Stocks Gain, but Pros Doubt Staying Power of Rebound
Is the market’s turnaround for real--or a trap?
That was the question many pros were asking Wednesday after technology stocks powered major stock indexes higher--only to see IBM plunge in after-hours activity following its downbeat earnings forecast.
The Dow Jones industrials soared 187.43 points, or 1.8%, to 10,392.36 in regular trading, and the tech-heavy Nasdaq composite zoomed 99.95 points, or 3.7%, to 2,788.13.
Stocks were lifted by some strong earnings reports--especially Microsoft’s, issued after trading ended on Tuesday. Microsoft soared $5.94 to $92.25 on Wednesday after it called demand for personal computers “awesome.”
But after the market closed Wednesday, IBM reported earnings and warned about weak results for the next two quarters. IBM shares, up $5.63 to $112.75 in regular trading, plunged as low as $101 in after-hours activity.
“Investors are in a show-me mode,” said Alan Ackerman, analyst at Fahnestock & Co. “The strong earnings from Microsoft energized the market and brought back a number of fence-sitters, but it’s not yet clear whether the rally has staying power.”
Indeed, many traders worry that a new sell-off could ensue today, after a three-day rebound that has lifted the Dow 373 points, or 3.7%. The index now is off 8.2% from its August peak.
Despite the gains in the Dow and the Nasdaq index Wednesday, the rally was fairly narrow: Winners topped losers by just 8 to 7 on the New York Stock Exchange, though winners had a 22-16 margin on Nasdaq. Trading was heavy in both markets.
Besides strong earnings reports from Microsoft, Chase Manhattan, paper company Temple Inland and other blue-chip firms, stocks were helped by a slight decline in bond yields.
The 30-year Treasury bond yield edged down to 6.33% from a two-year high of 6.35%.
The dollar also rallied on news that the U.S. trade deficit narrowed in August. The dollar ended at 106.50 yen, up 1.22 yen.
Traders were heartened by continued gains in sectors such as banks and drug stocks.
But there were some notable weak spots on Wall Street. Transportation stocks, for example, were broadly lower, as were home builders’ shares. Tobacco stocks also plunged on the threat of new liability losses.
Today could bring a major test for the market’s rebound: If IBM’s news drags the broad market lower, it could demoralize investors who have just jumped back into stocks this week, hoping for a sustained turnaround, analysts said.
Among Wednesday’s highlights:
* Tech shares soaring with Microsoft included Apple, up $6.63 to $75.13; Intel, up $4.81 to $69.94; Adobe Systems, up $4.75 to $125.69; Micron Technology, up $1.63 to $64.13; and Emulex, up $11.25 to $133.13.
But EMC plunged $5.19 to $64.25. Its earnings beat expectations but analysts cited concern about future revenue growth for the data-storage-device maker.
* Among Internet names, EBay rocketed $12.25 to $145.88, Amazon.com gained $3.88 to $80.50 and EToys jumped $4.38 to $72.
* Financial shares gaining included Chase, up $4.69 to $75.81; Citigroup, up $1.31 to $46.25; Merrill Lynch, up $2.44 to $67.50; and Bank of America, up $1.13 to $54.63.
* Temple-Inland surged $4.94 to $58.88 on its earnings news, and other paper stocks also gained, including Kimberly-Clark, up $2.44 to $55.88, and International Paper, up $2.69 to $49.81.
* Most drug stocks continued to advance in the wake of strong earnings reports. Pfizer rose $1.56 to $41.50 and Johnson & Johnson surged $2.75 to $102.50. But Eli Lilly sank $4.25 to $65.63 on concerns over falling sales of Prozac.
* Tyco International jumped $3.88 to $88.38. Merrill Lynch added the stock to its “Focus One” list of top industry stock picks, and set a 12-month price target of $150.
* Crossroads Systems (ticker symbol: CRDS), a maker of routers connecting computers and storage devices, made its trading debut at $18 a share and rocketed to close at $78.72 on Nasdaq.
There was a much less rousing reception for Southland-based retailer Charlotte Russe (CHIC), which went public at $11 and closed at $11.88 after reaching $13.31.
On their second day of trading, Martha Stewart rose $4.19 to $39.75 but World Wrestling Federation slid $1.31 to $23.94.
Market Roundup, C10
