NY: Spiraling energy costs may spark inflation, investors fear.

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Sunday September 17 1:42 PM ET

Soaring Oil Prices to Dominate Markets By Emma-Kate Symons

NEW YORK (Reuters) - Wall Street this week is bracing for more companies warning soaring oil prices and a strong U.S. dollar will cut into their bottom line.

``What's going to move the market is the weak Euro, higher energy prices and softening economic demand, how that will be impacting the guidance that companies are giving -- that is the focus of Wall Street,'' said Richard Cripps, chief market strategist at Legg Mason in Baltimore.

Corporate guidance can take the form of an earnings warning: a company statement that profits will fall short of expectations. These warnings, especially those from industry leaders, can slam a company's stock or a whole sector.

``Rising energy costs globally are bad for earnings,'' said Richard Berner, Morgan Stanley's chief U.S. economist. ``They act as tax on business and consumers (and) they slow growth and squeeze margins.''

It's not just oil worrying Wall Street. Europe's common currency last week hit an all-time low, which will hurt U.S. exports or revenues from U.S. companies doing business there. Fast-food giant McDonald's Corp. (NYSE:MCD - news), for one, last week hit a 2-year low when it warned the strong U.S. dollar would hurt earnings.

New economic data to be released this week include U.S. housing starts for the month of August, a gauge of the U.S. economy's health. The data, however, are unlikely to move the market, because investors already have digested figures that show the economy is slowing and inflation remains in check.

A few companies will release earnings this week, including Wall Street's premier firms, Morgan Stanley Dean Witter & Co. (NYSE:MWD - news), Goldman Sachs Group Inc. (NYSE:GS - news) and Lehman Brothers (NYSE:LEH - news). The firms, which generally beat analysts' estimates, are expected to show solid profit growth after a strong summer for new stock offerings.

Other companies reporting include air package shipper FedEx Corp. (NYSE:FDX - news), and retailer Bed Bath & Beyond Inc. (NasdaqNM:BBBY - news). The financial results are unlikely to move the overall market, though, Cripps said.

Oil Prices Hit Decade Highs

Oil prices bolted to their highest level since the Gulf war, rising as high as $36 a barrel last Friday. That's great news for oil companies like Exxon Mobil Corp. (NYSE:XOM - news), which hit a record high on Friday, but bad news for non-energy blue chips.

``Obviously everybody's freaking out about oil,'' said Scott Bleier, chief investment strategist at Prime Charter Ltd.

``Oil and utility stocks are the groups everybody seems to be focusing on at the expense of all others.''

Shares of household products maker Colgate-Palmolive (NYSE:CL - news), for example, tumbled last week because analysts feared rising petroleum prices would cut into earnings.

Energy finally is receiving the attention it deserves and the markets fear price hikes will become ``embedded'' in the economy, said Edgar Peters, chief investment strategist at Boston-based PanAgora Asset Management Inc. The stock market previously dismissed rising oil prices.

``This is a classic case of how the market under-reacts to emerging trends,'' Peters said. ``And if they follow the usual course, once they realize something's going on they overreact.''

The escalation of fuel protests in Europe, which have brought some business activities to a halt in England and across the continent have highlighted oil prices.

Spiraling energy costs may spark inflation, investors fear.

``The thing about oil prices that is scary is that they're one of the prime sources for inflation, but (the U.S. Federal Reserve) can't control them,'' Peters said.

Tech stocks, the market's prime drivers this year, will keep suffering at the expensive of oil and utility stocks, analysts said. Technology stocks are expensive, leaving little room for error.

``All the attention has been on these (oil) stocks and tech stocks are locked in a morass, a very maddening and frustrating trading range,'' Bleier said.

The latest example: software maker Oracle Corp. (NasdaqNM:ORCL - news), which late Thursday reported profits that beat forecasts but disappointed investors. Its shares fell nearly 8 percent, or $6-5/8, to close $78-5/16 on Friday, on lower-than-expected sales of its application software.

``It's a tough market and a lot of these stocks are paying for excess valuations they obtained earlier in the year,'' Bleier said.

http://dailynews.yahoo.com/h/nm/20000917/bs/stocks_weekahead_dc_1.html



-- Carl Jenkins (Somewherepress@aol.com), September 17, 2000

Answers

This is a very accurate story of what's going on in world markets. I especially was impressed by the overrect, underreact scenarrio. That's just the way it plays out. Thanks for bringing this story to us, Carl.

-- Wayward (wayward@webtv.net), September 17, 2000.

I was also impressed by the depth analysis of this piece. I wonder why we are not reading such pieces in the financial press.

-- R2D2 (r2d2@earthend.net), September 17, 2000.

Thank goodness for GICC; it always seems to be a case of you heard it here first.

-- Nancy7 (nancy7@hotmail.com), September 17, 2000.

I am really more frightened right now at the crumbling of the euro than the oil crisis, because it will have a quicker impact on stock markets around the world - which will end up here. ALready the markets are breathing heavily, as if gettng ready to faint.

-- Billiver (billiver@aol.com), September 17, 2000.

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