Earnings Reports Energize Markets

Stocks rocketed Thursday to their best gains in almost two months as Microsoft, General Electric and other companies surprised investors with something rare on Wall Street these days: good earnings news.

The Nasdaq composite index soared 103.70 points, or 5.3%, to 2,075.74, while the Dow Jones industrial average surged 237.97 points, or 2.3%, to 10,478.99.

Though the rally just returned the market to its level of a week ago, analysts said it may have been powerful enough to halt the downtrend that began in late May. Winners topped losers by about 2 to 1 in brisk trading.

Investors responded to decent earnings or sales reports from such giants as GE and Microsoft, and rewarded some tech firms that promised more cost cuts, such as Motorola.

While news that Microsoft expects to beat quarterly revenue estimates helped spark a broad technology rally, retail stocks gained on a strong June sales report from Wal-Mart and reassuring earnings from Sears, Roebuck--even though many other retailers reported dismal sales for the month.

“This market was desperate for some good news,” said Liz Ann Sonders, portfolio manager at Campbell, Cowperthwait in New York.

She thinks the stock market’s worst days are probably behind it.

“The lows we hit in April were legitimate,” Sonders said. “It’s not that this [third] quarter is going to be so exceptionally great, but I think we’ll end up looking back to find that either this quarter, or more likely, last quarter, was the worst of it for the economy.”

After the torrent of earnings warnings that have walloped the market in recent weeks, she added, “I think we’ll start to see more marginal news kick in.”

Sonders noted that typically it takes six months for the impact of Federal Reserve interest rate cuts to be felt in the economy, which means the Fed’s series of six cuts this year is only now starting to have an effect. She expects the market to trend higher, but in “fits and starts” as investors begin to anticipate better economic times.

Still, many analysts warned that the market’s boost Thursday came in part from technical factors, including “short” covering by bearish traders scurrying to hedge their bets on lower prices.

The larger question of whether corporate earnings will recover by year’s end--or whether Wall Street will have to wait until 2002--remains.

What’s more, Argentina’s financial crisis is hammering emerging markets in general, further threatening the global economy.

Among the market highlights:

* In the tech sector, Microsoft climbed $5.10 to $71.60, Motorola gained $2.48 to $18.15 and Yahoo, which late Wednesday narrowly beat lowered earnings expectations, rose $1.23 to $18.26.

Lucent Technologies, meanwhile, rallied 81 cents to $6.86 after announcing job cuts and early retirement incentives; Agilent Technologies jumped $3.87 to $30.74 after being upgraded by a Bear Stearns analyst; and Sun Microsystems climbed $1.37 to $15.35.

Chip giant Intel gained $2.04 to $30.10 as the Philadelphia semiconductor index soared 8.6%. Texas Instruments rose $3.09 to $33.14 and RF Micro Devices advanced $4.85 to $23.88.

Sonus Networks zoomed $3.58 to $22.51 after saying 2001 revenue will be higher than forecast.

* Consumer electronics retailers Best Buy and Circuit City Stores climbed in response to big gains in tech stocks, analysts said. Best Buy rose $3.42 to $67.95 and Circuit City gained $1.03 to $17.70.

Elsewhere in the retail area, Sears climbed $2.88 to $44.50 and Wal-Mart surged $3 to $51.85. But Wet Seal plunged $8 to $21.75 after warning of a profit shortfall.

* Other companies benefiting from positive earnings news included Harley-Davidson, up $3.46 to $49.75, and banking giant First Union, up 95 cents to $34.11.

* Brokerages rallied on hopes for a market rebound. Morgan Stanley Dean Witter gained $4 to $61.82, Lehman Bros. rose $3.92 to $74.25 and Goldman Sachs climbed $4.95 to $86.55.

* Drug makers fell as investors shunned so-called defensive stocks in favor of more aggressive bets. Merck slid $1.36 to $61, Bristol-Myers Squibb dropped 99 cents to $52.38 and Idec Pharmaceuticals sank $9.32 to $52.16 after saying sales of its cancer drug Rituxan rose less than expected in the second quarter.

* Oilfield services stocks slid after Rowan said the near-term outlook for natural gas drilling is uncertain. Rowan lost $2.03 to $18.54 and Global Marine slumped $1.30 to $15.91.

* Treasury bond yields fell as fears that Argentina may default on its debt sent investors rushing to the relative safety of U.S. government securities. The 10-year Treasury yield slipped to 5.24%, from 5.29% on Wednesday.

Market Roundup, C7-8