Threat Of Correction Hangs Over Market Despite Good Quarter

A bad last day kept the Dow Jones industrial average from finishing the first quarter with its largest quarterly gain since the first quarter of 1991.

That the stock market’s most watched indicator was even close to such a high-water mark runs counter to the mood on Wall Street in recent weeks. Worries about the economy and corporate earnings have overshadowed the Dow’s 9.2-percent gain in the first three months of the year.

“Everybody knows it’s not a wonderful economy,” said Don Hays, director of investment strategy at Wheat First Butcher Singer. “Earnings are going to be very mediocre.”

Reflecting the economic uncertainty, the first quarter included both some of the best and worst days of the ‘90s.

On Friday, the Dow fell 43.71 to 5,587.14, losing 35 points in the last half-hour of trading. For the week, the Dow lost 49.5 points. Still, the 30-stock average is up 470 points for the quarter - its best percentage gain since the second quarter last year. If the quarter had ended Thursday, it would have been Wall Street’s best in five years.

With opinion split on whether the economy is rebounding or stuck in neutral, investors are seeking companies whose products are in heavy demand. Computer and software stocks fit that description.

“Technology’s been the key to productivity gains, and the U.S. is a leader in technology,” said Robert Freedman, chief investment officer at John Hancock Funds. “I’m a believer in blue-chips like Cisco Systems and Microsoft.”

Others are less optimistic, saying stocks could sink if companies don’t meet earnings projections when they report their quarterly finanical results in coming weeks.

“If there was a correction during the second quarter, no one would be surprised,” said Russ Labrasca, senior vice president for Sutro & Co. in San Francisco. “In some cases, prices have exceeded earnings projections.”

Investors continue to punish companies that fall short of earnings expectations. Friday’s victim was Eastman Chemical Co., which said first-quarter earnings will probably come in below analysts’ estimates. The stock fell 3-7/8 to 69-1/8.

Among the companies that are scheduled to announce results next week are Helene Curtis Industries, Circuit City Stores Inc., Acclaim Entertainment Inc. and Tyson Foods Inc.