Despite a dropoff in trading activity over the last two months, discount brokers E*Trade ( ET), Ameritrade ( AMTD) and Charles Schwab ( SCH) are poised to report solid earnings over the coming days and weeks.

But after recent action in the market, some investors might be wondering how long the good times can last.

Although trading activity declined in February and March after a blistering performance in January, it was far stronger than last year, when investors were worrying about war with Iraq. As a result, Ameritrade, E*Trade and Schwab are all expected to post a huge increase in earnings per share this quarter compared to the same period last year.

Ameritrade, for example, is projected to earn 18 cents a share in its fiscal second quarter, up from the 2 cents it earned a year ago. Meanwhile, E*Trade and Schwab are expected to double their profits.

Analysts expect E*Trade, which reports Friday, to earn 20 cents a share compared to just 10 cents last year. Schwab is slated to earn 12 cents, up from just 5 cents in the first quarter a year ago. Ameritrade will release results next Tuesday and Schwab said it will report earnings "midmonth."

Analysts aren't expecting too many surprises from the brokers since all have given some indication about how they will perform.

After the release of February trading statistics, Ameritrade increased the bottom end of its earnings guidance to between 16 cents and 19 cents a share, compared to a prior forecast of 13 cents to 19 cents. It also said it expects full-year earnings to range from 56 cents to 79 cents a share.

Last month, E*Trade President R. Jarrett Lilien said the first quarter is "tracking at or above the high end of our assumptions for the year" in most major brokerage and banking segments. If the positive trend continues, he added, the company should surpass the high end of its annual guidance of 70 cents to 85 cents per share.

Schwab also had positive things to say after its last business update in March. CEO David Pottruck said overall economic and market conditions have improved and that clients are "re-engaging with their financial affairs." Schwab said client assets reached $1 trillion at the end of February -- a level not seen since August 2000.

Raymond James analyst Michael Vinciquerra thinks Schwab produced daily average revenue trades of 181,000 in the first quarter, and he said any weakness in trading activity should be offset by strong asset management fees.

He added that Ameritrade probably executed 212,000 trades per day during the quarter, while E*Trade probably processed 157,100 daily average revenue trades.

"All in all, the March quarter was a positive one for Ameritrade, and we remain very confident that it can match our earnings expectation" of 18 cents a share, he said.

Vinciquerra is less confident about E*Trade, however, noting that the firm could miss consensus earnings estimates by 2 cents a share unless the firm's mortgage operations or bank performs better than expected.

Still, Richard Repetto, an analyst at Sandler O'Neill, said E*Trade is the only online broker with the potential to beat estimates, citing increased mortgage originations and slightly better-than-expected net interest revenue from the brokerage. "However, we believe this potential upside could be tempered by slightly lower daily average revenue trades during March and increased marketing expenses."

While it is possible that Schwab will miss consensus estimates, Repetto said the company's marketing expenses could be lower than he is projecting. Repetto, who rates Schwab a sell, thinks the firm increased advertising by 57% in the quarter to $60 million.

Matthew Snowling, an analyst at Friedman Billings Ramsey, believes E*Trade and Ameritrade will beat market expectations by a penny, while Schwab should match estimates.

Snowling likes E*Trade because he said the firm is trading at a discount to its peers. Still, he said, the company's addition to the S&P 500 index after the close of trade March 31 should help to increase its visibility and narrow the valuation gap. He is also bullish on Ameritrade, noting that the firm is highly leveraged to the retail investor. Like other analysts, however, Snowling remains cautious on Schwab.

"Increased 2004 spending plans on advertising, compensation and employee benefits diminish the company's earnings growth expectations relative to the group," he said, adding that outstanding regulatory issues could also hamper the firm's short-term performance. Schwab is still under investigation for improper mutual fund trading.

While results from the major online brokers will likely be encouraging for the first three months of the year, investors will be listening for any comments regarding the recent shift in investor behavior. The S&P 500 has fallen 2% since April 5 and the Nasdaq has shed 2.6% amid concern that stronger economic data will prompt the Federal Reserve to raise interest rates, possibly as soon as August.

Since retail investors tend to trade more when the market is performing well, a downturn in stocks could dampen trading activity and put a dent in brokerage commissions at a time when earnings comparisons get slightly more difficult.