3 months investors want to forget S&P closes it worst-ever first quarter By Julie Rannazzisi, CBS.MarketWatch.com Last Update: 9:35 AM ET Mar 31, 2001 NEW YORK (CBS.MW) -- The S&P 500 ended its worst first-quarter ever in what has so far been an incredibly challenging year for investors already roiled by 2000's market turbulence.

Using the Wilshire 5000 as a gauge of the broad market, about $1.8 trillion in wealth has been obliterated in the first quarter.

The performance of the major averages was just as dismal: the S&P closed out its worst first-quarter ever, registering a 12 percent decline; the Nasdaq tumbled 25.5 percent during the same period while the Dow gave up 8.4 percent.

FRONT PAGE NEWS A quarter that stocks want to forget Weak data could set up rate cut Senate set for symbolic budget battle Sun explosions could impede telecom Xbox price tag: Under $315 in Japan Taking into account all quarterly S&P performances since 1960, the first-quarter of 2001 was the sixth worst-performer ever, according to research from Standard & Poor's. On the bright side, however, six and 12 months after the worst 10 quarterly showings, the S&P 500 rose an average of 16 percent and 19 percent.

"A lot of valuation problems have been resolved and we're building a base here. But [it's a process] that takes months. You can't think of getting back into the Nasdaq until it shows an ability to climb to the 2,200 to 2,350 range -- about 20 percent higher from current levels," remarked Joe Liro, equity strategist at Stone & McCarthy Research Associates.

"This may be the bottom but you can call a bottom till you're blue in the face and be wrong more than you're right," Liro exclaimed.

Technology, of course, remains the market's sore spot as profit warnings continue to clutter the tape daily.

"The weakness in tech remains dramatic. The market's recent rally effort, which yet could get some legs, is missing an important ingredient -- and that's the tech stocks," commented Frank Gretz, chief strategist at Shields & Co.

"Yet, there seems no real capitulation -- throw them out phase. It's as though there's this silent crisis -- a stillness based on the premise that it's 'too late' to do anything. This dribble down kind of market can go on longer than you can imagine -- that is, unless you lived through or can imagine 1974. Still, even bear markets have their rallies. In the bull market in tech, there were no real pullbacks, only resting points. Now there are no real rallies, only resting points," Gretz observed.

Earnings watch

"It may be a very light week for earnings announcements, but this is the middle week of the three peak weeks of the first-quarter of 2001 pre-announcement season. We unquestionably are well on our way to a new record for negative pre-announcements," observed First Call/Thomson Financial in its weekly research note.

The earnings compiler notes that negative pre-announcements are now running 37 percent ahead of warnings registered at the equivalent point in the fourth quarter of 2000. In the tech sector, the situation is even more dire, with warnings running 79 percent ahead of the fourth quarter's already record-setting pace.

"For those who ask who's left to warn, the answer is: everybody. A number of big name companies, particularly in tech, have already warned twice. No matter how you slice the data, the pre-announcement picture is dismal," First Call concluded.

First Call said a bright spot is the stabilization in estimate revisions in the consumer cyclical area -- which might be indicating a bottom in earnings is not far away. Unfortunately, the picture is a lot different in the tech sector, where reductions in earnings estimates are still in free fall.

First Call said it continues to believe that earnings growth will not bottom until the third quarter of 2001 at the earliest and that tech earnings will probably not bottom before the fourth quarter.

The earnings compiler said final results for the first quarter will likely reveal a decline in profit growth of 8 to 9 percent, with the drop in the second quarter expected to be even deeper: 11 to 13 percent.

Among the few companies reporting next week: Circuit City, Best Buy, Bed Bath & Beyond, Tenet Health, TranSwitch and Alcoa.

Data focus

Economic news will be plentiful next week, with a parade of news on the economy to sift through for those looking for signs -- and who isn't? -- of where the economy's heading.

Among the reports on tap: The March National Association of Purchasing Management Index; February construction spending; February factory orders; and the March employment report. View Economic Preview and economic calendar and forecasts.

Liro said his biggest concern is that the NAPM index and the payrolls number come out at frighteningly weak levels.

While he does expected an inter-meeting rate cut from the Fed before the regularly scheduled FOMC meeting in mid-May, he doesn't expected that to occur before the middle of April.

"Economic data released during the coming week will determine whether stock prices will gain any altitude. Stocks desperately need stronger economic breezes to suggest that corporate profits will eventually move higher," commented Lynn Reaser, chief economist and senior market strategist for Banc of America Capital Management.

"Friday's employment report in particular will decide whether stocks will trend upward or fall back to the ground. Be prepared for a slight uptick in the jobless rate for March, but another gain in non-farm payrolls would suggest that that the U.S. economic expansion has not yet run out of line," Reaser continued.

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-- Carl Jenkins (somewherepress@aol.com), March 31, 2001