Updated from 7 a.m.

The asset managers may be looking at a rough couple of weeks as quarterly earnings period opens.

A sloppy first quarter in stocks, mucked up in part by worries over rising interest rates, has analysts turning negative on the group.

Equity markets posted weak returns in the first three months of 2005, with the

S&P 500

dropping 2.6%, the

Nasdaq Composite

down 8.1% and the MSCI EAFE International Index off 1.2%. Plus, fixed-income returns generally fell: The Lehman Bond Index dropped 1%.

The rocky first quarter, along with concerns that rising interest rates could stem fund flows in the current period, is causing analysts to lower earnings estimates for asset management companies, a group whose fortunes ebb and flow with the market.

"Right now, based on our view that industry flows could slow in Q2, we expect most firms will experience a slowdown in the rate of net mutual fund inflows over the coming months, unless the stock market rallies sharply and/or the rise in interest rates subsides," Robert Lee, an analyst at Keefe, Bruyette & Woods, wrote in his latest report.

Lee's doubts about the group led him to lower his quarterly and full-year EPS estimates for

Janus Capital

(JNS)

, which is due to post earnings April 20. Lee trimmed his first-quarter guidance by a penny to 12 cents a share, and nicked his 2005 guidance by a nickel to 54 cents.

Lee arrived at his new earnings estimates after lowering his March assets under management forecast by 6.3% to $133 billion, because of the weak equity market performance. On Monday, Janus did essentially as he expected, posting a 1.6% drop in assets under management to $132.2 billion. That's down from $134.4 billion at the end of February.

Asset-management companies generally thrive when bull markets lift their asset base, and they stumble when asset levels stagnate.

Lee maintains a price target of $15 on Janus, as does Prudential analyst John Hall, who similarly lowered his first-quarter estimate by a penny to 12 cents last week. And both Hall and Lee are skeptical about the embattled fund managers' ability to replace the funds being lost to outflows, even though the pace of money flowing out has been reduced.

"Net long-term outflows have been improving for Janus, which saw $600 million leave in February and $700 million in January from $1.6 billion in December," Hall said in a report. "However, unless there is a shift in investor interest in growth equity, we believe Janus will continue to lose assets."

Lee also brought his estimates down for San Mateo, Calif.-based asset manager

Franklin Resources

(BEN) - Get Report

ahead of its earnings showcase on April 28. However, in Franklin's case he only tweaked them slightly, since he believes that "stronger than previously forecast flows may have offset most of the pressure from weak capital markets."

Lee says those stronger-than-expected flows are mainly going into international funds, which have been booming lately because of the dollar's decline. Franklin is Lee's top choice in the group because "they remain the most leveraged to continued flows into international products."

Lee forecasts Franklin will post earnings of 92 cents for the quarter, a penny better than the consensus estimate. He lowered his full-year 2005 estimate by 2 cents to $3.68 on account of the market's slow start.

At of the end of February, Franklin's asset base was $415.9 billion. Lee forecasts its assets under management to be $409 billion at the end of March, only slightly below his original forecast.

Tuesday morning brought a bit of confirmatory bad news from another industry biggie,

Alliance Capital

(AC) - Get Report

. Alliance, which at $534 billion is the largest publicly traded asset manager, warned investors that it won't make its first-quarter earnings target due to weak capital markets, hefty legal fees and investment losses.