Investors Go on Tech Buying Spree, Push Dow Over 10,000 Mark
Technology stocks soared and the Dow Jones industrial average jumped back above 10,000 on Tuesday as a rally that started Thursday picked up momentum.
There was no major corporate or economic news to explain the surge in share prices. Rather, investors piled into the market on the apparent belief that no further bad news will come out in the next few weeks.
And after an almost uninterrupted drop in stock prices over the last two months, that was enough to drive stock prices higher.
“Days like [Tuesday] and last Thursday show the market is like a spring that has been depressed,” said Scott Bleier, chief investment strategist at Prime Charter, a New York investment bank. “It pops back up dramatically.”
The Dow climbed 257.59 points, or 2.6%, to 10,102.74--the first time since mid-March that the widely watched index closed above the 10,000 mark.
The Nasdaq composite index bounded 106.32 points, or 6.1%, to 1,852.03 as semiconductor companies and other tech stocks rose sharply. Cisco Systems, which makes networking gear, climbed $1.37 to $15.86, software maker Oracle rose 92 cents to $14.97 and Sun Microsystems, which makes computer servers, jumped $1.61 to $14.65.
Tuesday’s rally, which came on heavy volume, built on the gains of Thursday, when the Dow rose more than 4% and the Nasdaq leaped almost 9%.
Some Wall Street analysts say that the nascent rebound is a sign the market’s worst losses are behind it and that stocks are launching into what will be a sustainable, though choppy, recovery.
However, Motorola’s earnings report after the close of trading cast doubt on that logic. The chip and cell phone company reported a first-quarter operating loss of 9 cents, 2 cents worse than the Wall Street estimate. Its shares fell as much as 8.5% after the close, according to Bloomberg News.
Motorola was the first major company to report first-quarter results. Internet portal Yahoo, another bellwether tech stock, will release its first-quarter numbers after the close today.
Still, investors seem to be encouraged by recent comments from Federal Reserve officials, who have said the economy is stabilizing and may turn upward by year-end, analysts said.
Some investors also think that, barring an economic meltdown, stock prices have gotten so cheap that there are bargains to be had.
“There’s a pretty good chance that the market has bottomed,” said Alfred Kugel, senior investment strategist at Stein Roe & Farnham in Chicago.
The surge in stock prices hurt the bond market as investors sold bonds to buy stocks. The yield on the benchmark 10-year Treasury bond rose to 5.08%, up from 4.93% on Monday. Bond traders are disappointed at the growing perception that the Fed will not lower interest rates before its next meeting in May, analysts said.
Not everyone is convinced that stocks are turning around, however.
Many of the same factors that drove stocks down this year--the weak economy, coupled with historically high stock valuations--remain in place, noted Ben Inker, director of asset allocation at Grantham, Mayo, Van Otterloo & Co.
Last Friday, the Labor Department reported that the nation unexpectedly shed 86,000 jobs in March, the largest job loss in almost a decade, as this year’s stream of layoff announcements began to show up in economic data.
“The market was looking for some excuse to rally. That doesn’t mean the bear market is over,” Inker said.
Some analysts said the rally was due in part to technical reasons.
Many so-called short sellers, who were betting on a continued deterioration in stock prices, had to reverse their wrong-way bets Tuesday, experts said. The initial surge created by that buying pressure probably lured some professional investors who had large sums of cash waiting on the sidelines.
Indeed, it seemed clear that investors were looking for a reason to buy stocks.
Last Thursday’s rally occurred after Dell Computer said it would merely meet profit estimates, rather than beat them. Likewise on Tuesday, stocks rallied despite a warning by Cypress Semiconductor that first-quarter earnings would miss forecasts. The shares rose 94 cents to $16.34.
To bulls, stock prices have fallen so low that they already reflect a horrible year for corporate earnings.
According to earnings tracker First Call/Thomson Financial, there already have been 820 first-quarter profit warnings. That tops the record 794 in the fourth quarter, and there will be more to come, said Chuck Hill, research director. More than one-third of those warnings are from tech companies.
Wall Street analysts expect first-quarter earnings for the companies in the S&P; 500 to fall 8.6%. Tech-company profits are predicted to plunge 37% in the first quarter and 36% in the second quarter, according to First Call.
Some analysts predict the rally will last for at least several weeks because the profit news has been so bad. That means likely sellers already have dumped their shares, removing a lot of the selling pressure that has held sway in the market.
A.C. Moore, chief investment strategist for Santa Barbara-based Dunvegan Associates, said the fact that stocks are rising on such skimpy news is a good sign.
“They’re seizing on small potatoes, and that usually means markets are going to go up,” he said.
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Climbing Back
The Dow industrials surged again Tuesday, but the market is still below its recent high on March 8.
Dow Jones industrial average, daily closes and latest
March 8: 10,858.25
Tuesday: 10,102.74, up 257.59
Source: Bloomberg News
