Stocks Soar, Led by Record 254-Point Nasdaq Gain
Technology stocks exploded Tuesday, broadening Monday’s big market gains, as buyers returned to many speculative, smaller tech issues that had been crushed in last week’s historic sell-off.
Some analysts were heartened by the market’s ability to rebound so quickly from last week’s debacle, but others saw the bounce as a false signal in a market whose psychology, they argue, has turned negative.
The Nasdaq composite soared 254.41 points, or 7.2%, to 3,793.57, the second-biggest percentage gain and biggest point gain ever, as winners swamped losers by 3 to 1 on the Nasdaq Stock Market. The index has risen 14% this week, the biggest two-day percentage climb in its 29-year history.
The Russell 2,000 smaller-stock index jumped 5.8% on Tuesday, its biggest one-day gain since 1987.
Unlike Monday’s rally of mainly blue chips, the leaders Tuesday included many beaten-down biotech and Internet names.
The broader market also rose, with the Dow up 184.91 points, or 1.8%, to 10,767.42, on strong first-quarter earnings reports. The Standard & Poor’s 500 rose 2.9%.
Along with technology, the financial-services, consumer-products and oil-service sectors were particularly strong.
The Dow’s top gainers included American Express, up $5.94 to $139.94; J.P. Morgan, up $5.50 to $130.50; and General Electric, up $4.50 to $156.50.
Multidollar gains for formerly staid blue-chip stocks have become commonplace, just as huge swings in the indexes are the rule lately.
How’s this for volatility? The two biggest one-day point gains in Nasdaq history, Monday and Tuesday, followed the record point loss Friday. In the last 15 trading days, only three times has Nasdaq closed with a gain or loss of less than 3%--and one of those days was April 4, when the index plunged 13.6% intraday before rebounding to cut its loss to 1.7%.
The back-to-back gains Monday and Tuesday suggested that many investors still have faith in the prospects of tech companies--faith that is being rewarded, given the generally strong profit reports from giants such as IBM, Intel and America Online.
S&P; 500 companies are expected to report average first-quarter growth of 20.7%, up from the 17.5% estimate at the beginning of the year, according to First Call/Thomson Financial, a Boston-based research firm that tracks corporate earnings.
With the Nasdaq composite still down 25% from its March 10 peak, it’s clear that many investors think bargains still can be had.
Yet, some experts are wary of the fast bounce back, warning that it has the fingerprints of short-term traders all over it.
For example, short-sellers, who profit by betting that stocks will go down, were taken aback by the sharp Monday-Tuesday rebound and had to rush in and purchase shares to offset their bets, noted Richard Cripps, chief equity strategist at Legg Mason in Baltimore.
For that reason, the two-day rally “was almost defensive in nature, as opposed to an expression of real bullish sentiment,” Cripps said.
After the glow of the earnings-reporting season--now at its peak--investors may turn to less happy thoughts, including the Federal Reserve’s evident determination to keep pushing interest rates higher.
Despite Tuesday’s action, Cripps said, any upward moves probably will be concentrated in the larger names in the coming weeks, while second- and third-tier stocks will struggle.
Christine Callies, chief U.S. market strategist at Credit Suisse First Boston, agreed, saying investors should be skeptical.
“The harder they fall, the higher they bounce,” she said.
Indeed, after Nasdaq’s 13.6% intraday dive on April 4, the market rallied 22% in just 3 1/2 days, with sharp gains in many smaller issues. But by the following Monday, the market was nose-diving again on its way to a worst-ever 25% drop for the full week.
One concern Tuesday was Nasdaq volume of 2.1 billion shares, below Monday’s 2.5-billion total. In the days following the April 4 dive, volume slowed even as prices continued to soar, suggesting dwindling conviction.
Some analysts see a continuing threat to the market from the Federal Reserve.
The Fed wants consumers “to adjust to a slightly lower level of consumption, which they clearly don’t want to do,” Callies said.
“For the kind of [market] correction that creates that more-sober attribute, the market has to go down and stay down for a while, so we wouldn’t be chasing rallies for now,” she added.
However, Thomas McManus, strategist at Banc of America Securities, said it won’t necessarily take a further collapse to reduce speculative fervor in the markets.
Volatility alone is making investors “a little less comfortable” and thus a little more conservative--a healthy development, he said.
In the bond market, the benchmark 30-year yield eased to 5.91%, from 5.92% the day before.
Meanwhile, the dollar reached a seven-week high against the euro and strengthened against the yen as the two-day stock market rally bolstered demand for the dollar.
Among the day’s highlights:
* Stocks in the “old” and “new” economies alike were boosted by earnings news, including First Data, up $6.25 to $47.25; Tiffany, up $5.50 to $71; McGraw-Hill, up $6.13 to $48.88; EMC, up $5.63 to $130.13; E.piphany, up $17.63 to $66.50; and Yahoo, up $12.31 to $126.69 after its Japanese unit notched a sixfold jump in first-quarter profit.
* Micron Technology soared $12.50 to $126.50 and Nvidia gained $12.81 to $85.13 as the chip companies were upgraded to “strong buy” at Morgan Stanley Dean Witter.
* Smaller Internet shares rebounding from recent heavy losses included Homestore.com, up $5.56 to $26; EarthLink, up $4.50 to $16.50; and Priceline.com, up $11.94 to $64.
In foreign trading, Latin American stocks rose, with Mexico’s main index gaining 6% and Brazil’s gaining 4%.
Market Roundup, C9
