Seeking to secure long-term growth

NEW YORK -- The culprits in Wall Street's steep losses over the past seven weeks are clearly identified: concerns about earnings, doubts about the reliability of corporate accounting, fears of more terrorism. What investors are still trying to name are the factors that might lead stocks higher.

Lower prices following weeks of heavy selling have certainly triggered rallies, most recently on Friday when the Dow Jones industrials surged 324 points. It was the blue chips' best daily point gain since Sept. 24 when the blue chips rose 368 points, beginning to recover from a precipitous drop following the Sept. 11 terrorist attacks.

Despite Friday's rally, the market's three major indexes have not enjoyed a winning week since May 17.

"Rallies haven't been durable. Traders have been in and out," said Alan Ackerman, executive vice president of Fahnestock & Co.

Unfortunately, there are no easy answers for a market struggling to pull together a lasting advance and seemingly still headed for a third straight year of declines. Investors certainly won't like one popular theory about what the market really needs, which is time.

"Sometimes it takes time. At some point, investors will realize that the economy is improving and that the earnings outlook is improving, and that should buoy their confidence," said John C. Forelli, portfolio manager for Independence Investment in Boston.

Investors need time, analysts say, to get over the market's alarming drop over the past seven weeks, which earlier this past week saw the Nasdaq composite index falling to closing levels not seen since May 1997, as well as below it's post-Sept. 11 low. Meanwhile, the Standard & Poor's 500 index fell below its post-attack closing low, and the Dow dipped below 9,000.

After a string of accounting scandals at companies such as WorldCom, Tyco International and Xerox, it is also going to take time for investors to believe in companies and the earnings that they report.

"The average investor continues to feel betrayed," Ackerman said.

Most analysts don't expect the market to make much -- if any -- progress this summer.

Sure, the market will reap some short-term gains as buyers swoop in to pick up stocks at discount. But analysts aren't reading much more than lower prices into rallies, including Friday's when the indexes surged and achieved their first two-day advance since May 22- 23.

"I am not expecting a strong summer rally. I do expect a recovery (for stocks) in the fourth quarter," said Susan L. Malley, chief investment officer for Malley Associates Capital Management.

Analysts anticipate that selling pressures will dominate Wall Street throughout the summer. There are several downside factors in addition to what have become the usual suspects of earnings, accounting and terrorism.

"We have a lot of mutual fund redemptions and a weak dollar, which has foreign investors selling," Forelli said.

There is also the seasonal factor as the third quarter is traditionally the weakest for technology companies due to soft demand for products. Likewise, July typically marks the beginning of the worst four months for the tech-laden Nasdaq.

While the prospects are dimming for a second-half recovery on Wall Street, some are holding out a bit of hope -- albeit not in the coming weeks.

"Maybe as we enter the fourth quarter, we will stabilize and be able to advance," said Steven Goldman, chief market strategist, Weeden & Co. in Greenwich, Conn.

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