Tech Issues Retake Lead as Nasdaq, Dow Rally Strongly
U.S. stocks rose for a third day Thursday as investors, encouraged by higher-than-expected earnings at IBM, piled money into the computer shares that led Monday’s rout.
The Nasdaq composite index, the biggest basket of U.S. computer stocks, notched its strongest three-day rally since November 1987. The Dow Jones industrial average set its seventh record in nine sessions.
Analysts said cable and telecommunications shares could gain today, after AT&T;, the largest U.S. phone company, said it has offered to buy MediaOne Group, the fourth-largest U.S. cable TV operator, for $87.38 a share, or $62.5 billion. The offer tops a bid from Comcast.
The AT&T; offer for MediaOne “is going to hike the valuation on other cable companies as well, such as Comcast, Adelphia and Cox Communications,” said Tom Marsico, who owns almost 5 million MediaOne shares and heads Marsico Capital Management in Denver.
Nasdaq soared 72.53 points, or 2.9%, to 2,561.61, making its three-day gain 9.2%. The Dow rose 145.76 points, or 1.4%, to 10,727.18, with IBM contributing 105 points to the advance. The Standard & Poor’s 500 index gained 22.70 points, or 1.7%, to 1,358.82.
Four stocks rose for every three that fell on the New York Stock Exchange.
MediaOne rose to $78.75 in after-hours trading after closing at $69.50, a gain of $2.56. AT&T; slipped to $54.50 after hours, after closing at $56.75, down 25 cents. AT&T;’s surprise offer was announced after the close of trading.
IBM vaulted $22.63 to close at $194.50. The world’s biggest computer maker trounced analysts’ earnings estimates as it benefited from Chairman Louis Gerstner’s strategy of coupling personal computers with maintenance and other service for corporate customers. Net income rose to $1.55 a share from $1.06 in the year-earlier period, exceeding the average forecast of $1.41. IBM’s revenue from computers rose 17%, sparking optimism among investors for sales at other computer-related companies.
Lucent Technologies, CNet, American Express, AirTouch Communications, Bell Atlantic, Knight Ridder and Quaker Oats met or beat analysts’ earnings forecasts.
“If you continue to see this kind of earnings growth, then stocks are going to work a little bit higher,” said Charles Henderson, chief investment officer for Chicago Trust.
Of the 322 companies in the S&P; 500 that have reported through Thursday, 66% beat estimates, 11% fell short and 23% met forecasts.
Companies expected to report today include Hershey Foods, Kellogg, Mobil and Merck.
The three-day rally has erased much of the gloom of Monday, when the Nasdaq slumped 5.7%, its third-biggest drop in percentage terms this decade.
The yield on the benchmark 30-year U.S. Treasury bond rose to 5.60% from 5.52% on Wednesday.
Other Thursday highlights:
* The three most active stocks were computer-related: Dell advanced $3.44 to $41.88, Intel rose $3.06 to $61.50 and Microsoft gained $2.94 to $84.94.
* Not all the earnings news was good. Procter & Gamble fell $4.81 to $94.13, subtracting 22 points from the Dow’s gain, after the largest U.S. maker of household products warned that continued slow sales overseas will pull next quarter’s profit below forecasts.
* Oil service companies gained, benefiting from higher oil prices. Gasoline rose, pulling crude oil to a 16-month high, on reports Exxon is reducing output at one of its refineries. Halliburton rose $2.50 to $43.88, Schlumberger rose $3.25 to $63.63, Baker Hughes rose $1.06 to $29.44 and Exxon rose 50 cents to $78.94.
* Charles Schwab rose $2.81 to $120.81 after the biggest discount and online brokerage said it will split its stock 2 for 1 after its shares more than doubled this year.
But E-Trade, the No. 3 online broker, fell $2.50 to $96; Ameritrade, the No. 6 online broker, fell $8.19 to $120.63; Knight/Trimark Group, which executes trades for online brokers, fell $4.75 to $115.
Market Roundup, C7
