Stocks Rally Amid Upbeat Reports
The Nasdaq Stock Market posted its first-ever 100-point gain Wednesday as a tame inflation report and strong earnings news from a big software firm had investors scrambling again to buy technology shares.
Their hope was that the inflation news, showing no uptick in consumer prices in May, might dissuade the Federal Reserve from raising short-term interest rates when it meets at the end of the month.
The Nasdaq composite index leaped a record 103.16 points, or 4.3%, to 2,517.83. It was the seventh-largest percentage gain for Nasdaq and the biggest since Oct. 15--when the Fed was in the process of cutting interest rates.
The Dow Jones industrial average also had a big day, gaining 189.96 points, or 1.8%, to 10,784.95, as rising stocks outnumbered losers by nearly 2 to 1 on the New York Stock Exchange in the heaviest trading since late May.
In the Treasury bond market, yields fell on the inflation report, but modestly so. The bellwether 30-year T-bond yield dipped to 6.06% from 6.11% on Tuesday. The two-year T-note yield slid to 5.59% from 5.66%.
The star of the tech stock rally was Oracle, which jumped $7.81, or 31%, to $32.94, after the leading supplier of database software reported quarterly earnings well ahead of expectations.
Also, Internet stocks staged a hot rally that was a mirror image of Monday’s action, when news of a dip in online trading activity in May struck another blow to the battered sector.
The Interactive Week Internet stock index--down 8% on Monday, with only three of its 50 stocks gaining ground--surged 8% on Wednesday, with only three losing issues.
America Online jumped $11.75 to $106.50, Yahoo surged $16.38 to $141.63, Amazon.com gained $15.19 to $111.69 and Verticalnet soared $12.63 to $70.63.
A new Internet-related stock, health-care information firm Careinsite, zoomed $12.94 to $30.94 as it began trading on Nasdaq.
Financial stocks also were big winners as Fed worries receded, at least for a day. Merrill Lynch rocketed $5.38 to $72.94, Citigroup surged $2.31 to $46.13 and Chase Manhattan was up $5.25 to $80.38.
Tech and financial stocks had borne the brunt of the market decline of the last two months, as fears mounted that the Fed would raise rates to slow the economy. As of Monday, the Nasdaq index had fallen nearly 10% from its record close April 26.
Fed officials in recent speeches have been laying the groundwork for a rate hike, saying that the economy’s explosive growth threatens to reignite long-dormant inflation.
The Fed may still maintain that view even in the face of Wednesday’s zero-inflation statistic, some analysts said.
Indeed, many were wary ahead of Fed Chairman Alan Greenspan’s testimony today before Congress.
Still, “If strong [economic] growth is a cloud, the silver lining is very strong corporate profits,” said Alan F. Skrainka, chief market analyst at Edward Jones in St. Louis, pointing to the news from Oracle and other firms.
“You can still have a bull market with a 6% [Treasury] bond if the earnings are strong,” he said.
Earnings-tracker First Call said analysts expect blue-chip companies to post powerful year-over-year profit gains of 15% this quarter and 20% next quarter.
But Arthur Micheletti, chief investment strategist for Bailard Biehl & Kaiser in San Mateo, Calif., said most analysts are far too bullish. His firm’s research indicates that full-year profit growth may actually be flat this year--certainly no higher than 10%.
Micheletti said the stock market in general is overvalued and Internet stocks still are the subject of a mania, even given the sharp declines of recent weeks.
Less pessimistic, but still cautious, was Hugh A. Johnson Jr., chief strategist for First Albany.
Even if inflation is rising only moderately and interest rates are creeping upward but fitfully, he said, that’s far different from the falling rates, falling inflation scenario that fueled the bull market previously.
“I don’t think investing is going to be as easy in the next six months as it has been for the last four years,” Johnson said.
Market Roundup, C9
