A Topsy-Turvy Profit Picture

Good news one day, bad news the next. Stocks' strange earnings season continues next week with reports from the likes of Merck, Bank of America, and Motorola

Wall Street stocks ended lower on Friday, Jan. 18, after corporate heavyweights such as software giant Microsoft Corp. (MSFT ) reported disappointing results, raising some doubts about an economic turnaround. News that consumer sentiment improved for the fourth straight month in December did little to lift investors' spirits.

The Dow Jones industrial average was down 78.19 points, or 0.79%, to 9,771.85. The Nasdaq Composite index shed 55.47 points, or 2.79%, to 1,930.35. The broader Standard & Poor's 500 index slipped 11.30 points, or 0.99%, to 1,127.58.

Next week will see another heavy dose of earnings reports. Scheduled for Tuesday: Big Pharma titans Merck (MRK ) and Johnson & Johnson (JNJ ), finance powerhouse Bank of America (BAC ), and cellphone maker Motorola (MOT ). Wednesday's expected highlights include energy giant ExxonMobil (XOM ) and aerospace leader Boeing (BA ). Computer storage company EMC (EMC ) and optical networking gear maker JDS Uniphase (JDSU ) round out the week's big releases on Thursday.

U.S. markets will be closed for business on Monday in observance of the Martin Luther King, Jr., holiday.

Developments on the economic scene will also be carefully watched. While the data flood and comments that poured from Federal Reserve officials last week will turn into a trickle next week, there is one key event that looms -- Fed Chairman Alan Greenspan's testimony to the Senate Budget Committee on Thursday, Jan. 24. The markets will be keen to hear any change in tone from the Fed chief's more cautious, reserved outlook on Jan. 11, according to Standard & Poor's economic research unit MMS.

Before then on Tuesday, the index of leading indicators in December is to be released. MMS expects the index to rise 0.7% following a 0.5% gain in the previous month. Eight of the ten components are anticipated to have made positive contributions during the month. Overall, the gain would represent a further rebound from the broadbased weakness evident in September. A number in line with the forecast will be supportive of the economic rebound, MMS says.

Friday's weakness in stocks came after a rally in the previous session after generally upbeat reports from top companies like conglomerate General Electric (GE )and financial services behemoth Citigroup (C ) encouraged investors that the economy was looking up.

But overall, it was a topsy-turvy week of trading. A gloomy outlook from chipmaker Intel Corp. (INTC ), a tech bellwether, triggered a big downdraft earlier in the week.

After the close of trading Thursday, three members of the Dow industrials issued reports that disappointed the Street. Microsoft's reported lower fiscal second-quarter operating earnings per share -- $0.49 vs. $0.47 one year earlier -- on 17% higher revenues.

Meanwhile, computer hardware and services company IBM Corp. (IBM ) posted lower fourth quarter profits of $1.33 compared with the year earlier figure of $1.48 on an 11% revenue drop.

And diversified industrial concern 3M Corp. (MMM ) too posted lower fourth quarter profits -- with earnings per share from operations of $0.98 versus $1.12 on 6.6% lower sales.

Deeper losses in the tech sector, however, were stemmed by a hopeful outlook by Dell Computer (DELL ), says Standard & Poor's MMS. The PC-maker upped its fourth-quarter guidance, forecasting sales of $8 billion and raising its earnings per share forecast a penny to $0.17.

Among Friday's other stocks in the news, network computer maker Sun Microsystems Inc. (SUNW ) reported a fiscal second-quarter loss as cautious businesses held back from buying technology.

In economic news Friday, a key measure of U.S. consumer sentiment rose for a fourth straight month to its highest level in a year in January. The University of Michigan's consumer sentiment index surged to 94.2 in early January from 88.8 in December.

That was much higher than consensus forecasts of 89.3 and pushed the index more than 12 points above its recent low of 81.8 recorded after the September 11 terrorist attacks. The January numbers are a clear sign that the increased prospects for economic recovery have boosted consumers' outlook, notes Standard & Poor's MMS.

Treasury Market

U.S. Treasuries finished their holiday-shortened session Friday on surprisingly solid footing, even riding out a much firmer than expected Michigan sentiment report. Fed funds futures, a trading vehicle for market pros to bet on future interest rate moves, have priced in a 36% chance of a rate cut by the Fed later this month.

World Markets

European markets closed lower. In London, the Financial Times-Stock Exchange 100 index was off 11.60 points, or 0.23%, to 5,126.80 with computer stocks soft after reports from IBM and Microsoft disappointed investors. There were no major UK economic reports.

France's CAC 40 was down 26.79 points, or 0.60, or 4,448.85.

And the German DAX index was lower by 11.17 points, or 0.22%, to 5,126.80 in profit taking. There was little reaction to a report revised that German Factory Orders rose 0.7% in November instead of 0.9% previously reported.

Asian markets ended mixed. Japan's Nikkei gained 165.14 points, or 1.63%, to 10,293.32 with exporters leading the market upward in reaction to Thursday's gains in the U.S.

Meanwhile, Hong Kong's Hang Seng index was off 40.88 points, or 0.37%, to 10,972.96.

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