The Street This Week: Welcome to Earnings Season

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Wall St. traders fear second-quarter results will be even worse than expected

None of the news is good.

Aside from the potential of a shiny new bauble in Comcast's hostile $44.5 billion bid for AT&T Broadband, Wall Street has very little reason not to continue cashing in its chips this week. Friday's hefty selloff occurred in a complete optimism vacuum — why buy when unemployment is up, when the dollar won't quit, and when there's naught but dire second-quarter profit warnings in the air? And the bargain-hunters, as a crowd, are a long way from feeling bold enough to rush in.

That's because earnings season — not earnings-warning season, but the real thing — arrived Monday, and nobody's terribly excited. This was the quarter, remember, that's expected to be the worst economically in a decade, and one that corporate-earnings-watchers had written off months ago as predictably lousy. Already factored in; nothing to get too depressed about when it actually happened.

And maybe, with the outbreak of a cable war to keep them occupied, they'll remember saying that. But knowing the confessions are coming doesn't make them any easier to watch. After worse-than-expected outlooks Friday from data-storage market leader EMC and Intel-shadow chipmaker AMD, Wall Street investors are back to wringing their hands, and it's not as if they can all just go hit the golf course, at least not after a long July 4 holiday week.

Are consumers doing their job?

The procession of headliners started slow and undramatic — Safeway hit the shelves Monday morning with earnings up eight cents a share over last year, matching forecasts — and that'll help. Yahoo comes Wednesday; that's a little scarier.

Those who choose to amuse themselves by reading economic tea leaves may also find some calm. This week's trickles:

Monday: consumer credit levels. Tuesday: wholesale inventories for May. Thursday: jobless claims figures (watch the monthly rolling average and that 400,000 danger level) and sales figures from national retail chains. Friday: Retail sales. Which will be a big one, as we're all very anxious to see whether consumers (two-thirds of the GDP) are still buying as much stuff as the other third (businesses) need them to. (Early betting: Sure, why not? They've been doing it so far.)

But Wall Street is pretty much tasting its own cooking these days, and that means earnings — and maybe cable guys — will be setting the temperature of the Dow, NASDAQ and S&P 500 for a while yet. And with everyone awaiting gloom and doom, well, there's always a chance, however slim, for a pleasant surprise.

According to forecaster/tracker Thomson Financial/First Call, about 730 companies have already warned that their results will be worse than expected, and that number is expected to top off at about 900 before it's all over. Which is a heck of a lot of companies, no doubt about it — but still less than the 816 at this point last quarter and 935 overall for Q1. Could it be there isn't as much bad news as before? That there's even some success stories sprinkled in? Could this be — drumroll, please — the earnings trough before things pick up again in the wake of just-begun Q3?

Maybe the good news is that the bad news is not so bad?

One might as well be calling a bottom in the markets. It's not hard to do when things are this flat and analysts are forecasting an 18% year-over-year drop in Q2 results, the sharpest decline since 1991. But the real question is how long it'll stay that way. That, nobody knows, but the general feeling is it ain't gonna be over anytime soon.

So where does that leave Wall Street this week? In the usual depressed state and Monday's two big non-AT&T financial newspaper stories didn't help. The NYT reports that 401(k) accounts, thanks to the average investor's over-reliance on stocks (especially their company's stock) and a general inability to navigate these swampy financial waters, are now losing money for the very first time. (NYT to George W. Bush: Dare you privatize Social Security with these amateurs doing the investing?)

And in not-unrelated news, USA Today reports that a 6-month check of stock picks by 10 Wall Street strategists polled by the paper in January are down an average of 22 percent — lagging even this sickly wider market. Guess we're all in the same boat.

And the tide may be out for a while. Friday's carnage put the indexes back to where they were in April — which is probably the main reason why Monday started off with an uptick. Wall Street knows all too well why Greenspan's cuts haven't done any appreciable good — businesses are still too busy hacking at costs to be lured by cheap borrowing — and until a few CEOs pop their heads up and say, "Sales are picking up again," there's very little reason to wade in and start buying.

It is, of course, possible that the earnings reports of the next few weeks could contain such a sentiment. But don't believe it until you hear it.