Earnings fears hold down stocks

NEW YORK - Stock prices shot up 24 percent from late November to January, fell 7 percent in the first week of the new year - and then stood still.

Welcome to the bear market.

With companies issuing warnings about their revenue and profit during the last week, the safe play on Wall Street has become to throw out analysts' already lowered forecasts and expect results will fall well short.

Alcoa Inc. started the reality check. The aluminum producer warned last week that results would be bad and that it was slashing production. Then, late Monday, the company said it had lost $1.19 billion during the fourth quarter as demand for aluminum plunged. The stock slumped 5.07 percent yesterday.

Investors saw Alcoa's numbers as a troubling sign of the severity of the recession. Alcoa's report marks the unofficial start to the three-week rush when most companies report their results from the October-to-December quarter.

Market veterans are not surprised by the return of volatility and heavy selling. When the market hit its lows on Nov. 20, analysts warned that any recovery would be uneven, rocky and unpredictable - a hallmark of a bear market.

The market will get an earlier-than-expected reading on the financial sector when JPMorgan Chase & Co. reports earnings tomorrow, nearly a week ahead of schedule. Investors fear seeing another year of multibillion-dollar losses from financial companies, as analysts forecast mounting problems in credit card and commercial real estate portfolios.

"Since financials led the market lower last year, the fear is that financials are going to have a crummy quarter," said David Katz, chief investment officer of Matrix Asset Advisors Inc. "That is going to be bad for the market."

Bank of America Corp. shares tumbled yesterday after a Sandler O'Neill & Partners L.P. analyst became the latest to revise his expectations for the company's fourth-quarter results and predict a loss. The stock fell 6.82 percent.

Meanwhile, Citigroup Inc. and Morgan Stanley announced a deal after the closing bell yesterday to combine their brokerage operations as Citi struggles to raise additional cash.

Worries about banks sent the Dow down 25.41, or 0.30 percent, to 8,448.56 yesterday. Alcoa, Bank of America and Citigroup are all Dow components.

The Standard & Poor's 500 index rose 1.53, or 0.18 percent, to 871.79, while the Nasdaq composite index rose 7.67, or 0.50 percent, to 1,546.46. The Russell 2000 index of smaller companies rose 4.99, or 1.06 percent, to 473.79.

Some economists say investors have been too quick to predict that the economy will hit bottom sometime this year and begin to show signs of recovery even in late 2009.

"This recession is nothing like a lot of people have seen," said Robert B. MacIntosh, chief economist at Eaton Vance Corp.

Even with the government trying to lift the economy, a recovery will be difficult.

Federal Reserve Chairman Ben S. Bernanke said yesterday that the stimulus package being crafted by President-elect Barack Obama and Congress could provide a "significant boost" to the sinking economy. During a speech in London, he also said "more capital injections and guarantees may become necessary" to stabilize financial markets and spur more lending. Obama is pushing for an economic stimulus that includes big tax cuts and has an estimated price tag of about $800 billion.