INVESTOR: Second quarter has revealed that much of the earlier optimism in the markets has been overblown, and in recent weeks, hope of a rapid recovery has faded along with gains in the indices

Many in Wall Street are wondering where we go from here as US equity markets continue to show little sign of coming out of their steep decline. Although the stock indices put on a better showing recently, the mood remains decisively downbeat.

Michael Metz, market analyst at CIBC World Markets, said: "There is a lot of anxiety in the market place and concern about the economic recovery."

He rattled off a string of issues weighing on investor confidence, including a highly leveraged consumer, a weak corporate spending environment and a struggling dollar, which could boost import prices and reduce foreign investment in the US.

With all the negative fundamentals, "there is a possibility of a double-dip (recession)," Mr Metz said. "There's very little conviction in this market and the next move will likely be down again."

That sentiment may have sounded overly negative two months earlier when a string of economic indicators, including an upward revision in fourth-quarter gross domestic product data, signalled the US economy was not only coming out of its downturn, but also moving full steam ahead.

But the second quarter has revealed that much of the earlier optimism in the markets has been clearly overblown. In recent weeks, hope of a rapid recovery has faded along with gains in the stock indices. Even a strong first-quarter gross domestic product (GDP) reading failed to lessen the scepticism on Wall Street as equity markets basically shrugged off the positive data.

Mr Jim Paulsen, chief investment officer at Wells Capital Management, said: "The main thing people were looking for this quarter was solid profits reports and solid comments on corporate outlooks for the rest of the year."

That was supposed to be the next catalyst to push stocks higher, but the recent raft of rather disappointing quarterly earnings has failed to inspire the markets. Although there has been a relative improvement in earnings, Mr Paulsen said about 60 per cent of the companies in the Standard & Poor's 500 index have reported a decline in sales, which he said makes investors question the sustainability of an earnings recovery.

"Even companies that made their numbers revised down future estimates. That was supposed to be the next catalyst, but that didn't materialise. Now we've got the first major slowdown in the economy (this year)," Mr Paulsen said.

Last week saw more volatility in the technology and telecommunications sectors with some calling it a "capitulation" for telecom stocks, led by problems at WorldCom, the long-distance carrier. The company is still rated as investment grade, but its bonds are trading as if they have junk status.

Mr Bernie Ebbers, who co-founded WorldCom, was pressured to resign last week as chief executive. WorldCom is under investigation by the Securities and Exchange Commission and its share price has seen a dramatic fall under Ebbers' leadership.

Mr John Sidgemore, the vice-chairman, was appointed to succeed him. However, the shuffle in management did little to halt the decline in WorldCom's share price. Shares were trading around $2 afterwards, well off their $61.89 summer high of 1999.

WorldCom was not the only company to see a change in its management. Sun Microsystems saw its shares fall sharply after the resignation of its number two man.

Mr Ed Zanders, president and chief operating officer, said he would leave the company in June. His departure would be the fourth from Sun Microsystem's management team in recent weeks. The news sparked heavy selling as investors sent the company's stock to a 52-week low with shares closing at $6.45, a far cry from September 2000 when it was trading above $64.