By Clyde Noel

Stock Report

Negative news on the economy and a continued loss in corporate earnings are driving down the market.

Investors are holding out hope that economic growth will pick up by year’s end, but many expect the current downturn to rattle corporate profits in the second quarter. The so-called “pre-announcement season,” when businesses warn quarterly results may not meet expectations, begins in earnest in about two weeks.

Market values may have moved to higher ground too fast during the spring rally and given the uncertain outlook for earnings, many investors didn’t learn enough from the painful lesson of the last two years.

The Dow industrials ended the week somewhat flat, with a loss of 0.14 percent for the week. It was a different story for the Nasdaq and technology issues. They were down 4.5 percent for the week, while the Town Crier index was down 6.19 percent for the week and returned to the negative side for earnings.

Negative results were evident in small caps, mid caps and large caps with BEA Systems down 10.68 percent; Cisco Systems, down 15.05 percent; Network Appliance down 27.07 percent; Sun Microsystems, down 18.68 percent; and Yahoo!, down 6.40 percent.

It might be a good time to show the difference in what the market calls capitalization of stock issues.

Small-caps have a market cap of between $100 million and $2 billion. Mid-caps have a market between $2 billion and $10 billion and large-caps include anything with a market cap over $10 billion.

One of the determinants in the market last week was Sun Microsystems when it disappointed the market by cutting its quarterly earnings forecast and warning sales could land 10 percent or more below estimates due to economic weakness in Europe. That warning triggered a more than 4 percent drop in technical issues listed on the Nasdaq.

For investors, technology stocks have become a show of horror and consternation. As the tech stocks go down, investors pick up some bargains, but then the investors get their legs cut out from under them. When the Nasdaq was 1,639 on April 4, investors jumped in with both feet. By April 4, the Nasdaq was 2,314, a 41 percent gain.

But evil set in and last Friday the Nasdaq market closed at 2,149. Why the downfall? Investors jumped into tech in the first three months of 2000 and then waited for a good time to sell. When the tech stocks rallied, investors dumped them again. The tech stocks went down because of low earnings growth.

So what is an investor to do if he is still terrified of tech stocks? Consider a large cap fund that features technology and has fared well lately.

The next earnings warning season kicks off in mid-June. If the Nasdaq can stay above 2,000, things could be good for investors, but under 2,000 it will put investors on the sidelines.

As an investor I am very selective in what I buy these days. With tax cuts and inventory liquidation, the economy will get a transfusion. A safe bet for the investor would be in financial services, energy and health care, not technology issues at this time.

Noel, a seasoned investor, covers the stock market for the Town Crier.