Investors brace
for earnings

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By Amy Baldwin
Associated Press

NEW YORK >> Over the past few months, Wall Street has waited for first-quarter earnings, anticipating that the numbers would confirm whether a business turnaround is indeed under way. But judging from the stock market's behavior of late, it is clear that investors have lowered their expectations considerably.

Light trading volume, fizzled rallies and flat market indicators are all signs that investors have shifted from optimism about the economy to concerns that it might take yet another three months before earnings really recover from the recession.

Although there hasn't been a rush of corporate warnings, investors are still approaching the release of earnings, which begins in earnest next week, with a degree of dread.

"There should be some increasing confidence that profits will be there, but so far the market hasn't made much progress," said Ronald J. Hill, investment strategist at Brown Brothers Harriman & Co.

Indeed, there's been a series of positive economic reports recently, including a jump in consumer confidence, rising sales of new homes and an upward revision in fourth-quarter gross domestic product.

"The evidence is continuing to accrue to say that the economy is not going to slip into (another) recession and that it is onward and upward for economic growth," Hill said.

Hill also noted that fewer companies have issued earning warnings for the first quarter than they did for the third and fourth quarters.

"We actually had more positive earnings preannouncements than negative ones. It's been a long time since we have seen this," he said.

Still, the stock market's broader indicators are below or little changed from where they started the year. The Nasdaq composite index is down 5.4 percent so far for 2002, while the Standard & Poor's 500 index is less than a point below where it started the year.

Even the Dow industrials, up 3.8 percent for the year and having made a yearly high of 10,635.25 on March 19, have retreated. Considered a safety net for investors during an uncertain economy, the blue chips have fallen 231.31 points, or 2.2 percent from their 2002 high.

Wall Street shouldn't expect first-quarter earnings to spark a big rally, said Richard A. Dickson, a technical analyst for Hilliard Lyons in Louisville, Ky.

Although results are likely to show some improvement, perhaps even more than the market expects, they won't be astounding. What that means, analysts said is more of the same light, uncertain trading Wall Street saw this past week.

Dickson predicts there will be more weaving in and out of sectors as investors search for those that appear to have the edge in the market. Safer havens like pharmaceuticals or consumer product stocks might look appealing one day, and riskier tech shares the next.

"There's probably going to be a lot of sector rotation, but it won't produce much of a net gain in the market," Dickson said. "To me, that is the problem the market will face going forward."

As for this past week, holidays -- with traders observing Passover on Wednesday and Thursday and the market closed for Good Friday -- factored into lackluster trading sessions.

But the market already was struggling during the latter part of March amid light trading and rallies that turned tepid. Blame that, analysts say, on new fears of rising interest rates, which investors believe could stymie corporate profits.

After the Federal Reserve indicated March 19 that it might increase rates later this year to keep growth steady, investors dumped stocks over the next four sessions, erasing much of the Dow's advance from earlier in the month.

Analysts say Wall Street's inability to make a lasting commitment is likely to persist.

As Dickson put it, "There is just nothing out there to say, 'Buy.' "

The market's major indexes ended the week little changed. The Dow fell 23.73, or 0.2 percent, to 10,403.94, after dropping 22.97 Thursday.

The Nasdaq had a weekly loss of 6.04, or 0.3 percent, despite rising 18.60 Thursday to end at 1,845.35.

For the week, the S&P 500 slipped 1.31, or 0.1 percent. It inched up 2.81 Thursday to 1,147.39.

But the Russell 2000 index, the barometer of smaller company stocks, managed to end the week in positive ground, up 4.07, or 0.8 percent, after rising 0.61 Thursday to 506.46.

The Wilshire Associates Equity Index, which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues, ended the week at $10.775 trillion, down $1.12 billion from the previous week. A year ago the index was $10.518 trillion.