If investors don't get another anxiety attack over more "Enronitis" waiting in the wings, stocks are expected to rise this week.
Wall Street will look to see if fresh economic data give more signals of recovery.
But the crisis of confidence after Texas-based energy trading giant Enron Corp.'s record bankruptcy and complicated accounting problems will continue to cast a pall over the market. The Enron crisis has raised concerns that other companies may have accounting bombshells waiting to be dropped. That, in turn, has hurt the shares of firms with complex corporate structures.
"The market can do quite nicely. The only problem now is this 'Enronitis' virus. There's a lot of speculation about who's next," said Peter Cardillo, strategist at Global Partners Securities. "As this begins to dissipate, the market will focus on the economics, which obviously point to economic rebound."
Seeking more clues on the status of the world's largest economy, investors will pick apart reports on orders in the non-manufacturing services sector, retail sales, layoffs, productivity and unit labor costs, weekly jobless claims, consumer credit and wholesale inventories.
Corporate America's quarterly reporting season will slip into a lower gear. Investors, after riding out the corporate sector's worst earnings slide in more than a decade, see most of that in the rear-view mirror. The mood has turned to cautious optimism about projections for better results ahead.
There's always a wild card or two.
Among the smattering of earnings scorecards on tap for the week are such marquee names as Web gear titan Cisco Systems Inc. and telecommunications group WorldCom Inc.
"Companies that have any disappointments would have by now warned us," said Howard Kornblue, a portfolio manager with the $18 billion Pilgrim Inc. "If anything, we always have the potential for positive surprise, which would help the market."
One factor helping stocks, he said, was the Federal Reserve's decision to keep interest rates steady last week after slashing rates 11 times in the past year. This is seen as a sign the economy is OK, and doesn't need more monetary stimulus.
On Friday, stocks pulled from two triple-digit rallies in the blue-chip Dow Jones industrial average, as lingering concern about corporate accounting returned when strong bullish news failed to appear.
"The real driving issue has been Enron and look-alikes," said Kevin Caron, Gruntal & Co strategist. "In the coming weeks, we're likely to see a shift in focus away from the accounting issues, which hopefully will be isolated to a few companies, to the real issues that drive stocks — the economy and earnings."
A 'Super Tuesday' for Data
On Tuesday, Wall Street pros and Main Street investors alike may get a severe case of eyestrain as they scan all the economic data. Retail chain-store sales for the week ending Feb. 2 will be issued before the market's regular session opens by the Bank of Tokyo-Mitsubishi and UBS Warburg. The statistics are compiled from seven major U.S. discount, department and chain stores, including Wal-Mart Stores Inc.
Then a half hour after the opening bell, two reports will be issued: December factory orders and the Institute for Supply Management's non-manufacturing Purchasing Managers' Index for January.
On Wednesday, a preliminary reading on fourth-quarter productivity and unit labor costs will be released.
Then, on Thursday, it will be time for weekly jobless claims, due at 8:30 a.m. EST (1330 GMT). December consumer credit data will be released in the afternoon.
On Friday, after the market opens, December wholesale inventories data will be issued.
If the ISM non-manufacturing services index, due Tuesday, "comes up a little, that would kick off the week to a good start and the Enron virus will begin to subside," Cardillo said. "If wholesale inventories continue to move lower, that's positive. It means they have to be replaced."
Next: Earnings Expectations
On the earnings front, 349 companies — nearly 70 percent of the companies in the Standard & Poor's 500 index — have reported results. And they're not too pretty. Earnings were down 23.7 percent from the fourth quarter of 2000. This is worse than expectations of a yearly decline of 22.4 percent, said Joseph Kalinowski, senior equity strategist with market watcher Thomson Financial.
This would make the 2001 fourth quarter the worst since earnings fell 24.2 percent in the 1991 second quarter, Kalinowski says. Sixty-seven companies in the technology-laden Nasdaq 100 have issued results, with reported earnings down 40.8 percent from last year, he added.
But Wall Street bulls say investors are looking ahead.
Michael Farr, president of the $200 million Farr, Miller & Washington fund, said his "gut feeling" is that stocks seem to be firming as lowered earnings targets are met or beaten. But he doesn't see a runaway rally anytime soon.
"What we are really trading on are earnings expectations post-economic recovery. We have not seen them yet, and that introduces a certain element of risk," Farr added.
Speaking of risk, what about Enron?
"It seems the Enron cloud is looming larger in investors' minds than most anticipated. I think it will continue," Farr said. "It's one thing when investors lost money in dot-coms. That was 'shame on me.' Enron is 'shame on you.'"
Super Bowl Predictor
On a lighter note, investors were expected to root for the St. Louis Rams to defeat the New England Patriots on Sunday in the Super Bowl. The widely watched contest for the American football championship is in New Orleans this year.
The Super Bowl Stock Market Predictor — tracked by Prudential Securities' strategist Bob Stovall — says a victory by a team like the St. Louis Rams, with roots in the original National Football League, points to a rising stock market for the year. The New England Patriots' roots are in the younger American Football League.
Maybe it's just a coincidence. But the Predictor has been right 80 percent of the time. And Wall Street, battered by two straight down years, needs all the help it can get.
After the bear market ravaged stocks in early 2000, most rallies have been false starts. But the market's recovery from three-year lows last September may be the real deal, some pundits said.
"The market sold off in the last few weeks, but the economy is improving. So as opposed to selling the rally, people might be buying the dips," said Ahmet Okumus, president of Okumus Capital, who manages $550 million in assets. "That's a change of sentiment."
One thing that may help out this week, he said, is a mountain of cash on the sidelines in hedge funds.
"So if the market continues to rally, it might be further fuel for the market," Okumus said.
However, he warned that stock valuations are high. He pointed to a technical indicator, the volatility index, a contrarian measure also known as the "Fear Gauge." At Friday's close the index stood at 22.87, a very low reading, showing little fear among investors. In the past, such readings marked market tops.
"We could get some sell-off, but I don't know if it will continue," Okumus said.