A handful of positive earnings reports triggered a broad-based rally Tuesday on Wall Street, sending the Dow Jones industrial average up more than 130 points as investors grew more confident about companies' prospects in the months ahead.
The weak but better-than-expected results from companies including Caterpillar were greeted by investors as a sign that the economy's slide is indeed over. But the optimism had its limits--tech bellwether Intel fell in after-hours trading after the chip maker reported results that beat estimates but suggested the third quarter will be weak.
The Dow closed up 134.27 points, or 1.3%, at 10,606.39, in brisk trading that accelerated as the afternoon wore on.
Broader stock indicators also advanced, recovering from morning losses. The Nasdaq composite index rose 38.20 points, or 1.9%, to 2,067.32, while the Standard & Poor's 500 index gained 11.99 points, or 1.0%, to 1,214.44.
The market's advance coincided with better-than-expected earnings from Caterpillar, which sent the heavy-equipment maker's stock up $3.18 to $53.55.
"Good earnings stories and positive surprises are few and far between these days," said Robert Streed, portfolio manager of Northern Select Equity Fund. "If a company like Caterpillar shows a decent report, the stock is going to respond well and, in this case, take a couple of other industrial issues up with it."
Indeed, investors' enthusiasm extended to other industrial and manufacturing issues, including 3M, which gained $2.81 to $112.86.
Pharmaceuticals also were strong despite earnings slightly below expectations from Johnson & Johnson. J&J; rose $1.18 to $54.91.
Tech stocks ended the regular session higher, too, but their gains faded somewhat in the extended session after Intel released its earnings report. Intel's second-quarter earnings beat expectations--despite a 94% drop in profit--but the company indicated that third-quarter business would remain weak and that it was too soon to predict a turnaround.
The chip maker fell 50 cents to $29.40 in extended trading, giving back some of its 77-cent regular-session gain.
Other tech stocks were weaker too, but it was difficult to tell how much of the selling was attributable to profit-taking after the day's gains and how much was in reaction to Intel.
"People may have just been too bullish going into this," said Robert Harrington, co-head of listed block trading UBS Warburg, who suggested Wall Street's tolerance for mediocrity in technology has diminished.
Wall Street also punished Apple Computer, which beat quarterly estimates but indicated weak revenue. The computer maker dropped $2.75 to $22.35 in after-hours trading, reversing a regular-session gain of $1.14.
The activity reflected Wall Street's intense focus on corporate earnings in an economy where recovery prospects remain uncertain.
Although the Federal Reserve's six interest rate cuts so far this year are expected to eventually stimulate economic growth, Wall Street has become increasingly focused on corporate performance as the best indicator of when the economy will turn around.
Technology, which has taken an especially strong beating, is under particularly close scrutiny.
Wall Street got fresh evidence Tuesday that the industrial sector continues to suffer. The Federal Reserve reported that manufacturing activity fell 0.7% in June, the ninth straight monthly decline and the sharpest loss since industrial output fell 0.9% in January.
The market was awaiting Fed Chairman Alan Greenspan's biannual testimony to Congress, which begins today. Investors want to know if more rate cuts are likely and to get Greenspan's assessment of the economy.
Advancing issues led decliners nearly 3 to 2 on the New York Stock Exchange and by 4 to 3 on Nasdaq. Trading was moderate.
Market Roundup, C8-9