SAN FRANCISCO -- With

Alan Greenspan

prattling on about interest rates today and market players adjusting to his somewhat

hawkish commentary, it seems like a perfect time to talk about earnings. (It's the old "misdirection" play.)

As of this morning, 87% of

S&P 500

companies have reported earnings for the three months ended Dec. 31 (the "fourth quarter" to those of us following the calendar), according to Chuck Hill, director of research at

First Call/Thomson Financial

. Thus far, companies are -- on average -- beating expectations by 5%, with earnings 22.4% above results for fourth-quarter 1998.

In the third quarter, earnings growth was 22.7% above the prior year. The fact fourth-quarter growth figures are nearly matching third-quarter results, when year-over-year comparisons were easier, "says earnings are doing terrific and getting better," Hill said.

In a recent report on First Call's Web site, Hill's greatest lament about earnings was that "this tremendous earnings strength is another indicator to Chairman Greenspan that things may be getting overheated."

Yet in her outlook piece -- titled "Good, Not Great" --

Goldman Sachs

market strategist

Abby Joseph Cohen

forecast "moderate profit growth" in 2000, with S&P 500 operating earnings growing just 8% this year. That compares with what is shaping to be about 15% earnings growth for the S&P 500 for 1999, based on top-down expectations.

"Earnings drive the market" is one of the great truisms of Wall Street (and the actual verbiage used by

Peter Lynch

in those

Fidelity

ads). But the S&P was down slightly in 1994 in the face of repeated rate hikes by the

Federal Reserve

, despite the fact earnings rose 16.4% over 1993 results.

The fact that Greenspan is giving every indication more rate hikes are heading to a stock market near you in 2000 leads me to wonder how likely it is that major averages will be able to withstand both higher rates

and

declining earnings (answer: not very).

For proof, look to the sickly performance of retailers, financials, consumer cyclicals, basic materials companies and just about any other group whose outlook (rightly or wrongly) is closely tied to the direction of interest rates.

"We haven't seen this for a while," said Carl Bhathena, vice president at

Holland Capital Management

in Chicago. "Earnings growth rates have come down a bit and investors are becoming more cautious. The market has limits in terms of

price-to-earnings expansion."

Bhathena, who described himself as "bullish, but cautious," acknowledged the economy has repeatedly stymied those predicting its demise in recent years. But with the Fed looking even more vigilant than usual, "there is some renewed concern the economic environment cannot sustain itself indefinitely," he said.

Thus, Holland Capital is focusing on large-cap growth companies such as

Hewlett-Packard

(HWP)

which may not have the "aggressive" characteristics that mark smaller tech plays, but which do have stability of earnings, a global presence, diversified products and solid management. (Wow, that's so "old-school," it's almost revolutionary.) Before sliding 2.3% Thursday, H-P shares had soared ahead of its earnings report

Wednesday night.

Earlier this week, my colleague

Justin Lahart

laid out a

cogent argument for why higher interest rates won't impact tech stocks. But it's probably not a coincidence that the sectors generating mind-boggling returns these days feature companies

without

earnings.

Seems stocks are caught in a twist of the classic conundrum: damned if they do (have earnings) and loved if they don't.

Juding by

today's action, that relationship is showing no signs of abating.

Vaporware 2000

If you want excitement like

Pontiac

can only dream about, take a look at the five-minute charts today for

Terayon

(TERN)

, which gained 53%, and

Xcelera.com

(XLA)

, which closed up over 47%.

Both companies leapt skyward shortly after noon on seemingly no news. Yet, there was news aplenty for those hooked into

George Gilder, editor of the

Gilder Technology Report

.

One source described Gilder as "the most influential tech analyst" on Wall Street. He certainly looked the part today, judging by the reaction to his positive comments about Xcelera.com and Terayon in his newsletter, which hit the Street around midday.

Gilder, whose Housatonic, Mass., offices were closed Thursday evening, was particularly effusive about Terayon, a developer of code division multiple access, or CDMA, technology. CDMA should be a familiar acronym to

Qualcomm

(QCOM) - Get Report

investors, and Gilder compared Terayon favorably to the tech juggernaut.

"If you failed to place your bets on Qualcomm, you, too, have another chance for a CDMA star, Terayon," Gilder wrote.

Given that Qualcomm rose over 2600% in 1999, that was all investors needed to hear, although I'm sure many took their time to investigate the companies' fundamentals and business outlook.

Yeah, right.

Promises, Promises

I will get back to the

PurchasePro.com

(PPRO)

story sooner rather than later. I swear.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

taskmaster@thestreet.com.