Market in a muddle

Earnings warnings and disappointments
steal Wall Street's momentum

---

By Amy Baldwin
Associated Press

NEW YORK >> Wall Street has had little working in its favor this year. Now it has given back one of its few assets, its rally from the summer's lows.

The market's setback, marked by the Dow Jones industrials falling back below 8,000, isn't surprising given what companies are saying about profits, which are still disappointing.

"Some of these stocks aren't just missing by a penny or two, but they are missing by a mile and a half," said David Sowerby, chief market analysts at Loomis, Sayles & Co. in Detroit, referring in part to Morgan Stanley, which on Thursday missed earnings expectations by 12 cents a share.

Wall Street's retreat is a blow to investors who thought the market had reached a bottom during the summer and was beginning a recovery. The Dow peaked at 9,053 on Aug. 22, but the blue chips are now down more than 1,000 points from that high, and are nearer to their four-year closing low of 7,702 reached on July 23.

"You've got the investor who is shell-shocked already, and every time he buys at the bottom, the market trades back to it," said Michael Murphy, head trader at Wachovia Securities in Baltimore.

Murphy expects the market's volatility to continue for the remainder of the year. Little is expected to develop in the economy or company earnings reports that will inspire investors to indulge in buying beyond some periodic bargain hunting.

"Nobody wants to take a chance. Nobody wants to make a big bet," Murphy said. "This is as bad an environment as I have ever seen."

The culprits behind the market's latest slippage are profit warnings, this past week from McDonald's and Electronic Data Systems, and earnings disappointments from the likes of Morgan Stanley and Kroger.

"More than any other issue, that has been what has plagued the market in 2002 and more recently what has been behind giving back most of the (post) July 23 rally," Sowerby said.

When earnings are released in earnest in mid-October, the bad news is likely to continue. Sowerby said analysts had been anticipating profit growth of 13 percent to 17 percent but have scaled back their expectations to 9 percent to 10 percent.

So, the third-quarter warnings and earnings season is starting to resemble all the others in this 2 1/2-year-old bear market. Investors move through a cycle -- at the outset, getting a bit hopeful and bidding stocks higher in anticipation that the rebound has indeed begun. Then the selloff begins as companies issue their warning, dashing investors' expectations once again.

"Again earnings season is around the corner and the question is: Are we going to see the numbers that get us back on track?," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif. "And it just might be too soon."

The market's major indexes recorded their fourth straight weekly declines.

For the week, the Dow lost 326.67, or 3.9 percent, after rising 43.63 yesterday. The Dow closed the week at 7,986.02.

The Nasdaq composite index had a weekly decline of 70.31, or 5.4 percent. Yesterday, the Nasdaq rose 4.64 to 1,221.09.

For the week, the Standard & Poor's 500 index fell 44.42, or 5 percent. Yesterday, the S&P advanced 2.07 to 845.39.

The Russell 2000 index had a weekly loss of 22.71, or 5.8 percent, after eking out a small gain two weeks ago. Yesterday, the Russell, which tracks smaller company stocks, rose 1.74 to 367.28.

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 $8.023 trillion, down $417.76 billion from the previous week. A year ago, the index was $8.900 trillion.