Investors look for sense from volatile markets

Newsday

NEW YORK - What's an investor to do? The stock market is at a five-year low - it's 1997 again but this time there's no technology boom in sight to haul Wall Street and Main Street out of the hole. Retirement plans are on hold and dreams are being dashed daily.

A nationwide Gallup poll found that 53 percent of respondents were less confident about being able to live comfortably in retirement because of the market's losses. When the same question was asked by Gallup in March 2001, only 33 percent felt that way.

Even the financial professionals seem confused.

"This stuff has been bouncing so much, and I don't see a rational reason for most moves," David Wyss, chief economist for Standard & Poor's, said.

To cut through the daily Wall Street cacophony, Newsday talked to market experts Friday to identify key factors investors should monitor in the weeks ahead.

Front and center in the minds of most experts are the corporate governance scandals. President Bush signaled his concern this week in a speech urging better behavior by America's executives.

Congress is rushing to address the problem, and experts say the tide should turn when the headlines are dominated by companies such as Citigroup, General Electric and Wal-Mart putting out good earnings reports instead of by companies such as Enron and WorldCom admitting huge financial misstatements.

Only an end to the almost-daily revelations will restore investors' faith, market watchers said. That will eventually happen on its own as companies' illegal or questionable accounting and governance practices are uncovered and investigated.

But there are ways to hasten the return of trust. As companies report their earnings during the next few weeks, they need to issue statements that independent directors have reviewed auditing procedures and believe them to be accurate, said Richard Cripps, chief market strategist at Legg Mason Wood Walker.

Experts differ on what's needed out of Washington, but they agree the aim should be to ensure corporations provide unambiguous statements on their fiscal health.

"The goal should be a clear, understandable view of what the numbers mean and where the company stands," said Erik Gordon, director of MBA programs at the University of Florida's Warrington College of Business. The markets failed to recover after Bush's speech Tuesday because he did not stress that aim, Gordon said.

Awaiting earnings

Many observers are looking to the announcement of second-quarter earnings in coming weeks. Positive earnings won't wash away the worries, but they could provide an impetus for Americans to take their money from under the mattress and put it back into action.

After what Arnold Kaufman, editor of Standard & Poor's newsletter Outlook, calls the "biggest profit depression in modern history" in 2001, corporate earnings are improving. But the increases foreseen in the second quarter and beyond will be a bit deceptive because they are based on comparisons with meager 2001 profits.

Also, because of accounting scandals and a debate over how earnings should be calculated, many investors don't trust corporate numbers and aren't as likely to buy stock on news of improved earnings as they were in the past, said John Eade, director of research for Argus Research Corp.

Eade said that besides distrusting earnings numbers, investors will perceive them as relatively low quality. Quality earnings are driven by sales growth, whereas most earnings improvements at the moment are based on cost savings, Eade said.