updated 12/19/2004 3:59:06 PM ET 2004-12-19T20:59:06

Brokerage earnings so far this quarter have been positive, but few Wall Street firms are making big predictions for the year ahead, leaving investors to wonder just how well the markets will do.

Major Market Indices

Earnings at the big Wall Street firms are inexorably tied to the performance of the market. During the summer and early autumn, when stocks fell and trading volumes were light, quarterly earnings were mediocre at best. In the fourth quarter, which ended in November for most brokerages, Wall Street saw a nice pickup in both stock prices and volume.

That was reflected last week in earnings from Lehman Brothers Holding Inc. and Goldman Sachs Group Inc., though Goldman’s stock fell due to higher expenses related to litigation and a new Chinese joint venture. When Bear Stearns Cos. Inc. and Morgan Stanley report earnings in the week ahead, their numbers will likely reflect a similar boost.

But Lehman and Goldman were relatively quiet about their prospects for 2005, with Goldman warning that this year’s record results may not be replicated next year. Many analysts are looking for mid-to-high single digit returns from the stock market in 2005, and that won’t help brokerage earnings beat this year’s tough comparisons.

And it may not bode well for individual investors, either.

Last week, stocks managed to post moderate gains despite rising oil prices and Pfizer Inc.’s surprise announcement of health issues surrounding its Celebrex arthritis drug. Investors took comfort in the Federal Reserve’s positive statement on the economy. The Fed also raised the nation’s benchmark interest rate by a quarter percentage point, to 2.25 percent

For the week, the Dow gained 106.70, or 1.01 percent; the S&P was up 6.20, or 0.52 percent; and the Nasdaq climbed 7.13, or 0.34 percent. Stocks have been up six of the last eight weeks.

Final GDP figures due
The Commerce Department will release its final gross domestic product figure for the third quarter on Wednesday, measuring the growth of the overall economy. Wall Street is expecting 3.9 percent growth, up from 3.3 percent in the second quarter. A positive surprise will likely move the market during the holiday-shortened week, when trading is expected to be light — but a negative surprise will do the same.

On Thursday, the Commerce Department will release its reports on consumer incomes and consumer spending for November. Incomes are expected to rise 0.3 percent, less than October’s 0.6 percent jump, while spending is expected rise just 0.2 percent, a decline from the 0.7 percent climb in October. Any signs of weakness in spending will have a negative impact on stocks, especially the consumer products sector.

Finally, the University of Michigan will release its final consumer sentiment index reading for December on Thursday. Economist expect a reading of 95.4, up from the 92.8 posted in November.

Brokerage earnings in spotlight
Wall Street will pay close attention to brokerage earnings in the week ahead, hoping to glean some ideas on the market’s expected performance in 2005. Morgan Stanley’s stock suffered after disappointing earnings in its second and third quarter, but has risen 15.6 percent from its Aug. 6 low of $46.80 to close Friday at $54.11. The stock is still 13 percent off its 2004 high of $62.22 on March 5. Morgan is expected to earn $1.02 per share when it announces Tuesday morning, up from 94 cents per share a year ago.

Earnings at Bear Stearns are expected to be slightly lower. The company is forecast to earn $2.15 per share, down from $2.19 share last year. However, the stock has climbed steadily in the second half of the year, and closed Friday at $104.53, just 2 percent off its Dec. 10 high of $106.68. Bear Stearns has climbed 36.4 percent since its 2004 low of $76.62 on May 7.

Other notable companies reporting in the week ahead include the following:

  • General Mills Inc., the cereal producer, is expected to earn 86 cents per share, up from 85 cents per share a year ago, when it reports during Tuesday’s session.
  • Multipurpose pager manufacturer Research In Motion Inc., reports Tuesday afternoon, and is forecast to earn 54 cents per share, up sharply from last year’s 16 cents per share.
  • ConAgra Inc., the food processor and distributor, which reports Wednesday morning, is expected to earn 47 cents per share, up from 45 cents in the same quarter a year ago.

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