Current quarter reports have given a better view of what we have to expect till the end of the year.

US STOCKS
General Electric Co (GE, $26.52, CSFB recommendation: Buy) 2Q'02 earnings ($0.44 EPS) were in line with the expectations. During the conference held by the company, GE's management responded to concerns related to GE's accounting system. First, company's CEO affirmed the integrity of GE's financial statements and numbers and said the company supported many of the proposals to address investor confidence in financial reporting. Second, the company said it does not see anything in its current results or orders that would suggest the U.S. or global economies are on the verge of a double dip recession. Finally, the quality of GE's earnings was higher than the first quarter ($0.35 EPS). This conference call should calm investors. As with Boeing, we think that the near future would remain weak as long as the U.S. economic recovery remains slow. Hold

Boeing Co (BA, $39.92, CSFB recommendation: Buy) published a 2Q'02 EPS of $0.96, beating the $0.80 EPS expected. Operating margins were 8.9% vs. 8.2% expected by CSFB. The margins were better than expected across all three major business units (commercial aerospace, military and space unit). Management continues to expect the company to generate total sales of about $54 billion and operating margins of 8.25% (8.2% CSFB's forecast) in 2002 and total sales of $52 billion with same operating margins of 8.25% (7.8% CSFB's forecast). For the following quarter, the market expects an EPS of $0.656, reflecting decreasing new aircraft and satellite orders. Nevertheless we continue to believe that a stock price lower than $40 offers attractive opportunities to build positions for long-term investors. For the short-term stock price should be more volatile as airline fundamentals remain weak, aircraft orders remain low and the risk of labour unrest remains high. CSFB estimates at 75% chance of a strike in late August. Hold

JP Morgan Chase & Co. (JPM, $26.10, CSFB recommendation: Buy) announced a 2Q'02 EPS of $0.50, lower than expected ($0.65). The shortfall comes from trading. For the short-term we believe stock price will remain weak as long as the capital markets do not recover. This recovery does not seem to be expected for 2H'02 anymore, but for 2003. Hold

The Bank of New York Co. Inc. (BK, $29.34, CSFB rating: Buy) made public a $0.50 EPS for the second quarter 2002, in line with the expectations. Compared with JP Morgan Chase & Co. results, BK's earnings are good, given the more challenging market environment and the inclusion of severance charges. Revenues were up 4% due to a 6% increase in securities processing fees. Half the increase was acquisition driven while the other half was organic growth (new business wins, market share gains). Trading profits and service charge income strengthened as well. CSFB estimates EPS of $2.05 and $2.30 for 2002 and 2003 respectively. Hold

Finally, among our recommendation list, the following companies will make public their quarterly results:

- Corning Inc. (GLW): $-0.094 expected EPS vs. $-5.13 y-o-y on July 23rd

- Exxon Mobil Corp. (XOM): $0.463 expected EPS vs. $0.63 y-o-y on July 24th
- American International Group (AIG): $0.85 expected EPS vs. $0.50 y-o-y on July 25th


US Technology Stocks
On a week-on-week basis, the NASDAQ Composite Index lost 3.96% to 1319.15.

The last week has brought a bit more visibility about what to expect for the next six months. Several of the companies doing business in the hardware sector have guided down the expectations, with the announcement, that they don't see a pick up in IT spending for the year 2002. Certainly, we have left the traditionally weakest quarter of the year behind us, but there is not much of an innovation catalyst that could drive demand and corporate CIO's might continue to try to delay larger scale IT projects until we get some strong GDP figures. If, in fact, we see the economy recover to a growth rate of 2-3%, we could see the more defensive sectors in technology start to do well. Software, manufacturing, but also the semiconductor sector should profit from the uptick. For the hardware sector, we will need the GDP to grow at a stronger rate, above 3%, to see corporate spending improve, as at this rate we can suggest that corporate profits recover and the need for server and storage capacity might increase. The outlook, we believe, is a bit more optimistic, than the market wants to make us believe. However we have not reached the point yet, where we would position for a new cycle in the technology sector. The coming earnings reports still bear some risks, as with the nervousness and the decreasing confidence among investors, any bad news could have a massive impact in the markets. And with this risk in mind, we prefer to keep waiting for the storm to be over.

We however believe that we are close to the turning point, where we will have to build up a strategic position in technology stocks, in order to anticipate the early move that we will see in the share prices, as soon as the improving economic fundamentals materialise. This implies a high selectivity in sub-sectors, but also in single stocks. The companies that have been able to deliver relatively well during the last quarter, should be those that have the best fundaments and are the most likely to outperform.


European Equities
The Euro STOXX50 posted its 10th weekly drop in 13 and fell to its lowest level since early 1998. The index closed the week 5.48% lower.

