Record Dow Leads World Markets in Rebound
Cramming a month’s worth of thrills into five trading days, global stock markets closed out a wild first week of 2000 with a strong rebound Friday that propelled the Dow Jones industrial average to an all-time high.
Investors who had pounded down technology shares for three days straight rushed back into that sector, even as share prices also surged in such non-tech industries as drugs, consumer products and retailing.
Wall Street’s rally, along with strong comebacks in most overseas markets, suggested investors remain confident in the global economic picture, experts said. Even so, many warned that the selling that hammered high-flying technology stocks may foreshadow a more volatile period for the market in general.
Still looming is the fear that the Federal Reserve will raise interest rates once or twice more this winter to slow the U.S. economy, as growth picks up overseas.
A report Friday that the U.S. jobless rate held at a 29-year low of 4.1% in December as wages accelerated may do nothing to ease those fears.
Rising interest rates hurt many stocks in 1999, although their losses were masked by the surge in technology issues.
For a day, at least, interest rate worries dimmed as bargain hunters poured into the market.
The Dow gained 269.30 points, or 2.4%, to 11,522.56, led by household-products king Procter & Gamble, which leaped $8.63 to $116.50--also a record.
The Nasdaq composite index, down nearly 10% in the midweek technology sell-off, bounced back 155.38 points, or 4.2%, to 3,882.51. It was the biggest point gain ever and the 10th-biggest percentage gain, but it still left the index 6% below Monday’s record close of 4,131.15.
Stock markets across Europe, Latin America and Asia rallied as well, although almost without exception they finished the week lower than they started.
The most pronounced trend in Wall Street’s chaotic first week has been a “rotation” into many stocks that were overlooked during November and December’s rush for tech and nothing but tech.
As evidence of money being spread more widely in the market, advancing stocks outnumbered losers Friday by more than a 2-to-1 ratio on the New York Stock Exchange and about 3-to-2 on Nasdaq.
That hasn’t been the case in many previous rallies lately. In 1999, more than half the stocks traded on the Big Board and nearly half of those on Nasdaq lost ground for the year, despite robust advances in key indexes--including an unprecedented 86% jump in the tech-dominated Nasdaq.
Investors now “are looking for stocks that have lagged in the last few months but whose earnings are OK,” said Charles Pradilla, chief investment strategist for the investment firm of S.G. Cowen.
These include such prominent Dow industrials as P&G; Wal-Mart, up $4.81 Friday to $68.50; Coca-Cola, up $3.75 to $60.75; and General Electric, up $5.66 to $151.
Gail M. Dudack, chief investment strategist at the Warburg Dillon Read investment firm, said it was apparent that many big money managers had been locking in their stellar 1999 gains in some technology stocks at midweek and using the proceeds to diversify into other stocks.
Wireless technology leader Qualcomm, for example--a stock that gained more than 2,000% in 1999--fell from a record $179.31 on Monday to about $140 by Thursday, a 22% drop.
But on Friday, buyers pushed Qualcomm up $9.94 to $150.
Another telecom firm, Lucent Technologies, held center stage Friday. After a surprise announcement that its quarterly earnings would be disappointingly low, Lucent plunged $20.38 to $52 Thursday, with much of that drop coming in after-hours trading.
Some market watchers feared the carnage would continue Friday and perhaps spread to the whole technology sector.
But it didn’t happen. Lucent instead gained $2 to $54 on volume of 179 million shares traded on the NYSE--the heaviest day of trading for a single stock in Big Board history.
Investors also bid up shares of many Lucent competitors on Friday, apparently unworried that they would face the same earnings weakness.
S.G. Cowen’s Pradilla saw the midweek tech sell-off not as representative of disenchantment with the sector but rather “a turbocharged bout of profit-taking.” Many investors waited for the new year to sell big winners, thus avoiding 1999 capital gains taxes.
But some traders said it remains to be seen whether the technology stock sector can continue to rebound or whether other investors may yet be waiting to cash in some of last year’s huge gains.
The shuttling from one industry sector to another this week and the high trading volume--Friday was the fourth-busiest day in NYSE history--made for extreme volatility, which could continue, experts said.
This week’s huge point swings would have been even more alarming except that such volatility is becoming almost commonplace.
Philip Orlando, chief investment officer at Value Line Investment Management, said the volatility will continue at least until the Fed’s next meeting, Feb. 1 and 2, and probably through its following meeting in March.
Orlando, however, departs from the Wall Street consensus that the Fed is nearly certain to hike its key short-term rate, now 5.5%, by at least a quarter percentage point and perhaps by as much as a half point.
Rising interest rates--mortgage rates in particular--already have begun to cool home sales, and that should help slow economic growth to an annual pace of 3.25% to 3.5%--about where the Fed wants it, Orlando said.
Thus, he is betting that Fed Chairman Alan Greenspan and his colleagues will wait for more evidence before hiking rates.
But such restraint by the Fed might pose its own kind of risk, according to Pradilla.
If the Fed is successful in slowing the economy without inducing a recession, he said, the stock market could roar off into the stratosphere--perhaps prompting a new round of rate increases.
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UNEMPLOYMENT STEADY
New economic figures showed the jobless rate stable at 4.1% as growth continued. C1
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Dow’s Comeback
After dropping Monday and Tuesday, the Dow rallied later in the week to set a record high.
All-time high
Friday
11,522.56
