Investors playing the waiting
game on Wall Street

Earnings warnings and mixed economic
reports are keeping the market
from moving higher

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By Lisa Singhania
Associated Press

NEW YORK >> For all the talk of bullish market conditions and improving business, it's the same old worries about earnings and the economy that are holding Wall Street back.

Although the stock market appears to be stabilizing, there still is a dearth of signs of an economic rebound. Until a recovery is assured, stocks, now hovering at their pre-Sept. 11 levels, will have a hard time extending their rebound into a true rally.

The beginning of fourth-quarter warnings season makes the scenario even more complicated.

"The market's being forced to confront the tough, difficult operating environment," said Bryan Piskoroswki, market commentator at Prudential Securities.

"It's just hard for the market to support higher stock prices in light of the negative preannouncements and the fact there is still no real sign of a pickup in terms of economic data."

There are plenty of reminders that the outlook is still fragile for many businesses. This past week, companies ranging from tech bellwether Ciena to pharmaceutical safehaven Merck and financial powerhouse American Express predicted disappointments ahead.

The economic news was mixed, and not enough to inspire investors. Although the number of first-time claims for unemployment benefits appears to be falling, which indicates a stabilizing of the labor market, the output at the country's factories, mines and utilities also continued to decline. The Fed's 11th interest rate cut of the year on Tuesday also failed to set off any strong buying, or even preserve the market's gains.

Wall Street responded with selling spread across the market. Tech stocks were particularly vulnerable; by yesterday, semiconductor stock prices had slipped 3.7 percent, according to the Philadelphia Semiconductor Index. It had soared as much as 70 percent since late September on speculation that business was improving, and the sector would lead an overall business recovery.

"The earnings warnings in particular are a reminder to people that the recovery is not here, and the market has been acting like it's at hand," said John Forelli, portfolio manager for the John Hancock Core Value Fund. "That's why you're seeing the pullback."

Investor confidence is another issue. Despite the huge rebound following the terror attacks, most market watchers say investors fear getting burned again after the precipitous losses of 2001.

Equity mutual funds lost $3.7 billion during the week ending Dec. 12, compared with a net gain of $3.5 billion the previous week, according to TrimTabs investment research. The fluctuations suggest that although money is coming back into the market, individual investors in particular aren't rushing in.

"Relative to the boom we had, it's pretty slow. But the atmosphere is going to be cautious if the market is not making new highs," said Carl Wittnebert, TrimTabs' director of research.

The market's progress doesn't appear so significant when compared to the pre-September levels. The major indexes have yet to reach where they were in early August. Nearly all the rebound has been catch-up from the sharp sell-off that followed the terrorist attacks.

Finally, the prospect of political turmoil remains. In addition to the ongoing U.S. military action in Afghanistan, investors must deal with escalating violence between the Israelis and Palestinians and possible problems between India and Pakistan. Another terror attack on U.S. soil would also prompt selling.

That said, analysts don't believe the market's recent meandering and pullback means conditions are necessarily worsening or stocks are about to fall back again. Instead, the slight retreats illustrate how uncertain everyone -- including market watchers -- are about what comes next. Unlike two years ago, when Wall Street was willing to take big chances, today's investors are much more risk averse.

"There are a lot of encouraging signs out there. Interest rates are low, there's a lot of cash on the sidelines and stocks have fallen a lot. These are all conditions that normally accompany the end of bear market and start of a bull market," said Hugh Johnson, chief financial officer at First Albany. "But no one knows exactly when a recovery is going to come and how strong that recovery is going to be.

"Until we get more answers to our questions, the market will likely struggle," he said.

It was a difficult week for the major market indexes.

The Dow fell 238.31, or 2.4 percent, despite a 44.70 gain to 9,811.15 yesterday.

The Nasdaq had a weekly loss of 68.09, or 3.4 percent. It rose 6.66 yesterday to 1,953.17. The Standard & Poor's 500 index finished the week down 35.24, or 3.0 percent, after advancing 3.69 to 1,123.07 yesterday.

The Russell 2000 index, the barometer of smaller company stocks, lost 9.92, or 2.1 percent, for the week, after finishing yesterday up 2.62 at 471.29.

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 $10.443 trillion, up $301.81 billion from the previous week. A year ago the index was $12.093 trillion.