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The way brokerage stocks have jumped in the past two months, you'd think a new bull market is right around the corner.

But this week investors who have fueled 30% gains in brokerage stocks could get a rude reminder of just how dreary things remain on Wall Street, when four securities firms report earnings.

"It's a group that has rallied spectacularly," said Brad Hintz, a Sanford Bernstein brokerage analyst. "They've moved very rapidly, but the earnings aren't there yet. It's going to take a while."

In fact, most brokerage analysts are expecting rather ho-hum profit reports from the four Wall Street firms that kick off the fourth-quarter earnings season:

Bear Stearns



Lehman Brothers



Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report


Morgan Stanley



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Some say the fourth-quarter reports for these firms -- all of which ended their fiscal years on Nov. 30 -- may look a bit like a repeat of the third quarter, when Morgan Stanley disappointed but Bear shined.

Thomson Financial/First Call reports that Wall Street analysts expect Bear, scheduled to report its results on Wednesday, to post $1.23 a share in earnings, or a 14% improvement over last year. On Thursday, Morgan Stanley is expected to report earnings of 75 cents a share, down 4% from a year ago.

Lehman and Goldman also report on Thursday, and both are expected to better last year's fourth-quarter performances. Analysts predict Lehman will record a net profit of 88 cents a share, while Goldman will post earnings of 97 cents a share.

But some investors have been acting as if the brokers are poised to post record earnings.

Shares of discount brokerage

Charles Schwab


, for instance, are up 57% since Oct. 7, the day when many stocks cratered. Morgan Stanley's stock is trading 48% higher. The Amex Securities Broker/Dealer Index is up 34%.

Yet, it's hard to understand just what all the excitement is about.

Retail investors continue to show little appetite for stocks. A recent Bernstein survey found that most individual investors aren't optimistic about the prospects for the stock market next year. And generally it takes retail investors twice as long as institutional players to jump back into the market after a prolonged downturn.

The market for initial public offerings, meanwhile, remains dead, with fewer than three dozen IPOs waiting in the pipeline for early next year. And the only mega-mergers investment bankers are pulling off these days are in their dreams.

Moreover, the rally in brokerage stocks seems at odds with the generally sour mood hovering over Wall Street, what with securities regulators still sifting through company emails looking for dirt and year-end bonuses being slashed as fast as personnel.

Maybe the best thing that can be said about the fourth-quarter numbers for many Wall Street firms is that they'll look a lot better compared with last year's profit reports. That's because a year ago, many Wall Street firms took huge charges that were associated with the Sept. 11 attacks and were confronting a huge drop in investor confidence.

Yet on a valuation basis, it would appear many brokerage stocks don't have much room to move, given that analysts aren't expecting a strong rebound in Wall Street revenue before the second half of next year at the earliest.

Shares of Goldman, based on full-year 2002 earnings, trade at a price/earnings ratio of 18, according to Thomson Financial/First Call.Goldman and Morgan Stanley both trade at 15 times earnings. Only Bear's stock appears to be a relative bargain with a P/E of 12, but its stock has traditionally lagged the rest of the brokerage sector.

But those valuations pale when compared with Schwab's projected full-year P/E of 34. And that's a valuation Hintz said is hard to justify, given that it's going to be quite some time before retail investors -- Schwab's staple customers -- come back to the stock market.

"There's nothing but air under Schwab," said Hintz.