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A New Optimism

November 14, 2005

The number of companies forecasting stronger profits in the second quarter is on the rise, according to a report from Reuters.
Following a weak second quarter in 2002, more companies still predict meager profits as opposed to the number of companies that are optimistic, but the gap is narrowing, according to research from Reuters.
Tim Connors, chief investment officer of value equities, Delaware Investments, commented, “Similar to the first quarter, companies have tried to keep expectations lower, and that increases chances they will report a positive surprise.”
A report in March indicated that for every four companies forecasting a brighter future, 10 said things were not going well. But by June, that ratio had shifted to eight positive for each 10 negative forecasts, according to Jerry Czarzasty, manager, Reuters Esti-mates unit. He added that he saw no apparent reason for companies raising their outlooks other than a better-than-expected January-March period.
The dollar sank against the euro by about 13% this year, with 4% of that weakness showing up in the first quarter, according to financial experts. Concerns that President Bush’s administration was abandoning a strong dollar policy contributed to the dollar’s further 9% decline against the euro. Overall, the U.S. economy has been little help to corporate America’s profitability, according to some executives.
“The economy has been sputtering along,” said Mr. Connors of Delaware Investments, but “companies have done a lot to reduce overhead, and we will see an increase in margins.”
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