After last Monday's sell-off we felt that the selling pressure had become indiscriminate and decided to have a look at dividend yields and equity valuations compared to bonds. In order to compare bonds with equities we used the ratio of 'bond yield/earnings yield'. Earnings yield is defined as the reciprocal value of P/E. The reason for the latter approach is simple. Bond investors are interested in steady interest payments and principal redemption rather than capital gain. Hence bond investors react much more sensibly when concerns about a company's future hit the market. In that respect it is worth pointing out that the corporate bond market has not shown the kind of panic over the past few weeks as the equity market did. This applies especially for the financial sector. Several of the equity/bond yield comparisons suggest that equities look cheaper, relative to bonds, than at any time in the last decade or so during which pan-European investing has been in vogue. The 'bond yield/earnings yield' (BY/EY) for the European markets currently stands at about 0.74 (a figure below 1 indicates that the earnings yield is higher than the bond yield, i.e. the P/E is relatively low). The five-year mean according to a study by 'Schroder Salomon Smith Barney' (SSSB) is 1, which would imply that European markets are currently 35% cheap.

Admittedly, after last Friday's sell-off it is difficult to justify such a stance as accounting concerns have again hit the market with Johnson & Johnson becoming the subject of a criminal investigation regarding falsified records. The serious lack of confidence in corporate statements that is turning worse by the day questions each approach that is based on earnings as little is known about the quality of these numbers. However, excessive pessimism has often caused equity markets to overreact in the past. Further, there is no clear evidence that European companies have joined the American way of creative accounting. Hence, investors who are prepared to take a long-term investment horizon should start building up positions in well-managed and attractively valued companies. Even if markets were to go slightly lower from here, we believe that the long-term upside potential is significantly higher than the current downside risk. With respect to short-term trading we remain more cautious despite several indicators pointing to a technical recovery.

Philips (PHIA NA; EUR 24.20) reported 2Q02 earnings that were above expectations. The company reported a profit of EUR 171 million before a 1.561bln writedown for its 3.5% stake in Vivendi (EX FP; EUR 17.45). Sales growth was 5% over the first quarter 2002 and 4% over year, which was the first positive growth since 4Q00. Cash flow from operations was a healthy EUR 496 million and margins improved. Sales growth was driven by the medical and the consumer electronics unit, Philips' biggest unit. This division posted an operating profit despite a 7% decline in sales and most encouragingly showed signs of recovery in the USA. The operating loss at the chip unit narrowed to EUR 64 million from EUR 255 million. The company continues to expect to post a profit for the whole year before write-offs. The outlook was cautiously optimistic as Philips said that it expects virtually all its businesses to improve in the second half. Without being too enthusiastic on the stock for now, we view Philips as one of the most attractive European technology stocks due to its business mix and valuation but expect it to perform in line with the overall technology sector.

LVMH (MC FP; EUR 44.95) published a 15% increase in operating profit for the first half of 2002. 1H02 sales dropped 2% due to a 9% decline in the retail sector, which includes DFS. The drinks and fashion business did well, with sales increasing 7%. LVMH said that about 60% of USD sales are hedged at a level of 0.90 against the Dollar until next year. The company sees a substantial improvement in operating profits in the second half of the year. However, with the current uncertainty in consumer sentiment and currency movements, LVMH remains a risky call despite it being reasonably valued and its restructuring measures having a beneficial impact on the bottom line this year.

Ahead of schedule, BNP (BNP FP; EUR 43.68) announced a rather disappointing preliminary 2Q02 result, which could be called an 'operating profit warning'. BNP said that 2Q02 profits dropped 13% to about EUR 1bln. The impact on P&L is on revenues and not on risk provisions due to the prevailing conditions in the equity and bond market, which in June affected the revenues of the Asset management and Corporate & investment Banking core businesses.

The negative impact that led to the sharp decline in June (France Telecom, Vivendi) can only be estimated at this point in time. However, these trading losses are unlikely to be repeated in the rest of the year. According to CSFB, the worst-case scenario would be a 10% reduction in EPS for 2002 and next year. Under this scenario BNP would still be trading at 10.5x and 9.5x P/E, which is cheap. We would use the negative news flow that is likely to come up in the days ahead to buy the stock.

TPG (TPG NA; EUR 19.89) hit our stop-loss level of EUR 21 on the back of Deutsche Post's (DPW GY; EUR 10.10) reduction in profit forecasts for its postal services unit. Deutsche Post expects profits to be EUR 1.5bln lower through 2007. Our investment case on TPG was based on the stable cash flow from the postal business and, most importantly, the recovery in the express and logistics unit. Due to the economic recovery being postponed we expect a recovery in the share price to be some distance away. We take a loss of 12.72%.

Nokia's (NOK1V FH; EUR 12.53) earnings report failed to inspire markets despite a 2Q02 EPS of EUR 0.19 vs. a EUR 0.18 consensus. Looking at the decline in sales it becomes very obvious that these strong EPS figures were mainly achieved due to cost cutting. After so many quarters of strict cost cutting investors might ask how long the company can go on cutting costs. Nokia also reduced estimates for industry handset sales from 420 million to 400 million. Nokia's outlook was little convincing. The company sees 3Q02 earnings in the range of EUR 0.15-0.17, which is below CSFB's forecast of EUR 0.19 but expects a rebound in Q4. Nokia also gave very little updates on the networking sector. Even though Nokia is trying to find a bottom at these levels we still cannot see any meaningful upside for now. Betting on a recovery in Q4 remains risky, in our view.