IBM Earnings Light a Fire Under Stocks
Stocks stormed higher Thursday as a solid quarterly report from IBM soothed Wall Street’s worries about corporate earnings.
The Dow Jones industrial average ended up 67.32 points, or 1.26%, at 5,422.01. The Nasdaq composite index jumped 20.02 points, or 1.92%, to 1,062.39.
In the broader market, advancing issues beat decliners 1,528 to 821 on active volume of 403 million shares on the New York Stock Exchange.
The Standard & Poor’s composite index of 500 stocks rose 4.52 points to 631.17. The Wilshire Associates equity index--the market value of NYSE, American and Nasdaq issues--was up 64.66, or 1.06%, at 6,164.01.
IBM was the most active NYSE issue, jumping 11 7/8 to 103 5/8 on trading of nearly 7.7 million shares.
“Anything that’s not quite so negative is going to cause these things to bounce,” said Jon Hickman, portfolio manager at Wells Fargo Investment Management Group, which oversees $1.3 billion. “I think things are really cheap. Some of the stocks have gotten beat up bad.”
“IBM did a good job of lifting market psychology of technology stocks, and that’s reflected in Nasdaq,” said Hildegard Zagorski, an analyst at Prudential Securities.
Analysts said investors’ confidence in technology stocks, after being shaken by bad earnings news recently from Motorola and Hewlett-Packard, was being restored somewhat by strong results from Intel, Microsoft, Compaq and now IBM.
IBM said it earned $1.3 billion in the second quarter, down from $1.7 billion a year earlier but still stronger than Wall Street had expected.
Industry analysts said they were surprised by the resiliency of IBM’s results, especially its revenue, in a tough computer industry and amid sluggishness in Europe.
“This goes a long way to getting portfolio managers over big hurdles they faced, which were earnings jitters,” said Hugh Johnson, chief investment officer at First Albany Corp.
Analysts said they were unsure if the rally was the start of a recovery for stocks.
“Bonds are also doing well and stocks have snapped back from recent weakness. The question is: Is it off to the races or a test? I don’t think we’re completely out of the woods yet,” Zagorski said.
The key 30-year Treasury bond yield fell to 7.01% from 7.04% at Wednesday’s close.
“We need a decline in bond yields to return to sustained share price appreciation,” said Jim Solloway, director of research at Argus Research Corp. in New York.
Among Thursday’s highlights:
* Compaq Computer rose 3 1/2 to 51 3/4, after gaining 3 on Wednesday on better-than-expected quarterly results.
* Charter Power tumbled 10 to 18 after warning that its quarterly results would fall below year-ago levels.
* U.S. Robotics lost 11 31/64 to 54 33/64. Late Wednesday, the company reported a rise in earnings but warned that its revenue growth may slow.
* Western Digital rose 3 to 26 3/4 on upbeat results.
* Boeing added 2 1/4 to 88 1/8, also on strong earnings.
* Browning-Ferris Industries dropped 1 7/8 to 23 1/8 after the company said net income fell 42% for its fiscal fourth quarter to 31 cents a share. Analysts in a Zacks Investment Research poll had expected the waste-disposal company to earn 40 cents.
In Tokyo, Japanese stocks rose 1.2%, led by auto issues, amid hopes that the dollar’s rebound will help earnings of Japan’s exporters. “People are relieved that the dollar has held around 108 yen,” said Christophe Aurand, chief investment officer for Gamma Asset Management (Japan). Frankfurt’s DAX index rose 0.7% and London’s FTSE-100 rose 0.4%.
