Profit Warnings, Talk of War Could Hurt Stocks

Stocks are heading into a tense week amid mounting talk of war and the steady patter of profit warnings, which could keep investors sidelined after a three-week string of declines.

“It’s kind of a standoff right now,” said Philip Dow, director of equity strategy at RBC Dain Rauscher. “Most people are hampered. They see no urgency in doing anything right now.”

Iraq flatly rejected President Bush’s demand for a swift and unconditional return of U.N. arms inspectors on Friday, bringing closer the prospect of a second Gulf War. The specter of war has hung over stocks for weeks now as investors worry over its effect on the fragile economic recovery.

The earnings-warning season kicks into high gear this week as many companies disclose that third-quarter earnings will land shy of analysts’ consensus estimates. This could prove especially dismal as Wall Street’s earlier expectations for profit growth prove too lofty in the sluggish economy.

Analysts expect third-quarter earnings at companies in the Standard & Poor’s 500 to rise 10.9% from the year-ago period, according to Thomson First Call. That’s down from expectations of 16.6% growth at the start of the quarter.

This week a few companies will beat the October earnings rush and release their quarterly earnings: Oracle Corp., the world’s No. 2 software company; Best Buy Co., the nation’s No. 1 consumer electronics retailer, and its rival, No. 2 Circuit City Group; and investment bank Bear Stearns Cos. are among the companies set to release financial results this week.