Dow Advances 139 as Stocks Extend Rally
A surge in tech and financial shares powered Wall Street to its second consecutive day of big gains Tuesday, but many experts remain dubious that the market is undergoing more than a brief rebound from its recent slide.
The Dow Jones industrial average rose 139.80 points, or 1.6%, to 8,714.65. The broader market also was strong, with the Russell 2,000 index of smaller stocks up 1.8%.
“It was the first light we’ve seen at the end of the tunnel,” said Edward McMahon, head of listed equity trading at Merrill Lynch.
Combined with an almost 150-point pickup on Monday, the Dow scored its third-best two-day performance of all time in terms of points. In percentage terms, however, the Dow’s 3.4% rise so far this week is nowhere close to a record for a two-day period.
In a development that bodes well for trading today, Dell Computer said after markets closed Tuesday that second-quarter earnings topped expectations by 4 cents a share. That followed a relatively positive earnings release Monday from Hewlett-Packard.
What’s more, Asian markets were rebounding dramatically early today, led by Hong Kong and Malaysia, up 4.1% and 4.7% at midday, respectively. The Hong Kong government on Friday began buying stocks to thwart speculators. Malaysia says it may do the same.
Despite that good news, however, many Wall Street analysts believe the U.S. market’s “correction” has further to go. They note that, after four weeks of selling, the market was overdue for a so-called relief rally, in which bargain hunters mine for beaten-up issues.
Several technical indicators had shown the market to be at its most oversold level since the October 1987 crash, said Philip Rettew, a senior analyst at Merrill Lynch.
The Dow by last week had fallen nearly 10% from its July 17 peak. Many smaller stocks have fallen much more sharply since April.
Though Russia’s ruble devaluation and President Clinton’s speech on Monday have at least ended some of the suspense that has been weighing on stocks, pessimists argue that Asia’s crisis will continue to cast a shadow over corporate profits.
“Regardless of how it goes up, we’re going to go back down again,” Rettew said. “This isn’t business as usual.”
The market on Tuesday was led by big-name tech companies such as Intel, Microsoft and Dell. Intel ended at $91.44, its first close above $90 since late February. Investors are just starting to notice that tech companies are recovering from the depths of Asia-induced problems, said Thomas Sheedy, head of institutional sales at brokerage Robertson Stephens.
“People watch and they don’t believe it,” Sheedy said. “And then it becomes too convincing and all the money comes in.”
Wall Street bulls were encouraged by the market’s positive breadth, as rising stocks on the New York Stock Exchange led losers by more than 2 to 1 on heavy volume of 691 million shares.
Several other factors also helped sentiment. As expected, the Federal Reserve met and left interest rates unchanged; a government report showed inflation was tame in July; in the bond market, yields ended mostly unchanged; and European stock markets resurged.
However, some traders said Tuesday’s buying in part stemmed from “short covering,” which occurs when investors who have bet that stocks will fall are suddenly forced to buy as prices reverse.
Other traders said activity by genuine investors was muted. Much of the buying was tied to computerized program trading and other strategies related to stock index futures. That activity often is short term in nature, as opposed to portfolio managers establishing long-term positions.
“It’s been very quiet for the last two days,” said a trader at a large Wall Street firm. “Everybody is wondering where the volume is coming from.”
The day’s gains surprised many small investors who thought stocks would sag given Clinton’s admission that he had an inappropriate relationship with Monica Lewinsky.
“Our customers were expecting all of this news to negatively impact the market,” said John Lauer, director of the active traders’ unit at Charles Schwab Corp. “It’s left them confused.”
Among Tuesday’s highlights:
* Tech shares up sharply included Microsoft, up $3.94 to $111.25; Compaq, up $2.50 to $37.50; and IBM, up $3.75 to $128.88.
* Financial shares rallied for a second day after enduring steep sell-offs in recent weeks. American Express rose $4.25 to $100.38 as Citicorp tacked on $3.19 to $146.94.
* Other strong sectors included food, retail and Internet stocks.
Market Roundup, D9
