Topsy-turvy week ends
down on Wall Street

The weaker dollar may help profits,
but likely won't be the catalyst
for a market recovery

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By Lisa Singhania
Associated Press

NEW YORK >> In the past year, companies ranging from Whirlpool to McDonald's have blamed the strong U.S. dollar in part for disappointing earnings. That explanation might not wash much longer -- after years of dominating other world currencies, the dollar is weakening, a trend likely to help company profits but unlikely to revive the stock market.

"What we really need to see are stronger earnings," said Charles White, portfolio manager at Avatar Associates. "This will help, but it's not enough by itself."

Indeed, most analysts say a decline in the dollar would be a mixed blessing for U.S. stocks.

On the plus side, U.S. corporations with business in other countries should benefit because the lower the dollar's value, the less American products cost overseas and the more attractive they are to foreign buyers.

Also, a company doesn't have to sell as much overseas to record the same number of dollars in profit as it would have before. In other words, McDonald's now has to sell fewer hamburgers and Procter & Gamble less detergent to show the same level of profit in U.S. dollars as they would have a year ago.

But there is a potential downside. A weaker dollar makes U.S. investments less appealing to foreign investors.

In large part, that's because foreign investors are concerned about the same things as American investors: Sluggish business growth here that no longer outpaces the rest of the world, a languishing stock market and a series of accounting scandals. The prospect of more terrorist attacks that could further slow business growth is another reason to stay away.

And because U.S. dollars are also worth less in other currencies, foreign investors stand to lose value when they cash in their American holdings.

Still, investors aren't fleeing U.S. markets the way they did Asia and Russia a few years ago, when those economies disintegrated. But analysts say they are looking elsewhere.

For some investors, that means Europe or other overseas markets. Others are buying gold.

"We are noticing U.S. institutions increasing their purchase of overseas assets, and foreign investors are not stepping up to the plate as much in terms of U.S. purchases," said George Magnus, chief global economist for UBS Warburg.

A lot of money is at stake. Foreign investors held $1.69 trillion in U.S. stocks as of December 2001, the most recent statistics available from the Federal Reserve.

But for now, the prospect of a soft currency is not enough to upset financial markets. The U.S. dollar is still at a relatively high value by historical standards, and, although foreign investors might be reducing their exposure, their alternatives are limited. Few other markets offer as much variety and stability.

What does matter, analysts say, is how companies do. If companies start making more money, investors here and abroad will be more inclined to buy stocks. But with second-quarter earnings reports more than a month away, it will likely be a while before Wall Street can rally and keep its gains.

It was a down week for all the market's major indexes.

The Dow Jones industrials fell 179.01, or 1.8 percent, for the week, despite advancing 13.56 to 9,925.25 Friday.

The Nasdaq had a weekly loss of 45.76, or 2.8 percent, after falling 16.19 to 1,615.73 Friday.

For the week, the Standard & Poor's 500 index fell 16.68, or 1.5 percent. On Friday, the S&P rose 2.48 to 1,067.14.

The Russell 2000 index, which tracks smaller company stocks, had a weekly loss of 6.17, or 1.3 percent. On Friday, the Russell fell 0.36 to 487.47.

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 $10.106 trillion, off $144.15 billion from the previous week. A year ago, the index was $11.671 trillion.