European stocks may drop for a second week on concern that third-quarter results from dozens of companies, including Deutsche Bank AG and Alcatel SA, will include forecasts of slowing growth in profits.
The Dow Jones Stoxx 600 shed 1.9 percent this week, its first decline in three. HVB Group, Germany's second-largest bank, forecast higher loan losses, and GlaxoSmithKline Plc, the world's No. 2 drugmaker, said competition from copycat drugs eroded sales.
The drop trimmed the index's rally since Oct. 9 to 11 percent.
"To sustain this rally, you have to see real earnings growth," said Michael Strating, who helps manage 17 billion euros (US$16.5 billion) of global equities at Robeco in Rotterdam.
"Companies that do not meet expectations are going to get hit heavily."
He recently sold pharmaceutical shares, which he declined to identify.
Deutsche Bank, Europe's biggest lender and Alcatel, the region's largest telecommunications-equipment maker, are among those scheduled to report earnings next week. Results are also due from British American Tobacco Plc, the world's second-largest tobacco company, and BP Plc, the oil producer that is Europe's most valuable company.
Analysts have lowered their 2002 profit forecasts for Stoxx 600 companies by 14 percent in the past six months, according to JCF Group, a financial research company.
A report on German business confidence on Monday may increase concern about the ability of companies to lift profit while Europe's largest economy stagnates. The Ifo institute's index of western German business confidence probably fell to an eight-month low, economists surveyed by Bloomberg News said.
Germany's DAX Index has fallen 40 percent this year, making it the second-worst performing western European benchmark, after Sweden's OMX Index for 2002.
The Ifo report "isn't going to be encouraging for profit growth," said David Donnelly, who manages a Euro 25 million (US$35 million) hedge fund at Gordon House Asset Management. He's selling securities such as exchange-traded funds short in anticipation the indexes they represent will fall.
An investor "shorts" by selling a security that has been borrowed in hopes of later buying it back for less to return to the lender, pocketing the difference in price.
HVB slumped 17 percent this week after reporting a record quarterly loss, saying it may cut its dividend and forecasting its provisions for loan losses would climb.
GlaxoSmithKline slid 7.1 percent since saying Wednesday that generic versions of Augmentin, an antibiotic, cut into quarterly profit.
``I expect the competition to continue and to get worse,'' Chief Executive Officer Jean-Pierre Garnier said.
Shares of ABB Ltd. led Stoxx 600 declines. Europe's largest electrical-engineering company abandoned its 2002 profit forecast and said it may file for creditor protection for a US unit saddled with asbestos claims.
The shares tumbled 65 percent for the week to 1.85 Swiss franc. Deutsche Bank yesterday cut its 12-month price forecast for ABB's stock by 97 percent to 0.1 Swiss franc.
Royal Ahold NV, the world's largest food distributor, dropped 8 percent yesterday after saying sales growth slowed in the third quarter as US consumers spent less in grocery stores.
Loewe AG, a German television maker, fell to a record after cutting its 2002 profit and sales forecasts amid concern that demand will slow in the holiday season.
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