Dow Jones Industrial Average might be one way to play an emerging bull market, but the idea that it's a safe bet has been discredited some over the last 24 hours.

The average has been ricocheting violently since Tuesday afternoon when a brief rally spurred by the


11th rate cut of the year was summarily ended by


(MRK) - Get Report

profit warning. A similarly dour forecast by

American Express

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cast a pall on Wednesday's trading, although the average staged a comeback late in the session. After falling 33 points Tuesday, the Dow was roughly flat headed into the close.

"It's my opinion that we're at the end of a cycle where big is better," said Kent Engelke, capital markets strategist at Anderson & Strudwick.

Sandwiched between the Merck and American Express warnings was surprisingly good news from

Procter & Gamble

(PG) - Get Report

, which said fiscal second-quarter earnings would come in a few cents above estimates. The outlook, which some initially read as confirming the early stages of economic recovery, failed to lift the Dow, although some of P&G's peers benefited. Shares of the Cincinnati consumer products giant recently traded up $3.25 to $79.95, while rivals


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were also climbing.

"Procter & Gamble is a great company," Engelke said. "But look how many widgets they have to sell and how many more markets they have to tap in order to expand sales."

Growing Pains

Jim Gingrich, an analyst at Sanford Bernstein who has a buy rating on the stock, said he expects to see mid-single digit revenue growth in 2002, as well as strong margin expansion as P&G's turnaround plan is "starting to bear fruit."

But Richard Moroney, editor at Dow Theory Forecasts, wasn't as enthused. "It's good news as the company, and the whole sector's, biggest problem has been the inability to grow sales," he said. "But I'm a little dubious that P&G is going to be a real dynamic performer over the next year."

The stock has already discounted some improvement in growth, Moroney said, and at 25 times its forward earnings, it remains pricey. "Even with the surprise they're talking about, which is relatively modest, it's a fairly expensive stock," Maroney said.


warning appeared company-specific, but managed to single-handedly scuttle the Fed rally. The company said it sees no profit growth next year, citing expiring patents and slow sales growth.

And credit card and travel company American Express announced more job cuts and lowered its fourth-quarter earnings range, citing weakness in its travel sector. Amex slipped $1.27, or 3.7%, to $32.99.

Future Doubt

Merck, which lost about 9% Tuesday, is off another 4% to $58.36 Wednesday. The stock, which was considered by some to be

a safe bet immediately after the Sept. 11 terrorist attacks on the U.S., is down 8.2% since Sept. 11 and down 7.6% since Sept. 21.

Big pharmaceutical firms must always weigh current profits against their ability to come up with new products, but the problem is getting pronounced for Merck. The company said it will seek approval to sell 11 new drugs between now and 2006, and also predicted that its earnings would again grow at double-digit rates in 2003.

"The question is whether investors are going to take them at face value and see it as a decision on their part to put research and investment into new products ahead of sustaining their near-term earnings growth," said Moroney. He thinks the stock's trading at a "decent" valuation and could move higher in the second half of 2002.

But investors may not have the same patience. "It's something that Wall Street is wrestling with," Moroney said. "Is it a company that's starting to flounder, or are they just putting R&D ahead of maintaining the 7% or 8% growth people are looking for?"

And for others, size may be the problem. "I believe your largest companies aren't growth entities because they're too big and trading at too large a multiples," said Engelke.