Stocks Jump Despite Bleak Economic News

Stocks rebounded sharply Thursday after a morning plunge, as investors again shrugged off dreary economic news and extended the market’s five-week rebound.

The Nasdaq composite index surged 43.93 points, or 2.5%, to 1,775.47, its highest since Aug. 31.

The Dow Jones industrial average gained 117.28 points, or 1.3%, to 9,462.90, its highest since Sept. 10.

Meanwhile, Treasury bond yields tumbled on the economic data, with shorter-term yields reaching record lows.

The stock market has stunned many analysts with its resilience this week. The technology-heavy Nasdaq composite has had five winning sessions in the last six and has gained nearly 25% since reaching a multiyear low Sept.21, after the terrorist attacks.

The Nasdaq 100 index, which includes Nasdaq’s largest stocks, has jumped 31% since then.

Despite more anthrax casualties and downbeat news on U.S. forces’ success in Afghanistan, as well as many dismal third-quarter corporate earnings reports, the market has continued to climb, with sell-offs quickly being met by a rush of buyers.

That was the pattern Thursday: Stocks initially headed south, with the Dow down 168 points at its low and Nasdaq off 48 points after economic reports showed surprisingly steep drops in durable-goods orders and home sales last month. Meanwhile, jobless benefits claims surged to a 10-year high last week, the Labor Department said.

“The market sold off in the morning after the durable-goods report came out, but I keep surfing around the news to see what turned things around, and I’m at a total loss,” said Bill Whitlow, manager of Safeco Northwest stock fund. “I’m scratching my head.”

Veteran analysts say the market may be “climbing the wall of worry”--a Wall Street expression used to describe bullish moves as investors look past seemingly overwhelming bad news to what they believe will be better times ahead.

“Tech stocks in particular came down so far from their highs that there may be reasonably good value if you assume there’s a recovery on the horizon,” Whitlow said. “The problem is we don’t see any improvement in business fundamentals.”

Will Muggia, manager of Touchstone Emerging Growth mutual fund, said “short covering” also has helped fuel Nasdaq’s recent rally. In short sales, investors bet against a stock or index, but they may have to scramble to close out those bets by buying shares if the targeted stock or index heads upward.

“I think we’re seeing a combination of short covering--especially among the large tech stocks--and investors sniffing around for an economic rebound in 2002,” Muggia said.

Investors may be showing faith that the government’s massive economic stimulus plan will spark a rebound next year, analysts said.

The Bush administration is striving to get a stimulus package through Congress, and the Federal Reserve has cut interest rates nine times this year in an effort to revive the economy. On Wednesday, the House narrowly passed a Republican-backed plan that would infuse $100 billion into the economy in the next year.

Blue-chip tech stocks helped lead Thursday’s rally. Microsoft gained $1.24 to $62.56 after putting its new computer operating system, Windows XP, on the market.

Electronic Data Systems rallied $2.99 to $64.99 after beating profit estimates, IBM rose $2.09 to $110.66, and Applied Materials gained $2.09 to $37.43.

Biotech stocks also rallied, including Chiron, up $5.30 to $52.30 after beating earnings estimates and raising guidance, and Affymetrix, up $6.03 to $27.56.

In the bond market, Treasury yields fell across the board on expectations of a weaker economy. The two-year T-note yield hit a historical low Thursday, closing at 2.65%, down from 2.69% Wednesday.

The yield on the benchmark 10-year note fell to 4.54% from 4.60%.

Yet the stock market seems to be ignoring bonds’ bearish message.

Falling money-market yields may be helping stocks, as investors see little return from keeping capital in cash. Money-market mutual-fund yields hit another record low this week, according to iMoneyNet’s Money Fund Report. The average simple seven-day yield on taxable money funds fell to an annualized 2.29% from 2.35% a week ago, the firm said.

Among Thursday’s highlights:

* In the tech sector, EMC gained 74 cents to $13.22, Xilinx advanced $4.15 to $33.30 and Sanmina climbed $2.21 to $17.05.

But the rally left behind some high-profile tech stocks hit by brokerage downgrades, including Oracle, which lost 71 cents to $13.95, and Juniper Networks, which eased 63 cents to $26.38.

* Financial stocks were strong. Citigroup gained $1.16 to $48.10 and Merrill Lynch rose $1.90 to $46.95.

* Southern California stocks on the move included Jacobs Engineering, up $1.45 to $66.85; WellPoint Health, up $6.75 to $109.50; and First Consulting Group, up $2.40 to $11.40 after raising fourth-quarter earnings guidance.

Market Roundup, C7-8

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Wall St. Revival

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