Antsy investors uninspired
by earnings in first quarter

Company warnings of difficult conditions
ahead are impeding a potential rebound

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By Lisa Singhania
Associated Press

NEW YORK >> Midway through first-quarter earnings reports, Wall Street is rethinking its dreams of a springtime rally and focusing instead on an autumnal rebound.

Unimpressive company results and forecasts have given investors, tired of losing money, little incentive to get involved. Analysts say that reluctance is likely to persist until earnings recover enough to make stocks seem less risky -- something unlikely to happen anytime soon.

"Skepticism remains high and no one is in a hurry to buy stocks," said Tom Galvin, chief investment officer at Credit Suisse First Boston. "I think the second and third quarters will provide a better potential upside to the numbers, but everybody has a wait-and-see attitude right now. People have been beaten down so much after the last two years, they want to see profits with their own eyes before buying."

Although nearly 90 percent of the companies reporting first-quarter results so far have met or exceeded expectations, earnings overall are expected to drop an average of about 11 percent from the same time a year ago, according to Thomson Financial/ First Call. What's been especially dismaying to investors eager for good news is that many companies are still worried about the future.

Just this past week, Nokia, Microsoft and United Airlines warned of difficult business conditions ahead.

Investors probably will regain confidence when earnings improve. Most analysts agree that a rally is likely by year's end, simply because third- and fourth-quarter earnings should be significantly better than those of last year -- when the Sept. 11 attacks further devastated an already weak business environment. The prospects for an earlier sustainable advance are debatable.

Analysts say that's because there are few other potential catalysts for a rally.

"Even if there's surprisingly strong economic statistics in the short run, I just don't see a rally just from that," said John Forelli, portfolio manager for Independence Investment LLC. "I just don't think the economy is going to be the issue that's going to drive the market forward. It's really up to earnings."

Second-quarter earnings for most companies won't start to trickle in until July, with any downward or upward revisions to forecasts likely in late June. Earnings are expected to be slightly higher than those of a year ago, and continue to improve for the rest of 2002.

In the meantime, investors looking for clues about earnings will have to rely on retailers ranging from Nordstrom to Home Depot, as well as networking company Cisco Systems, all of which report results next month.

"Easter came early this year so the retail results could be good," said Will Braman, chief investment officer at John Hancock Funds. "And Cisco is always a potential catalyst because they're big, they're a headline company. The CEO, John Chambers, has moved the market massively before with his comments."

Still, that might not be enough to move the broader market forward. Analysts say Wall Street wants to make sure that business overall is turning around before making any big moves.

"Day-to-day, the moves are very erratic and volatile. But if you look at the overall pattern, the market is getting higher highs and higher lows," Braman said. "Stocks are making more new 52-weeks high than 52-week lows by a very wide margin."

For the week, the Dow Jones industrials rose 66.29, or nearly 0.7 percent, to 10,257.11, after gaining 51.83 yesterday.

The Nasdaq composite index ended the week up 40.64, or 2.3 percent, despite losing 5.60 yesterday. The Nasdaq closed at 1,796.83.

The Standard & Poor's 500 index had a weekly increase of 14.16, or 1.3 percent, after rising 0.70 yesterday to 1,125.17.

For the week, the Russell 2000 index, the barometer of smaller company stocks, rose 1.94, or 0.4 percent. The Russell dropped 1.17 yesterday to close at 517.40.

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 $10.635 trillion, up $129.08 billion from the previous week. A year ago the index was $11.409 trillion.