Stocks May Surge on Rebound Hopes

Stocks are poised to rise this week as investors look past the flood of expected earnings reports and see a potential rebound in the economy and corporate profits.

Wall Street is already forecasting the worst period for earnings in a decade. But with the trickle of earnings reported so far mostly in line with expectations, investors don't expect more bad news. Any positive surprises would be favorably received. 

One caveat, though: More attacks on U.S. soil such as the crash of hijacked commercial jets into New York's World Trade Center and the Pentagon on Sept. 11, and all bets are off. 

Adding to jitters on Friday, NBC television said a New York employee of the broadcaster tested positive for anthrax, a bacteria whose spores are potentially deadly when inhaled. The news spooked investors, even though the employee was diagnosed with a skin infection — not the respiratory strain of the disease that caused the death of one person and afflicted two others in Florida. 

The market "will continue to be dictated by earnings numbers," said Owen Fitzpatrick, head of U.S. equities at Deutsche Bank Private Banking, which oversees $9 billion in assets. "Earnings so far, so good — companies reporting this week like General Electric Co. (GE.N) have given the market some confidence. If that pace continues, the market will trade higher and that is exactly what investors are looking for." 

Global powerhouse General Electric, the world's largest company in terms of market value, bolstered investors' optimism last Thursday when its earnings met Wall Street's expectations. The good earnings news from GE and other companies inspired a rally, especially in technology stocks, that drove both the tech-laced Nasdaq Composite Index (.IXIC) and the broad Standard & Poor's 500 Index (.SPX) back up to end above their closes on Sept. 10, the day before the attacks. 

This week, the busiest for third-quarter earnings reports, will see 180 of the S&P 500 companies post results, including such blue-chip names as Citigroup Inc. (C.N), the U.S. financial services behemoth; J.P. Morgan Chase & Co. (JPM.N), whose business encompasses underwriting and trading; Johnson & Johnson (JNJ.N), whose health-care products range from Band-Aid bandages to cancer treatments; General Motors Corp. (GM.N), the world's largest automaker; Boeing Co. (BA.N), the world's largest commercial aircraft manufacturer; and Coca-Cola Co.(KO.N), the world's largest soft-drink company. 

Blue-chip technology companies set to report results this week include Intel Corp.(INTC.O), the world's largest chipmaker; International Business Machines Corp. (IBM.N), the huge computer hardware maker and services provider also known as "Big Blue," and Microsoft Corp. (MSFT.O), the software giant. 

Economic reports scheduled for release, including the Consumer Price Index and housing starts, are unlikely to affect the market, given the heavy earnings load. 

On Friday, which will be the anniversary of the Oct. 19, 1987, stock market crash, the U.S. Consumer Price Index report for September is scheduled for release before the market opens. With the U.S. economy slowing, though, investors say inflation is not an issue. Industrial production and housing starts statistics round out the week's economic data. 

Pullback Possible 

But stocks might pull back if the United States is seen suffering setbacks in its military campaign against Afghanistan, or if there are more attacks at home. 

Last Thursday night, President Bush said U.S. forces would attack Afghanistan for "as long as it takes," while the Federal Bureau of Investigation warned America of possible new attacks. 

"I think the market will try to move up in the absence of negative news," said Joe Stocke, chief investment officer at StoneRidge Investment Partners LLC, which oversees $1 billion in assets. "But the market will retrace gains of the past week on negative developments." 

Friday's anthrax scare is not expected to directly affect the market in coming days, other than add to the general uncertainty. 

"News about an NBC employee testing positive for anthrax rolled the market over, because if there's a broader terrorist threat, it makes the battle against terrorism a lot closer to home than Afghanistan and it shakes consumer confidence a great deal," said Robert Cohen, head of trading at Credit Suisse First Boston. 

Busy Week 

Profits for S&P 500 Index companies are expected to shrink by 22.4 percent this quarter, making it the worst quarter for profits since the second quarter of 1991, according to research firm Thomson Financial/First Call. 

The outlook has steadily eroded since Sept. 11 after a slew of warnings based on the downturn in the economy after the deadly attacks. Before Sept. 11, profits for companies in the index were forecast to drop by 14.76 percent, First Call said. 

"The earnings numbers will be pretty low, but I think most will be close to what Wall Street is expecting," said Deutsche Bank's Fitzpatrick. "In the best-case scenario, companies won't post positive surprises. But their comments going forward will be better." 

Some 53 companies in the S&P 500 have reported results so far, with 72 percent beating expectations and 8 percent missing forecasts, First Call said. 

The Nasdaq Composite Index (.IXIC) jumped 6.1 percent in the past week, while the Dow Jones industrial average (.DJI) rose 2.5 percent and the S&P 500 index (.SPX) gained 1.9 percent. Despite those gains, the Dow and the S&P 500 are just below their levels before the Sept. 11 attacks.