Election Section

Stocks reacted to the first batch of third-quarter earnings results this past week with surprising strength despite the expected dismal news. 

The question is whether Wall Street can keep up that positive momentum as the bulk of earnings reports pour in during the next two weeks and after news of an anthrax case in New York City shook markets Friday. 

Investors will hear from many of the nation’s biggest companies next week with AOL Time Warner Inc., Gateway Inc., Citigroup Inc., Pfizer Inc., General Motors Corp., Sun Microsystems Inc. and McDonald’s Corp. all scheduled to report. 

In the market’s favor is that well before the Sept. 11 terrorist attacks investors had extremely low expectations for the third quarter and had bid stocks sharply lower. Likewise, stock market strategists had lamented that there were few safe havens for investors, and reduced expectations across all sectors. 

“What we see analysts doing to this (third) quarter is turning it into a kitchen-sink quarter. They are throwing everything in,” said Chris Wolfe, equity market strategist for J.P. Morgan Private Bank. “It’s a bad quarter.” 

Analysts said ample warning of bad business helped the market on Wednesday shrug off Motorola Inc.’s disappointing earnings and 7,000 additional job cuts. But the bad news for stock prices as they try to move higher is the political uncertainty that continues to weigh on Wall Street, threatening to wipe out any advances. The market showed its vulnerability to fears of additional terrorist assaults Friday, initially falling on news of a fourth anthrax case before recovering. 

Another negative factor is the quality of upcoming third-quarter earnings reports, analysts said. Unlike the results that have already been released, those that come out in the next few weeks will take into account business for the three weeks following the attacks. 

“The third-quarter expectations had been drifting down anyhow. So, the whole profit picture had been eroding, but that trend just fell off a cliff,” after the attacks, said Charles H. Blood Jr., senior financial markets analysts at Brown Brothers Harriman & Co. 

The earnings results released this past week by 54 companies within the Standard & Poor’s 500 index essentially met Wall Street’s expectations, Blood said. But for the most part, the results were not affected by the Sept. 11 attacks, because most companies were reporting for quarters that ended Aug. 31, he added. According to research by his firm, Blood said earnings expectations for S&P companies have been slashed 9.7 percent since the attacks in New York and Washington. Analysts now expect the nation’s biggest companies to post a combined earnings per share figure of $10.95, down from $12.13 anticipated just before the attacks. 

That said, the question on Wall Street is whether investors are adequately braced for even worse-than-expected results, or whether they still have a lot more selling to do. 

“The answer to that is going to be in the words of the reports rather than the numbers,” Blood said. “What investors are going to look at is how back the (post-attack) shock reaction was and where companies are in terms of bouncing back.” 

Analysts caution investors against reading too much into earnings reports, particularly negative ones. 

“The best we can hope for is that we decide it doesn’t really matter. Investors are supposed to discount earnings,” Blood said. In the near term, analysts expect the market to be sector-driven. Industries are likely to fall quickly in and out of favor as their bellwether companies issue their earnings. 

“It’s a tough market,” said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum. “You have sectors rotating every other day. ... That creates a lot of anxiety among investors.” 

For the week, the Dow Jones industrial average rose 224.39 points, or 2.5 percent, despite falling 66.29 to 9,344.16 Friday. 

The Nasdaq gained 98.10, or 6.1 percent, for the week after inching up 1.93 Friday to 1,703.40. The S&P 500 ended the week up 20.27, or 1.9 percent, after declining 5.78 Friday to 1,091.65. 

The Russell 2000 index, the barometer of smaller company stocks, rose 13.62, or 3.3 percent, for the week, finishing Friday down 2.45 at 428.59. 

The Wilshire Associates Equity Index – which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues – ended the week at $10.049 trillion, up $212.010 billion from last week. A year ago the index was $12.803 trillion. 

Amy Baldwin is a business writer for The Associated Press