The tug of war between accounting worries and an improving economy should continue to play out in the stock market next week, analysts said.

After a period of scarce economic data, next week's calendar is full, including revised fourth-quarter GDP, January durable goods orders and the February purchasing managers index.

If the economic data continue to show improvement, balance sheet concerns might ease, said Brian Belski, equity strategist at U.S. Bancorp Piper Jaffray. In the wake of the Enron meltdown, fears that unsavory accounting practices are inflating corporate earnings have weighed heavily on the stock market.

The Dow Jones Industrial Average has recently fared far better than the Nasdaq Composite or S&P 500 . While the blue-chip Dow has traded in a relatively narrow range over the past six weeks, with selloffs usually followed by rallies, the Nasdaq has erased more than half its gain since hitting lows in September 2001. The S&P 500 also has been dragged down by tech stocks, which account for some 24% of the index.

Favorites

Investor favoritism for blue-chips and defensive stocks, like old-line industrials, should continue, strategists said.

Despite a 17% drop on the Nasdaq Composite Index in the past two months, tech stocks continue to look vulnerable because their valuations remain high, said John Cleland, chief investment strategist at the Security Benefit Group. Based on 2002 earnings, the Nasdaq Composite Index has a price-to-earnings valuation of 50.1, compared with 20.7 for the S&P 500 and 20.2 for the Dow.

"The general trend is going to be little interest in tech stocks and more in the standard cyclicals," said Cleland. "The valuations for most of the techs still remain way high, and now, with the accounting questions, you don't know if even those numbers are bogus or not," he said. Several high-profile tech companies have faced accounting scrutiny in the past two weeks and have seen their stock prices plunge.

Despite the bias in favor of nontech, Cleland thinks the broader market will move sideways until at least March, when first-quarter earnings begin to roll out. "There is no consensus in the market yet that everything is rosy, and that probably won't come until next reporting season," he said. "I think we're going sideways for a bunch more weeks."

Belski also sees a directionless broader market between now and first-quarter reporting season.

While the economy seems to be improving, and the cyclical, defensive stocks look attractive compared with tech, there are few catalysts to drive new buying, he said. Retail investors won't be ready to commit to the market until they see at least a quarter of upward pressure in stocks. For now, the stock market is being driven by "short-term technical swings and sentiment," he said.

The retail investor's caution towards equities shows up in a continuing expansion of money market funds, said Belski, but that expansion will at least provide fodder for a rally when the time comes.

Number Crunching

Next week's revision of fourth-quarter GDP, due Thursday, is likely to bring it up a notch, due to stronger December trade and consumer spending numbers, and a smaller loss on inventories, said Josh Feinman, chief economist at Deutsche Asset Management Americas. Feinman expects GDP growth to be revised up to 0.5% from the preliminary estimate of 0.2%. Consensus estimates call for 0.6%, while some say it could rise to as much as 1%.

"Revisions won't fundamentally alter the story, but we'll get a net positive," Feinman said.

Meanwhile, investors will keep a close watch on manufacturing data. The sector has shown signs of bottoming lately, with the rate of inventory liquidation slowing and a slight upturn in orders for capital equipment. Feinman said he expects that to continue.

Peter Boockvar, equity strategist at Miller Tabak, noted that the purchasing managers index and vehicle sales, both due Friday, are the first key readings investors will get for the month of February.

The durable goods orders report for January is due Wednesday, as are new home sales . Friday's schedule also includes a revised University of Michigan Consumer Sentiment index for February.

Economists forecast a 1% rise in durable goods orders for the month of January, compared with a 1.7% increase the previous month. A consensus estimate for the purchasing managers index was not available, but the number reached 49.9 in January. A reading above 50 indicates expansion in the sector.

The consumer sentiment index, meanwhile, is seen inching up to 91.0 from a preliminary estimate of 90.9. But it still will represent a decline vs. January -- the first decline since September. In January, consumer confidence was at 93.

Finally, auto sales are expected to remain even with January at 5.3 million units, while truck sales are forecast to fall to 6.8 million from 7.1 million.

A few major earnings reports trickle in next week, with a handful of retailers, plus diversified media company Clear Channel ( CCU) and troubled telecommunications network operator Global Crossing, which declared bankruptcy last month, both on Tuesday.

The retailers reporting include Lowe's ( LOW) Monday, Home Depot ( HD) and Gap ( GPS) Tuesday, and Target ( TGT) Thursday.

As originally published, this story contained an error. Please see Corrections and Clarifications.

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