While worries about questionable accounting practices and liquidity concerns are likely to remain in the headlines for several weeks to come, those fears may recede somewhat this week, some analysts believe.
Of course, the other possibility is that with earnings season winding down and few potentially market-moving economic reports on the schedule, investors and analysts might find themselves with more time to scrutinize corporate numbers.
"It's not just going to disappear overnight, but I think we'll be seeing fewer and fewer incremental examples," said John Manley, analyst at Salomon Smith Barney. "The question is whether this is systemic, and my answer is no, profits don't look to be suspiciously high."
Given that the economic picture generally seems to be improving, Manley believes the trend in the market is up, though he acknowledged that valuations remain lofty. But despite positive signs, some evidence remains that the recession could linger longer than most people hope.
Blue-chips advanced last week, but tech stocks slipped. Rumors of accounting impropriety were rife, but the impact on stock prices overall was less significant than it had been previously. In the wake of
collapse, the market has been on a witch hunt for other companies that have artificially inflated their results through accounting chicanery.
Dow Jones Industrial Average rose 159 points, or 1.6%, to settle at 9903 after breaking through 10,000 earlier in the week. The
S&P 500 was up 8 points, or 0.7%, to 1104, but the
Nasdaq lost 13, or 0.7%, to 1805.
"Yes, there could be other companies with issues, like
," said Robert Robbins, an analyst at SunTrust Robinson Humphrey, "but Enron seems to have been a unique situation."
That may be up for debate, but the critical eye toward corporate bookkeeping has led shares of several well-known companies lower recently. IBM fell Friday after a
New York Times
article claimed that Big Blue used $300 million in savings from the sale of a business unit to help it meet fourth-quarter earnings estimates, rather than discounting the sale as a one-time gain.
maker of PC video cards , and
also saw their
shares battered this week amid concerns about irregular accounting.
Humphrey believes the broader market will continue to rise over the coming week, although he says he is concerned about the technology sector. "The Morgan Stanley High Tech index is now at a three-month low relative to the broader market," he remarked. "When it's been weak for three months, there's a much higher chance that it will be weak for another few months or even quarters."
With technology and telecom stocks making up about 24% of the
, this is a cause for concern, he said.
Brian Belski, an analyst at U.S. Bancorp Piper Jaffray, shared that view, saying technology funds have seen outflows in nine of the past 10 weeks, which suggests "persistent investor uneasiness with technology overall."
Investors have reason to be concerned. Experts say that technology companies are more likely to have accounting issues than any other group in the market. Meanwhile, product demand remains weak and valuations are still high.
The broader market is a little healthier though, according to Belski. He noted that equity funds have seen three consecutive weeks of inflows, indicating that "the overall comfort level surrounding the fundamental investment climate for longer-term equity instruments is improving."
Economic Data on Tap
If concerns about corporate fidelity do dissipate next week, they may be replaced with concerns about the economy. Recent data have given investors hope for a speedy recovery, but Friday's University of Michigan
consumer sentiment survey for February showed its first decline since September. Meanwhile, the expectations index fell to 86.8 from the previous 91.3 reading.
The economic calendar is light next week, and the data shouldn't provide much fodder for either the bulls or the bears. The
leading economic indicators, a gauge of the economy's health six to nine months down the road, is probably the most significant report and is scheduled for Thursday. The index is expected to rise 0.6% in January after climbing 1.2% in December.
Other reports on tap include
housing starts on Tuesday, the
consumer price index on Wednesday and trade data on Thursday. Housing starts are projected to rise to 1.595 million in January, from 1.570 million in the prior month. Building permits, a sign of future housing activity, are expected to come in at 1.600 million, compared with 1.654 million in December.
As for the CPI, both the headline and core rates are slated to rise 0.2% in January. The headline rate fell 0.2% in December, while the core rate was up 0.1%.
With the earnings season wrapping up, investors will have fewer opportunities to punish stocks in the coming week, at least on the basis of quarterly numbers, although some key reports are scheduled to be released. On Tuesday,
is expected to report a profit of 49 cents a share, up from earnings of 45 cents last year. Specialty retailer
Abercrombie & Fitch
is expected to offer its results on the same day.
will report Wednesday, while
are all scheduled for Thursday.
Financial markets in the U.S. will be closed Monday for the Presidents' Day holiday.