Finding a Center For the Market - stock market - Industry Trend or Event

The roller-coaster lurching of the stock market may be just what investors need to find its direction.

AS THE THIRD-QUARTER EARNINGS season began, it seemed as if even the best news wasn't good enough for investors. Companies that beat the earnings expectations of Wall Street analysts were punished. Some days the market faced nothing short of wholesale abandonment. The end seemed frighteningly near.

Until, that is, the market went back up. The Nasdaq has rebounded fiercely after some of its recent plunges, enjoying one-day gains as high as 8 percent. It makes one think this market isn't lost so much as it's searching: Having enjoyed the glorious top in March and taken a scary look at the bottom in October, it's now wanting badly for a center.

The consensus is mixed on how long it'll take to find that center. Some market watchers, pointing to the record number of warnings of disappointing earnings for the quarter that ended Sept. 30, see more turbulence ahead. Those warnings, they say, signal more trouble in future quarters than for the past one. The possibility of a longer downturn remains a primary concern.

Perhaps for good reason. On Oct. 1, analysts surveyed by First Call expected earnings at technology companies to grow 29 percent in the fourth quarter from a year ago. Last week, that forecast had fallen to 25 percent -- a steeper decline than is usually seen in an entire quarter. While the growth rate could still recover, its direction is unclear -- and so is the future of the technology sector.

"The jury's still out," says Chuck Hill, director of research at First Call. "We don't know whether this is an anomaly, or whether they'll keep reducing tech estimates for the rest of the quarter. We just don't know yet on tech."

But if the best-case scenario for this market is a careful, soft landing, and the worst is a possible recession, then many feel the first is more likely. Current economic problems -- high oil prices, weak foreign currencies, high interest rates -- have been known to kill economic growth. This time the economy is strong enough that those problems should only slow things down.

"We've had a pretty rough year in terms of having to revalue the market several times," says Matt Johnson, growth strategist at Thomas Weisel Partners. "But we're starting from a 6 percent rate of growth. The Fed would probably be happy to see us grow at 3.5 percent."

Johnson emphasizes that even that reduced figure could provide the center the market needs. Others agree, saying the season's strong earnings offer hope that the worst is over. "On top of being oversold, we're starting to see some good things from corporate America," says Art Hogan, chief market strategist for Jefferies & Co. "The economy is moving at a robust pace. We still have to worry about oil, but it's in an environment where valuations have really improved. We've already priced a lot of those worries in."

Some stocks and sectors are still likely to be plagued. Those dependent on Net advertising, for example, have a bleak future in the near term, as signs point to a decline in online ad revenues.

RealNetworks met earnings and profit figures last week, but dropped some 30 percent on the following day as the company confirmed that ad revenue will dip. DoubleClick suffered a similar post-earnings slide this month.

But having stock prices move up and down according to their financial health, not en masse, may be the healthiest thing to happen to the market in years. Investors may be settling into a happy medium -- a market that mixes sexy with sensible. The coming weeks will tell if it prevails.

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