Technology stocks rebounded Tuesday after two high-profile tech firms reaffirmed their earnings forecasts, easing some of Wall Street's worries about upcoming quarterly financial reports.
The momentum sent the Nasdaq composite index up 3.6% and lifted blue-chip stocks as well. Analysts said many investors were jumping into the market out of fear they would miss the next big advance.
"We're starting to see more confidence building that there will be a recovery, particularly in technology," said Matt Brown, head of equity management at Wilmington Trust. "Certainly, there are bumps ahead, and the market won't go straight up, but people are feeling like the Federal Reserve's interest rate cuts and the tax cuts will eventually work."
The technology-focused Nasdaq closed up 77.73 points, or 3.6%, at 2,233.66. The Dow Jones industrial average, meanwhile, rose 114.32 points, or 1%, to 11,175.84, while the broader Standard & Poor's 500 index gained 1.3%.
Advancing issues led decliners by nearly 2 to 1 on Nasdaq and on the New York Stock Exchange.
It was the fourth straight session that all three major indexes advanced--a streak that has pushed Nasdaq up more than 7%. Unlike the quiet sessions that preceded it, Tuesday's advance came on intense buying that followed earnings outlooks from Lucent Technologies and chip maker Xilinx. But trading volume was still below average for the last three months.
Lucent gained 49 cents to $8.49 after the embattled company reaffirmed its third-quarter earnings projections. Chip maker Xilinx rose $4.02 to $45.61 on news that it still expects to report fiscal first-quarter losses, but those results will be in the range previously forecast.
Many tech and non-tech firms in recent weeks have warned of weaker second-quarter results, spurring profit taking across the market. A reduced forecast from Sun Microsystems last week sent stocks tumbling.
Tuesday's announcements allayed some of those concerns. "The bleeding may have stopped," said Todd Clark, co-head of trading at W.R. Hambrecht.
Other tech issues with strong gains Tuesday included Dow component Intel, up $1.23 at $29.73; Cisco Systems, up $1.81 at $21.54; and PeopleSoft, up $2.97 to $43.68.
Another hot sector: steel stocks, after President Bush's decision to initiate a trade case that could impose sharp restrictions on steel imports. USX's U.S. Steel Group was up $1.70 at $21.74, while Bethlehem Steel rocketed $1.16 to $4.15.
In the bond market, yields fell across the board despite the government's report that American workers' productivity in the first quarter fell 1.2%.
Weaker productivity could boost inflation pressures. But bond traders on Tuesday focused on the National Assn. of Purchasing Management's report on the service sector of the economy. NAPM's index of activity in service businesses fell last month to its lowest in four years, suggesting that the Federal Reserve may be compelled to cut interest rates further.
The 10-year Treasury note yield slid to 5.26% from 5.34% Monday and is the lowest since May 9. The two-year T-note fell to 4.11% from 4.18%.
In a speech Tuesday, Alfred Broaddus, president of the Federal Reserve Bank of Richmond, said the U.S. economy may be slowing more abruptly than had been expected, and that the Fed may need to lower interest rates again in coming weeks.
Among Tuesday's highlights:
* Drug stocks were strong, led by Johnson & Johnson, up $2.05 to $102.19; Merck, up $1.01 to $75.33; and Eli Lilly, up $1.10 to $88.10.
* J.C. Penney surged $2.06 to $22.74. Jeff Feiner, analyst at Lehman Bros., raised the company's rating to "strong buy" from "buy," citing strength in its Eckerd drugstore business.
* In the tech sector EBay rose $2.09 to $64.75, Veritas Software surged $4.39 to $72.51 and Micron Technology jumped $3.59 to $42.
* Among Southland issues, medical laboratory firm Unilab priced its initial public offering at $16 a share, at the top of the expected range. The stock will begin trading today under the symbol ULAB on Nasdaq.
Market Roundup, C7, C8