let me stop you there, just so we have an understanding of this. If you are saying it's not as bad as other quarters that we've seen.

FINNERTY: No worse than others.

HEMMER: Why the big dip then in the indices across the board?

FINNERTY: Well, because expectations were high, valuations had gotten a little bit higher than they should have been, Bill. And now what's happened is, we saw for the month of September and the first half of October, a tremendous correction. And the market got, as of last Wednesday afternoon, into an extremely oversold condition, particularly in the Nasdaq, where technology dominated, and where stocks tend to fluctuate much more than normal because of those -- you know, because of the potential for big earnings growth. So the stocks go up more than normal and down more than normal, and we got into a tremendously oversold condition. We got a big bounce off those levels, and we seem to be holding it.

But there is some negative news out again today, but the market seems to be taking it pretty well.

HEMMER: Quickly here, Brian, you know we are two weeks away from the national election. Are investors talking about that on Wall Street? Any impact right now on whether you are jumping in the market or pulling out?

FINNERTY: I think, Bill, investors, up to now, professionals in the industry up to now, have sort of had it on the back burner. I think, as we get closer, and it seems to me almost this week, people are talking about it more and more. And it seems to me that people I talked to, as Bush has taken a small lead in the polls, I guess a virtual dead heat in the polls really, if you give that 3 percent margin for leeway. I think the market feels, if Bush gets elected, we are going to have a very strong November. I think people, if Gore gets in, we might stay flattish, maybe down tick a little bit.

And it is interesting because the market has typically done better under Democratic administrations. But what Wall Street really seems to want, Bill, is a split. That whoever gets in the White House, they want the Congress and the Senate to be controlled by the other party because that will create spending gridlock, which is what we have had for the last six years, which seems to have done very well for our economy. So it seems that Wall Street wants that gridlock.

HEMMER: We'll track it, Brian Finnerty, live in New York. Brian, as we are talking, markets up across the board: Dow up 54; Nasdaq up 26. We'll see what happens later in the day.

FINNERTY: We'll keep'em going, Bill.

HEMMER: Thank you, Brian.

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