The Coming Week: Bottom Line Is Earnings

Despite Monday's holiday, this week will be the busiest for fourth-quarter profit statements.
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Despite Monday's holiday, the fourth-quarter earnings season enters its busiest phase in the coming week. If the CEOs of major corporations continue to bad-mouth 2002 the way

Microsoft

(MSFT) - Get Report

,

Intel

(INTC) - Get Report

,

United Technologies

and others did last week, stocks could be in danger of more setbacks, analysts said.

While economic data, including last week's initial jobless claims, manufacturing and consumer data, are starting to paint a more

promising picture, they haven't been enough for stock investors who have been increasingly fixated on earnings news.

"We're seeing numbers showing the economy is stabilizing, but investors bid up stocks in November and December because they expected improvement," said Peter Boockvar, market strategist at Miller Tabak. It will take strength in several more key economic reports to convince the market that improvement is actually at hand, and next week's data lineup is anemic, he said.

"The bias for this week is earnings jitters," he said.

All-Star Cast

The market is closed Monday for Martin Luther King Jr. Day, but over the next four days some 30% of the

S&P 500

, or 150 companies, will report earnings. Last week, by comparison, 113 companies reported. "Next week is the peak week for sure, and then it backs down a bit," said Tom O'Keefe of earnings tracker and research house Thomson Financial/First Call.

Major tech companies on

next week's reporting calendar include

Amazon.com

(AMZN) - Get Report

,

JDS Uniphase

(JDSU)

,

Gateway

(GTW)

and

Qualcomm

(QCOM) - Get Report

. Outside of tech, some of the big players reporting are

Bank of America

(BAC) - Get Report

,

Merck

(MRK) - Get Report

and

Boeing

(BA) - Get Report

.

The start of fourth-quarter earnings season has brought the first pause to the rally that began Sept. 21. Despite a few one-day pops, the major indices have ended lower for two straight weeks on worries that economic recovery won't come as quickly as investors had hoped.

Last week Microsoft warned that it didn't see robust growth returning to the world economy or the PC business. United Technologies reaffirmed its earnings targets for 2002 but said it doesn't expect economic recovery in the first half.

Nortel

(NT)

said sales haven't bottomed yet. And

Intel

(INTC) - Get Report

warned it was slashing capital spending for 2002.

Wall Street is now expecting an 8.1% decline in S&P 500 earnings in the first quarter, compared with expectations for a 6.2% decline at the beginning of the year. Back in October, analysts were betting on 3.5% growth, said Tom O'Keefe.

Some companies have been more upbeat about 2002, including

Cisco

(CSCO) - Get Report

, software outfit

Oracle

(ORCL) - Get Report

and

Nokia

(NOK) - Get Report

. But for the most part, caution and pessimism have prevailed.

Since Jan. 4, the

Dow Jones Industrial Average has fallen 4.8%, the

S&P 500 is off 3.8% and the

Nasdaq Composite Index shed 6.3%.

Small Potatoes

The biggest nonearnings event on next week's calendar is probably

Federal Reserve Chairman Alan Greenspan's testimony Thursday before the Senate Budget Committee, as investors look for clues to his interest rate plans. After 11 rate cuts last year, the Fed's policy-making board meets on Jan. 29 and 30 to decide whether another one is in order.

"People thought

two weeks ago that he was quite concerned about downside risk, and became convinced that he was going to

cut interest rates again. As good economic news has come out, they've tempered expectations," said Glassman.

Next week's data lineup includes initial jobless claims and existing home sales for December, both due Thursday. But that's small potatoes compared with the following week, when December durable goods orders, the Chicago Purchasing Manager's Index, advance estimates of fourth-quarter GDP and the January jobs report are released.

The weekly jobless claims numbers have become an important gauge of recovery, however, and have been the most consistently rosy of the economic reports. New claims peaked in October but have been falling since then. Meanwhile, investors may look for some clarification in this week's numbers as to how much seasonal factors skewed last week's decline. Economists are expecting claims for the week ended Jan. 19 to rise to 400,000 from 384,000 the previous week.

But existing home sales for December probably won't hold any surprises. "People are sensing that housing is good. Home mortgage applications are on the high side. Maybe weather has been a real positive, but there is no sign of real trouble there," said Glassman. Consensus forecasts call for a drop to 5.16 million units, down from 5.21 million in November.