Stocks Fall, but Bargain Hunters Look Past IBM
Stocks staged a stunning turnaround from their morning lows Thursday, as investors appeared to quickly shake off IBM’s warning of weaker earnings ahead.
Although the broad market still closed lower, gains in many shares provided fodder for bullish analysts who believe Wall Street’s latest slump is nearing at least a short-term bottom.
The Dow Jones industrials recovered from a 214-point morning dive to close off 94.67 points, or 0.9%, at 10,297.69. Excluding the sharp declines in IBM, down $16 to $91, and Philip Morris, down $3.38 to $23.63, the 30-stock Dow would have closed with a gain, analysts said.
What’s more, the technology-heavy Nasdaq composite index recovered from a 63-point decline to end 13.82 points, or 0.5%, higher at 2,801.95.
Gains in many technology and Internet stocks suggested that many investors weren’t taking IBM’s warning of a sales slowdown related to the year 2000 computer bug as something the overall tech sector has to be concerned with.
Indeed, earlier this week Microsoft reported strong earnings and described personal computer demand as “awesome”--triggering big gains in many tech stocks on Wednesday.
Although many tech stocks fell at the outset of trading Thursday morning, by midmorning bargain hunters had begun snapping them up. Microsoft fell as low as $90.50 but closed up 81 cents at $93.06. Sun Microsystems, although ending down $3.44 at $92.88, recovered from a low of $90.25.
The Internet sector, meanwhile, was broadly higher, helped by some stronger-than-expected earnings reports. America Online rose $4.25 to $122.25 and e-commerce software firm Vignette rocketed $38.50 to $157.81.
Investors also were buying in such sectors as banks, railroads, energy, drugs and food.
Although falling stocks still outnumbered winners by 19 to 12 on the New York Stock Exchange and by 22 to 17 on Nasdaq, that was much improved from early in the day. And trading volume rocketed on both the NYSE and Nasdaq--a positive sign, some analysts said, when combined with the market’s turnaround.
“The pressure’s off,” said Paul Hennessey, head of trading at Boston Partners Asset Management. Particularly with regard to tech issues, he said, investors are seeing them “in a more lengthy time period and realizing, ‘Hey, these things are cheap.’ ”
Other analysts weren’t convinced the market has bottomed. The buying Thursday was “late-day short covering,” said Larry Lawler, head of trading at Dreyfus Corp., referring to buying by traders who had bet that prices were headed lower and were scrambling to close out some of their positions.
Stocks were moving lower again at midday, hurt by rising bond yields. The 30-year Treasury bond ended at 6.35%, up from 6.33% on Wednesday and matching the two-year high set Tuesday.
“The fact is, bond prices still don’t look like they’ve hit bottom, and until they do, it will be tough for stocks to rally,” said Steven Goldman, market strategist at Weeden & Co. in Greenwich, Conn.
But some analysts said Wall Street took heart from comments by Federal Reserve Gov. Edward Kelley, who said the Fed “cannot and does not and will not” target stock prices in deciding interest rate policy.
“We cannot determine if there is a bubble or not,” Kelley said, speaking to financial analysts in Houston.
Analysts have recently speculated that the Fed would actively raise interest rates, even absent higher inflation, simply to keep the stock market subdued.
Among Thursday’s highlights:
* Rallying Internet stocks included EBay, up $2.63 to $148.50; Inktomi, up $4.81 to $120.50; Broadcom, up $3.13 to $117.13; and DoubleClick, up $7.06 to $128.94.
* In the banking sector, J.P. Morgan gained $1.69 to $117.19 and Chase Manhattan rose $1.81 to $77.63.
* Drug stocks continued to surge, led by Merck, up $2.94 to $78.63, and Johnson & Johnson, up $2.31 to $104.81.
But Amgen slumped $6 to $80.13 after it warned Wednesday that growth will slow next year.
* Rail giant Union Pacific shot up $3 to $50.81 after posting better-than-expected earnings. Also rising were Norfolk Southern, up 19 cents to $22, and Burlington Northern, up 63 cents to $27.38.
* Food stocks were led higher by Heinz, up 63 cents to $46.44, and Coca-Cola, up $1.56 to $54.31.
* Tobacco stocks tumbling with Philip Morris included RJR Tobacco, down $3.69 to $19.25; Loews, down $1.81 to $65.94; and British American Tobacco, down $1.06 to $14.06.
Market Roundup, C7
