Wall Street is looking for stocks to pull back in coming days, snapping a two-week rally as investors prepare for the worst corporate profits in a decade to start pouring in.

Next week marks the beginning of the third-quarter earnings season, when companies report financial results and hint at what is to come later in the year. The earnings reports are expected to show the sagging U.S. economy, as well as slower consumer and capital spending, slammed profits last quarter -- and will continue to weigh into next year. 

Analysts now forecast third-quarter profits will fall an average of 21.3 percent from the same period a year ago, according to Thomson Financial/First Call. That's the worst performance since the second quarter of 1991. 

It gets worse. Currently, analysts expect full-year profits to be down 13.8 percent. But First Call strategists say those analysts' forecasts will probably come down about 3 percentage points more, making 2001 the worst year since at least 1969. 

"Earnings are going to be lower than the consensus estimates and that means there's still a downside risk to stocks," said Nick Sargen, global market strategist for J.P. Morgan Private Bank, which oversees $300 billion. He's telling clients to move 5 percent to 10 percent of their equity holdings to high-quality bonds. "We believe there will be a recovery next year. But it's too early to jump over the abyss right now." 

Also, money managers say they will likely lock in profits by selling stocks that have gained over the past two weeks as they worry about recent jobless reports. 

"We've had a decent rally here. Will it continue over next week? I doubt it," said Gil Knight, a small-cap stock fund manager for Allied Investment Advisors, which oversees $12 billion. "Announcements of massive layoffs will eventually make people more cautious about spending." 

The Labor Department on Friday reported the steepest job losses in a decade in September. The same day, network computer maker Sun Microsystems Inc. said it would slash almost 4,000 jobs and report a wider-than-expected loss. 

All stock-market predictions are off if the United States takes military action against the suspected perpetrators of the attacks on the World Trade Center and the Pentagon. Investors said stocks could rise or fall, based on the success of the possible retaliation. In addition, economic reports on consumer spending and confidence will be closely watched. 

Some firms scheduled to report quarterly financial results next week include retailer Costco Wholesale Corp., soft-drink maker PepsiCo Inc. and the U.S. wireless technology giant Motorola Inc. 

Bond markets will be closed on Monday for the Columbus Day holiday. But U.S. stock exchanges will be open regular hours. 

A Deluge of Economic Data 

Friday will bring a slew of economic data, which may help illuminate a cloudy outlook. 

September retail sales and the University of Michigan's preliminary survey of consumer sentiment are expected to give a sign of whether consumer spending, which props up about two-thirds of the U.S. economy, is holding up. The Producer Price Index is also expected, but investors said the inflation indicator will take a back seat. 

In addition, any U.S. military action against the suspected perpetrators of the terror attack on the World Trade Center and the Pentagon will affect stocks, investors said. 

The United States sent troops to Uzbekistan, Afghanistan's northern neighbor on Friday, as Washington readied its response to last month's attacks on New York and Washington, D.C. Afghanistan's Islamic purist Taliban rulers are sheltering militant Osama bin Laden, Washington's prime suspect in the attacks that left nearly 5,600 people feared dead. 

Bracing for Bad Earnings News 

Investors expect bad news next week, as companies begin reporting earnings and giving forecasts for the rest of the year. About 31 companies in the Standard & Poor's 500 are scheduled to report financial results next week, according to First Call. 

"People are going to be focusing on what companies say about the fourth quarter," said Sargen. "We think the bad news about the economy, (falling) corporate profits and layoffs is not priced in" to the market yet. 

Last week, stocks eked out a gain as investors snapped up battered stocks two weeks after they fell to three-year lows on worries the Sept. 11 disaster would push the U.S. economy into a recession. 

Stocks gained on Friday after President Bush proposed a tax-relief program of at least $60 billion to help the economy recover. 

For the week, the Nasdaq composite index was up 7.1 percent, while the S&P 500 gained 2.9 percent. The Dow Jones Industrial average rose 3.1 percent. 

Many economists and strategists say the economy will shrink over the third and fourth quarters, but they also say they are looking for a recovery next year. First Call said analysts expect 2002 earnings to be up 18.2 percent from the year before. 

That optimism has some investors betting stocks are a good value even now. 

"Given the slightest opportunity, the market will go higher," said Andrew Abrams, a fund manager with CWH Associates Inc. in New York. "If we see good, or even mediocre announcements next week, the market will trend higher." 

But others disagree. 

"You've got the optimists saying the bad news will be over by the end of the year -- but we've heard that before," said Sargen. "This period of economic weakness is translating into layoffs and weak profits into next year. Let's not get ahead of ourselves."