Dow Rallies to Second-Best Point Gain

Investors finally had reason to cheer again Thursday as a smattering of positive corporate profit news sent the Dow Jones industrial average soaring more than 400 points for its second-best daily point gain in history.

The rally--which also gave the technology-laden Nasdaq composite index a gain of nearly 9%, its third-biggest daily percentage gain--was a welcome tonic for investors who have watched in agony as stock indexes steadily plunged into a bear market from record highs reached just over a year ago.

It also sparked immediate conjecture about whether the beleaguered U.S. stock market has bottomed out and is poised for a lasting rebound.

The catalyst for the rally was positive earnings news from Dell Computer Corp. and aluminum giant Alcoa Inc. The good news was in marked contrast to the hundreds of profit warnings from a wide range of companies that have sent stock prices tumbling in recent weeks.

“For the market to respond to just that little spot of sunshine says that the market was ready to rally” and just needed a positive spark, said Alfred Goldman, chief market strategist at brokerage firm A.G. Edwards & Sons Inc. in St. Louis.

“The level of gloom among investors is as thick as I’ve seen it since 1973-74, and so here they had a little something to latch on to,” he said.

Surging ahead from the opening bell, the Dow--which includes Alcoa--rose 402.63 points, or 4.2%, to 9,918.05. The only time the blue-chip average scored a bigger point gain was on March 16, 2000, when it soared 499.19 points. In percentage terms, however, Thursday’s gain isn’t even among the Dow’s 10 biggest.

The Nasdaq composite index--which began the day down an eye-popping 67.5% from its high set in March 2000--jumped 146.20 points, or 8.9%, to 1,785.00. The index’s record percentage gain, 14.2%, came Jan. 3, when the Federal Reserve Board made a surprise cut in short-term interest rates.

More than three stocks rose for each one that fell in heavy trading on Nasdaq and the New York Stock Exchange.

Some of the market’s big names in technology and other industries finished with gains of 9% or more on the day. Big gainers included not only Dell, which rose $3 to $25.19 a share, but also chip maker Intel Corp., up $3 to $25.63, entertainment conglomerate AOL Time Warner Inc., which gained $4.55 to $39.70, and networking king Cisco Systems Inc., up $1.25 to $14.94. Alcoa rose $1.95 to $37.50.

Investors’ concern over falling corporate profits has been heightened as the U.S. economy’s response to three Fed rate cuts this year has been less than robust. And in the wake of the announcements by Dell and Alcoa, analysts were debating whether Thursday’s rally has staying power.

Some argued that the market seems close to a bottom and is ready to keep moving higher. One of Wall Street’s big money managers, Credit Suisse Asset Management, declared Thursday that it’s boosting its holdings of stocks. “We’re getting bullish here,” said Larry Smith, the firm’s chief investment officer.

But others warned that a few favorable earnings reports doesn’t make for a long-term rally. After all, they noted, Thursday’s gain by the Dow barely offset the 393-point loss it suffered Monday and Tuesday.

They predicted that more poor profit reports are coming, which would easily disillusion investors again and sink the market’s effort to launch a sustained recovery--something that’s already happened several times in the last few months.

After the market’s dramatic gains Jan. 3, for instance, the Dow lost 324 points over the next three trading sessions and the Nasdaq composite index tumbled 221 points. The same thing happened in early March: A promising rally immediately fizzled.

“For the broad market, and for technology in particular, there’s still likely to be more weakness and volatility ahead,” cautioned Thomas Van Leuven, U.S. market strategist at J.P. Morgan Chase Securities in New York. His firm believes that “things are still going to get worse before they get better,” he said.

And there was another glaring example of that late Thursday when Agilent Technologies Inc., a Palo Alto-based maker of test and measurement equipment for electronics, said it’s cutting workers’ salaries by 10% because of a dramatic slowdown in demand for its products.

“It’s not uncommon for a market to rally 10% or 15% and for it to be a false move,” said Charles White, president of Avatar Associates, a New York-based money manager. “Bear markets have rallies in them.”

Some observers also ascribed much of Thursday’s rally to technical events such as “short covering,” in which traders who had sold borrowed shares on the bet they’d fall in price decided they’d better buy the shares back, or cover their bet, because prices were moving up. That, in turn, helped bid prices even higher.

Regardless, the market’s bulls are hoping the worst is over.

“The economy is not as bad as [recent] earnings announcements from large technology companies have led people to believe,” said Lynn Yturri, who manages the One Group Equity Income Fund. Optimists also were encouraged that the market closed near its best levels of the day Thursday, which they said reflected strong enthusiasm among investors.

At the same time, even as the closing bell was sounding at the NYSE, investors were handed conflicting economic reports.

For instance, wireless-phone operator Sprint PCS Group said it added more than 1 million customers in the first quarter, ahead of analysts’ forecasts of 700,000 to 750,000 new users. BMC Software Inc., a provider of business software, said it expects to report quarterly revenue that also exceeds Wall Street’s estimates--although the news from BMC was tempered by the announcement that it’s laying off 6% of its work force. And Delta Air Lines Inc. said the slowdown in the U.S. economy has brought a sharp drop in bookings by business and leisure travelers.

“There’s no way to tell for sure until we see the quality of this rally” whether Thursday’s gains are extended in the next few sessions, said Goldman of A.G. Edwards. But he added, “Either way, we’re darn close to the bottom.”

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Bloomberg News and other Times wire services were used in compiling this report.

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Nasdaq’s Biggest Gains

The Nasdaq composite index scored its third-biggest percentage gain Thursday. All but one of the index’s top 10 daily percentage gains occurred since the current bear market began a year ago--which shows that powerful short-term rallies can occur even as the longer-term trend remains down.

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Pctg. Point Index Date gain gain close Jan. 3, 2001 14.17% 324.83 2,616.69 Dec. 5, 2000 10.48 274.05 2,889.80 April 5, 2001 8.92 146.20 1,785.00 May 30, 2000 7.94 254.37 3,459.48 Oct. 13, 2000 7.87 242.09 3,316.77 Oct. 19, 2000 7.79 247.04 3,418.60 Dec. 22, 2000 7.56 176.90 2,517.02 Oct. 21, 1987 7.34 24.07 351.86 April 18, 2000 7.19 254.41 3,793.57 April 25, 2000 6.57 228.75 3,711.23

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Sources: Associated Press, Times research