Ao minuto: Praças europeias respiram de alívio, indiferentes a possível violação de cessar-fogo

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The dogs of war
Commentary: Can Saddam's defeat offset lousy earnings?

By David Callaway, CBS.MarketWatch.com
Last Update: 12:02 AM ET April 3, 2003

SAN FRANCISCO (CBS.MW) -- The dogs of war are about to be unleashed.

Over the next six weeks, hidden somewhere in the headlines between Peter Arnett and the bunker-to-bunker search for Saddam, will be news about the lousiest set of quarterly earnings we've seen yet in this three-year bear market.

Companies in industries ranging from airlines and travel to media to technology are expected to dump a ton of bad news on investors about their performance in the past three months and their outlooks going forward. Lots of them will blame the war for their uncertain outlooks. Others will try to pack as much of their dirty laundry into the first quarter as possible to get all the bad news out of the way.

The question is whether investors care. With the market moving up and down in lockstep with the tone of headlines coming out of Iraq the last two weeks, it's possible that reports of progress in taking Baghdad and finding and killing Saddam could offset a lousy earnings and economic environment.

That certainly explains the rally this week, when the dramatic rescue of Army Pfc. Jessica Lynch from her Iraqi captors and the beginning of the Battle of Baghdad stoked a huge move for equities, even as economic indicators came out poor and we stare at a lame earnings season ahead.

"We're seeing the rally because we're not staring at earnings, we're staring at the war," said Marc Gerstein, director of investment research at Multex.com (MLTX), which was just bought by Reuters (RTRSY). "If we were staring at the earnings, we might not be seeing this rally."

Gerstein said the market already "gave up the ghost" on the first quarter, and maybe even the second quarter. But that doesn't mean it won't rise on good news out of Iraq. Since markets typically look ahead two or three quarters, good news from the front in the next few weeks could help the rally continue as investors look to a revival of earnings in the third and fourth quarters.

Despite the movements of the big indexes like the Dow Jones Industrial Average ($INDU) and the Nasdaq ($COMPQ), individual stocks of companies giving earnings warnings this week are bouncing around like a live grenade in the men's latrine.

Shares of companies such as ECtel (ECTX), MedCath (MDTH) and Visual Networks (VNWK) all took poundings Wednesday after they warned investors earnings might not meet expectations. At the same time, shares of Biogen Inc. (BGEN) surged after the biotech company raised its operating earnings forecast for the quarter.

So now we're facing the mother of all battles for investors' attention as the siege of Baghdad and the hunt for Saddam compete with some truly horrible confessions on business performance.

One of the tidbits I took away from CBS MarketWatch's special Trading Strategies package this week was Norman Fosback's contention that stocks tend to rally in April, but only on certain days, with the first four days of the month being among the best.

That theory fell right into place in the past two days, and we'll see how it plays out Thursday and Friday. If the market rises, we might indeed be in for a good April as better-than-expected news from the war front spurs investors to give their companies a one-time break when it comes to earnings and look ahead to the end of the year.

Of course, if things don't go well in the war in the next few weeks, then we have a combination of bad news from Iraq and the corporate sector that could be devastating in the short-term. Either way, they'll be no shortage of volatility.

Because as the old saying goes: earnings are hell.