NEW YORK -- Fourth-quarter earnings supposedly were going to give Wall Street some idea of when business -- and stock prices -- would finally revive. Instead, investors are as directionless as ever.
The numbers provided few clues about the future. And any positive outlooks were overshadowed by news about Enron Corp. and questions about accounting practices at other companies.
"It's very negative out there right now," said Todd Clark, head of listed equity trading at Wells Fargo Securities. "There's a lot of uncertainty about what's going on in corporate America. The accounting imbroglio continues to unfold. And many investors are afraid we're going to see more companies come out with issues like Enron."
Other analysts contend earnings are the problem. Although fourth-quarter results have generally been in line with expectations, few companies offered the bullish forecasts for the future that many on Wall Street hoped for. Rather, companies have been cautious, leaving the market with little to go on.
For investors who've repeatedly watched rallies fizzle, that's too much of a risk. They're either selling or just not buying.
"I'm more worried about valuations," said Hugh Johnson, chief investment officer at First Albany Corp. "There's no doubt in my mind that the market would be down right now anyway, even if Enron hadn't happened."
The combination of uninspiring outlooks and accounting anxiety has proved to be a formidable obstacle for stocks. Investors have been selling across market sectors, although technology stocks have been particularly susceptible.
The tech-centered Nasdaq composite index is down 6.7 percent so far this year, compared with losses of 2.8 percent in the Dow Jones industrials and 4.5 percent in the Standard & Poor's 500 index.
Jeffrey Applegate, chief investment strategist at Lehman Brothers, said that's because tech companies tend to use pro forma results, an accounting procedure that the Securities and Exchange Commission recently warned investors to be wary of. Pro forma results are based on a set of hypothetical numbers that focus on the profits and losses of ongoing operations.
"As a result, investors think there's more potential for (accounting) problems in the tech sector as compared to consumer staples" and other more conservative investments, Applegate said.
Cisco Systems, for example, dropped 8 percent in one day after reporting better-than-expected results but failing to issue an upbeat forecast. Analysts attributed the selling to concerns that its future growth might not be as strong as hoped and general fears about bookkeeping.
"The market always sells first and asks questions later," said Clark, who noted that Cisco stock had run up some before the earnings release.
Ironically, the pessimism comes even as unemployment, manufacturing and consumer spending data appear to be stabilizing. As a result, confidence is building for a recovery this year. But many remain cautious about how robust any turnaround will be. Although 2002 is expected to be a better year than 2001, growth projections remain modest with most analysts now predicting a turnaround won't occur until the last half of 2002.
In the short term, though, stocks' volatility has made them a tough sale. Wall Street attempted to rally several times this past week, only to see gains disappear on rumors of possible financial wrongdoing or simple profit-taking as nervous investors sought to preserve their positions.
Even stalwart Wal-Mart failed to inspire investors, despite reporting an 8.3 percent gain in January sales at stores open at least a year.
"We have cash and would like to get into the market. But if stocks are lower every day or they keep falling off, what's the rush?" said Robert Streed, portfolio manger of Northern Select Equity Fund.
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