Nasdaq Has First 3-Day Rally Since September
Technology investors overlooked a lot of bad news Thursday and helped drive the Nasdaq composite index to its first three-day rally since Sept. 1.
With the Federal Reserve Board launched on a rate-cutting campaign to stem the economic downturn, a glimmer of confidence has returned to the slumping market.
“Once the Fed takes over, it’s a very powerful influence,” said Alan F. Skrainka, chief market analyst at Edward Jones in St. Louis. “You hear people say it takes time for rate cuts to turn the economy around, but it doesn’t take any time for the markets to grasp it.”
The Nasdaq index soared 116.39 points, or 4.6%, to 2,640.57, with semiconductor and computer software and hardware stocks leading the charge. The tech-laden index is up 15% since Monday afternoon, when it reversed a 108-point decline in the last hour of trading to close down only 11 points.
The Dow Jones industrial average, after trading lower most of the day, managed a gain of 5.28 points, or 0.1%, to 10,609.55. Drug and tobacco stocks--among the few strong sectors in 2000--were some of Thursday’s biggest losers.
The Standard & Poor’s 500 stock index gained 13.55 points, or 1%, to 1,326.82.
Trading volume was a very heavy 2.8 billion shares on Nasdaq. The New York Stock Exchange saw 1.3 billion shares change hands--robust by historical standards but well below the 2.1-billion-share Big Board record set Jan. 4.
In what many traders take as a sign of market health, “breadth” continued strong on Nasdaq, with advancing stocks outnumbering decliners by a margin of well over 2 to 1. On the Big Board, gainers edged losers by about 4 to 3.
Market watchers who think Nasdaq has finally turned the corner cited investors’ willingness to ignore earnings warnings this week from Cisco Systems and Yahoo, plus analysts’ downgrades of the computer-chip sector.
Joseph Battipaglia, the bullish chief investment officer at Gruntal & Co., noted that industry analysts have been slashing profit estimates for months.
But now, he added, investors are “looking past all that and focusing on the second half” of 2001, which a number of companies are saying will be stronger.
In a stark example, analysts at Merrill Lynch and Salomon Smith Barney both cut estimates for Intel and other computer-chip makers Thursday, yet the sector was among the strongest in the market. All 22 stocks in the S&P; 500 semiconductor group posted gains, including Intel, which rose a modest 38 cents to $33.38 in Nasdaq trading.
Such newfound confidence may be tested today, however, as investors react to another round of warnings that arrived after the close of trading.
Hewlett-Packard cut its first-quarter earnings forecast, citing “worsening economic conditions and a deceleration” in business and consumer spending on computers.
Then rival PC maker Gateway reported fourth-quarter profit of 12 cents a share, well below estimates, and said sales growth in 2001 will be an anemic 3% over last year.
The news sent computer-related shares tumbling in after-hours trading.
John Roque, market analyst at Arnhold & S. Bleichroeder, said there are still more negatives than positives in the stock market.
He was discouraged that utility and drug stocks have suffered sharp sell-offs lately after being bastions of stability in recent months.
But Peter Canelo, U.S. investment strategist at Morgan Stanley Dean Witter, said it is common to see abrupt shifts in investor preferences when the Fed starts easing.
“Before the Fed comes to the rescue, you play it safe in utilities, consumer staples, health care, oils,” Canelo said. Once it becomes clear that the Fed is trying to reignite the economy, investors start “looking over the valley” and picking growth stocks in retailing, financial services and, yes, technology, he said.
The economy will get a “double-barreled dose” of stimulus from the Fed’s credit-easing and a tax cut likely to come out of Congress, he said.
Canelo’s ebullience contrasts sharply with the dour outlook of some of his colleagues. Richard Berner, Morgan Stanley’s chief U.S. economist, said earlier this week that he believes the nation is already in a recession.
But to investors, Canelo retorted, “it’s not the recession that matters; it’s the recovery. This is what the stock market does; it looks ahead.”
The shares of California’s two biggest utility companies took another pounding Thursday amid a Stage 3 power alert in California and ongoing concerns about the firms’ huge losses under electricity deregulation.
Edison International, parent of Southern California Edison, slid 75 cents to $10.50, and PG&E; Corp., parent of Pacific Gas & Electric, fell $1.25 to $12.31, both on the NYSE.
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Market Roundup, C6-7
