Bargain Hunting Sends Stocks Higher
Finding stocks too cheap to ignore, investors on Tuesday shelved concerns about the presidential quagmire and corporate earnings woes and propelled the stock market sharply higher, its first gain since last week’s election.
The Dow Jones average of 30 industrial stocks climbed 163.81 points, or 1.6%, to 10,681.06, and the battered Nasdaq composite index--which finished below 3,000 on Monday for the first time since Nov. 2, 1999--gained 171.55 points, or 5.8%, to 3,138.27.
It was the first upturn for both indexes since election day Nov. 7. The heavily damaged technology group led the rebound as investors decided--at least for the moment--that the intense selling pressure on the sector had run its course. That lifted Nasdaq’s marquee names, such as Cisco Systems, Sun Microsystems, Oracle and Intel.
But analysts cautioned that technology stocks have bounced back several times this year, only to lapse into another extended decline as fears of a slowing economy, and the reduced technology spending that would accompany it, continue to grow.
“We have seen this kind of thing before,” said Richard Dickson, a technical analyst with the investment firm Scott & Stringfellow. “These types of rallies don’t necessarily stick.” Indeed, the Nasdaq composite index is still down a severe 39% from its March 10 record-high close.
On Tuesday, though, the hunt for bargains was abetted by bullish comments by a top Wall Street analyst, as well as by favorable profit reports from two bellwether retailers: Wal-Mart Stores and Home Depot.
Wall Street also took solace from developments in Florida, where a state court upheld a deadline to end vote counting there from the disputed presidential election, although the judge’s decision left a loophole that could allow more wrangling over the vote total.
“The market is thinking there is some possibility or some hint that we might get much closer to a resolution of this political situation, although I still think it’s up in the air,” said Gregory Nie, a technical analyst at First Union Securities.
On the financial front, Abby Joseph Cohen, an investment strategist at Goldman, Sachs & Co. whose forecasts are closely watched on Wall Street, gave clients a bullish outlook Tuesday on grounds that stock prices are at their most attractive levels of the year.
She also noted that the economy has slowed to a sustainable rate, inflation remains in check and prospects for the Federal Reserve to hike interest rates again have lessened.
The central bank’s board, in fact, holds its regular policy meeting today to review interest rates and other economic trends. Few expect the Fed to cut interest rates, but some market watchers hope the board will indicate that it sees inflation abating, which could portend future cuts in rates and thus spark fresh enthusiasm for stocks.
That would be a welcome salve for investors weary of watching dozens of top corporations announce quarterly earnings that fell short of earlier expectations--setbacks that have sent their stock prices plunging. Those companies have included Intel, Dell Computer, Best Buy and, Monday, Hewlett-Packard.
Even though stock prices have dropped sharply, many of them still trade at lofty price-to-earnings multiples, leaving them quite vulnerable to more bad news, said A. Gary Shilling, who runs an investment firm bearing his name in Springfield, N.J. Cisco, for instance, still trades at 68 times its projected fiscal 2001 earnings per share. Oracle’s current-year P/E is 58, and Sun Microsystems’ is 67.
“These stocks are still selling at such high prices that there is no margin for error,” Shilling said. And when they’ve come up short, investors “don’t take them to the woodshed for a thrashing. They shoot them on the spot.”
Not so Tuesday, as gainers outpaced losers by nearly 2 to 1 on the New York Stock Exchange, and the Standard & Poor’s 500 composite index rose 31.69 points to 1,382.95. Trading on the Big Board was heavy. Winners also outpaced losers by almost 2 to 1 on Nasdaq, where 1.8 billion shares changed hands.
Among the market’s highlights:
* Hewlett-Packard rebounded $2.88 to $37 a share, after getting pummeled Monday following its disappointing earnings forecast. Elsewhere in the technology group, Cisco gained $2.75 to $53.13, Sun Microsystems jumped $8.69 to $94, Oracle was up $3.63 at $28.38 and Ciena surged $13.19 to $104 a share.
* Gemstar-TV Guide tumbled $10 to $44.69, an 18% loss, after at least one analyst cut his rating on the distributor of software for interactive TV-program guides.
* Wal-Mart rose $1.56 to $46.88, after the nation’s largest retailer posted third-quarter earnings that matched the average estimate of analysts polled by First Call/Thomson Financial. Home Depot gained $1.81 to $39.19 after it, too, reported third-quarter profit in line with forecasts that it already had lowered last month.
* Providers of business-to-business services via the Internet rallied strongly. Ariba gained $7.38 to $98.75, I2 Technologies surged $25.63 to $143.25 and Commerce One jumped $7.38 to $59.19 a share.
* On overseas stock markets, Japan’s Nikkei average slipped 0.3%, while Germany’s DAX index gained 3.3%. Britain’s FTSE-100 was up 2.2% and France’s CAC-40 rose 3.1%.
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Times wire services were used in compiling this report.
