TEXT OF INTERVIEW
SCOTT JAGOW: This week, a long list of public companies report their profits. McDonald’s, Coca-Cola, Johnson & Johnson, Citigroup and many others. A common prediction on Wall Street is that this quarter will end a three-and-a-half year run of double-digit profit growth. I asked Newsweek’s Allan Sloan how that might affect the stock market.
ALLAN SLOAN: Well it’s already affected the stock market. I hate to say this, but you know that profit growth is slowing down, I know that profit growth is slowing down, so if you believe that the stock market is at all rational and at all efficient, whatever impact the slowdown in profit growth has, has already been out there — not for any individual stock necessarily, but for the market as a whole.
JAGOW: So you’re saying that it’s already been factored into the stock prices of a lot of companies?
SLOAN: For sure. This news is already in the market and it’s been out there a long time, and it may or may not help account for the fact that the stock market has been flat lately. To me the comforting thing is that a) stock prices still aren’t especially low and b) everybody knows this. It’s not like profits are falling 20 or 30 percent.
JAGOW: Alright, slower profit growth usually indicates the economy is slowing down. Greenspan said this a couple of months ago, a recession might be coming. With the way the housing market is and then you have the slowdown in corporate profits, could those two factors combine to speed up the process here?
SLOAN: I don’t think they will. It’s just my instinct is that so many people have been beating on the housing stuff and the subprime stuff for so long that that also is sort of priced into the market and price into the economy. I may turn out to be wrong because the thing may turn out to be much bloodier than I think. I’m not telling you to not worry, because maybe the numbers will come in really lower than anybody thinks, maybe they’ll come in higher than anybody thinks. Maybe some big company will have this real swoon, and there’ll be a panic just like a couple of weeks, or six weeks ago you remember China, and suddenly everyone’s running around shrieking . . .
SLOAN: I mean there could be, anything could happen, but I don’t expect much to happen, because the news is out there.
JAGOW: Alright, Allan Sloan, the Wall Street editor for Newsweek Magazine.
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