Earnings May Ease Market's Pain

Next week's flood of corporate earnings may offer the ailing U.S. stock market a bit of relief -- if not a cure -- after a brutal selloff that drove stocks to their lowest levels in nearly five years.

Investors, unnerved by months of virtually relentless declines, are searching desperately for any signs that the bear market is ready to head back into hibernation.

It may not be ready to crawl into its cave just yet, analysts say, amid nagging concerns about corporate credibility and political unrest overseas, but better earnings news in the week will likely offer a glimmer of hope and shore up the market in the near term.

"With a lot of the earnings worries being dissipated next week and the substantial selloff that we've had -- that combination makes it ripe for a market bounce," said Jon Brorson, director of equities at Northern Trust.

The earnings season is set to heat up in what will be one of the busiest weeks of the second-quarter reporting period, with about two-thirds of the companies in the Standard & Poor's 500 index set to issue results over the next two weeks.

Half of the 30 companies in the blue-chip Dow Jones industrial average are scheduled to release results.

Results are on tap from a slew of marquee technology names like computer giant International Business Machines and top computer chip maker Intel Corp. , as well as many financial services firms like Merrill Lynch and CitiGroup .

Federal Reserve Chairman Alan Greenspan will grab the spotlight midweek with his twice yearly testimony on monetary policy. Traders will be listening carefully to his comments, but Wall Street pros expect little more than a ripple in reaction with the central bank seen on hold for a while.


Blue chips and the broad market suffered their worst weekly drop this week since they crumbled in the wake of the Sept. 11 attacks on the United States, slammed by real -- as well as rumored -- accounting scams.

On Wednesday, the broad Standard & Poor's 500 index and the Nasdaq Composite Index slammed to their lowest levels since 1997 after Qwest Communications Inc. revealed it was the target of a federal probe.

For the week, the S&P 500 dropped 6.8 percent and the Dow Jones Industrial Average fell 7.4 percent, their largest drops since late September. The Nasdaq racked up its worst week since April 2002 with a loss of 5.2 percent.

Skittish investors pulled a net $3.3 billion out of U.S. stock mutual funds investing domestically in the week ended July 10, capping a sixth week of net withdrawals, according to AMG Data Services.

Foreign purchases of U.S. securities, including stocks and bonds, dropped 56 percent to $93.3 billion in the first quarter from $166.3 billion in the fourth quarter of 2001, the Securities Industry Association said.


Still, the market could be poised to bounce after its rapid and steep decline, particularly if earnings beat expectations, analysts said.

Second-quarter earnings for the companies in the Standard & Poor's 500 index are expected to slip about 0.5 percent, according to Thomson First Call. But investors have taken heart in solid forecasts from companies like Dell Computer Corp. , and some analysts believe that when all the second-quarter results are in, they will show modest improvement.

"The earnings numbers in general have trended better than expected," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank Private Banking, which oversees $7 billion. "The earnings picture is shaping up to be a brighter story than it has been in a long time."

The ratio of negative pre-announcements to positive ones has narrowed to stand at 1.3 for the quarter from 4.1 in the same period a year ago, First Call said.

Earnings are expected to snap back sharply in the second half of the year, up 16.3 percent in the third quarter and up 28.6 percent in the fourth quarter.

Brokerage giants Merrill and Charles Schwab are both set to report results next week, along with a lengthy list of financial firms that includes: CitiGroup, Bank of America , FleetBoston , and J.P. Morgan Chase .

Technology also takes center stage, with earnings due from many of the group's giants like Intel, IBM, Apple Computer , Motorola Inc , Advanced Micro Devices, Microsoft Corp. and Sun Microsystems .

Drug companies Merck & Co. , another Dow component, Eli Lilly & Co and Baxter International also are scheduled.

Nagging fears of another accounting bombshell will likely keep the market under pressure, however, after a slew of scandals that wracked the market -- a growing list highlighted by WorldCom Inc.'s $3.85 billion debacle.

"It's an open wound," said Milton Ezrati, Lord Abbett & Co. senior economic strategist. "People are going to be looking for some piece of news on this whole issue of trust in corporate governance. Another disappointment in another name would cause terrible harm in the market."


Investors will keep an eye on Greenspan, who will speak before the Senate Banking Committee on Tuesday and the U.S. House of Representatives Banking Committee on Wednesday.

But many economists are expecting the central bank to keep interest rates steady at 40-year lows until 2003, at least, given a sluggish U.S. economy and the stock market's slide.

"It's definitely back-burner," said Nat Paull, portfolio manager at New Amsterdam Partners. "People will definitely want to understand what he's thinking about the economy, but interest rates aren't going to be changed for a while."

Investors have a slew of economic data to slog through, including data on industrial production, housing starts, consumer prices, international trade and the federal budget.

"The economic news is going to be good for the market. The question is, will the market even notice?" Ezrati said. "When emotion is running high, it can carry the market to extremes."