Nasdaq Soars as Tech Stocks Carry Rally
A robust rally Wednesday sent the Nasdaq to its biggest percentage gain in more than five months and lifted the Dow industrials back above 9,000.
Stocks were boosted by a triple dose of good news: President Bush detailed his economic stimulus plan, Cisco Systems Chief Executive John Chambers said he was “very comfortable” with profit estimates for the networking giant’s current quarter and a purchasing report showed unexpected growth in the U.S. service economy.
The Nasdaq composite index soared 88.48 points, or 5.9%, to 1,580.81 as Cisco and other technology bellwethers surged. It was the tech-laden index’s biggest single-day jump since April 18 and its first close above 1,500 since the Sept. 11 terrorist attacks.
The Dow Jones industrial average climbed 173.19 points, or 1.9%, to 9,123.78, while the Standard & Poor’s 500 index gained 20.95 points, or 1.9%, to 1,072.28.
The rally was broad, but tech carried the day: The Philadelphia semiconductor index rose 9.6%, while the S&P; index of communications equipment makers, which includes Cisco, leaped 12%.
Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange and on Nasdaq amid very heavy volume.
“There may have been a little excess enthusiasm, given that Cisco is only expected to make2 cents a share in the quarter [ending Oct. 27], but Chambers’ statement indicates we’re starting to see signs of fitness in the economy,” said Bob Armknecht, manager of Galaxy Equity Growth fund.
Cisco shares jumped 22%, rising $2.47 to $13.95, after Chambers reaffirmed the company’s profit outlook. Other makers of networking and data storage gear rallied, including Juniper Networks, up $2.47 to $12; Brocade Communications, up $3.68 to $17.11; and Ciena, up $2.52 to $12.03.
Among other tech leaders, chip maker Intel rose $1.69 to $21.23, Dell Computer climbed $2.10 to $20.64 and Oracle added $1.06 to $13.66.
Blue-chip gainers boosting the Dow included Boeing, up $2.34 to $36.59; Walt Disney, up 91 cents to $19.91; and Home Depot, up $1.78 to $40.83.
The National Assn. of Purchasing Management’s non-manufacturing report for September showed business activity rose to 50.2 index points from a four-year low of 45.50 in August. Economists had expected the latest reading to come in at only 43, according to Reuters. Readings above 50 indicate growth, while those below 50 show contraction.
Investors also were encouraged by Bush’s call for as much as $75 billion in government spending and tax cuts to “kick-start” the sputtering economy.
Wednesday’s rally also was fueled by “short covering,” Armknecht said, as traders who had bet against the market through so-called short sales scrambled to close out their positions by buying stocks.
Though the economy is showing signs of life and investors were encouraged by Tuesday’s Federal Reserve interest rate cut--the ninth this year--Armknecht said it remains unclear whether stocks have finally bottomed, especially with international tensions rising.
“Business inventories are being worked off, and everything else is in place, too: monetary policy, fiscal stimulus. But we have an element of uncertainty here that we’ve never really seen,” he said, referring to the possibility of another terrorist attack or military retaliation for the Sept. 11 attacks. “When the next bomb goes off, what happens to the psyche of the American consumer, and what happens to corporate capital spending?”
In other markets, the yield on the benchmark 10-year Treasury note eased to 4.47% from 4.50% Tuesday, as analysts said some investors turned less defensive, moving away from two-year securities with paltry yields.
Among other highlights:
* In the chip sector, Applied Materials gained $2.84 to $30.34, Xilinx climbed $3.92 to $26.72 and QLogic added $5.89 to $23.96.
* Software stocks got a lift, including PeopleSoft, up $3.14 to $23.68, and Veritas Software, up $3.59 to $23.49.
* Insurance stocks gained ground as some analysts said the post-Sept. 11 sell-off was overdone, with premium increases potentially offsetting losses from the tragedy. Chubb climbed $4.37 to $76.92, and AIG rose $2.25 to $80.70.
* Brokerage stocks continued to snap back from September’s slump, with Morgan Stanley rising $2.84 to $49.89 and Goldman Sachs gaining $3.09 to $76.69.
* Airlines, another sector that slumped after the attacks, continued its rebound. The S&P; airline index rose almost 5% and is up nearly 15% over the last five sessions. AMR, parent of American Airlines, rose $1.45 to $22.12, and Delta climbed $2.27 to $29.36.
* Among retailers, another sector rebounding from a post-attack sell-off, Target climbed $2.36 to $34.40 and Limited rose $1.02 to $10.78.
* Earnings warnings took a toll on several stocks. Eli Lilly fell $3.62 to $79.25 after saying Prozac sales slowed more than expected after the drug’s patent expired.
Insurer Conseco slid $1.39 to $5.95 after saying it will report a second straight quarterly loss.
Openwave Systems plunged $4.42 to $6.64 after the maker of Web software for cell phones said quarterly sales were disappointing.
