Stock Rally, Hopes for Recovery Fizzle
What a way to start September. A late sell-off Tuesday erased big early gains on Wall Street, giving bulls a back-to-school lesson in the market’s fickle ways.
The Dow Jones industrial average finished with only a modest gain after rocketing 230 points early in the day on a better-than-expected manufacturing report from the National Assn. of Purchasing Management.
The Nasdaq composite index also faded late in the day. It closed under 1,800, dragged down by more bad news from technology and telecom companies and a negative reaction to the proposed merger of Hewlett-Packard and Compaq Computer.
The Dow ended with a gain of 47.74 points, or 0.5%, to 9,997.49--unable to keep its foothold above the psychologically important 10,000 mark. Nasdaq slid 34.65 points, or almost 2%, to 1,770.78 as many tech shares fell to new multiyear lows. It was Nasdaq’s fifth losing session of the last six days and left the index down 28% year-to-date.
The Standard & Poor’s 500 index also gave up big early gains. It closed almost unchanged, down 0.64 point to 1,132.94.
The failure to hold on to the early gains dealt a blow to hopes for a quick recovery from the market’s dismal performance in August--a month that saw the Nasdaq tumble almost 11% and the S&P; 500 drop more than 6%.
The purchasing managers report showed manufacturing activity contracted in August for the 13th consecutive month, but at a much slower rate than economists were expecting. That briefly raised hopes that a turnaround is near.
“Initially, people were very pleased by the NAPM report. But then they took another look and said, ‘Wait a minute, the economy is still contracting,’ ” said Art Bonnel, manager of the Bonnel Growth fund. “Investors are waiting anxiously to see how good or bad earnings are in the third and fourth quarters.”
Meanwhile, Tuesday’s good news from the manufacturing sector was offset by the jump in bond yields it sparked. The yield on the benchmark 10-year Treasury note soared to 4.96% from Friday’s close of 4.83%, as the NAPM report suggested that the economy might recover without more Federal Reserve interest-rate cuts.
The U.S. dollar also rallied in response to the manufacturing report, zooming to 119.52 Japanese yen from 118.80. The euro dropped to 88.6 cents from 91.2.
In stock trading, winners edged losers 8 to 7 on the NYSE, but losers had an 11-to-7 edge over winners on Nasdaq. Volume remained moderate on both markets, even as more investors returned from summer vacation.
News of the planned $21-billion merger between HP and Compaq failed to spark enthusiasm for the tech sector. HP dived $4.34 to $18.87 and Compaq sank $1.27 to $11.08.
“This is not two really strong players getting together. It’s more like two companies simply hoping to get a little stronger,” said Bob Armknecht, manager of Galaxy Equity Growth fund.
Still, said John Forelli, portfolio manager at Independence Investment in Boston, “I’m a little surprised that tech stocks haven’t hung in there [Tuesday], given the combination of this merger news and the economic report. The NAPM report was the first high-profile piece of economic news in some time to surprise people on the upside.”
But continuing trouble in the tech and telecom industries put a damper on the market, Forelli and other money managers said.
Swedish cell-phone giant Ericsson said it expects no pickup in its core business through next year, sending its shares tumbling 97 cents to $4.01, a multiyear low, and rocking the stocks of rivals as well. Finnish phone maker Nokia lost 74 cents to $15.
Armknecht said an earnings warning from electronics manufacturer Sanmina added to anxiety in the tech area. Sanmina, which cited the continuing slowdown in capital spending, saw its shares skid $2.03 to $15.98, lowest since early 1999.
Other electronics firms also fell, including Jabil Circuit, off $2.11 to $21; Flextronics International, down $1.77 to $20.17; and Solectron, which sagged 92 cents to $12.68.
Among the day’s other highlights:
* Some PC makers gained ground despite the prospect of HP/Compaq becoming a tougher rival. IBM rallied $1.54 to $101.49 and Dell Computer gained 93 cents to $22.31.
But elsewhere in tech, printer maker Lexmark International--which has a major supplier deal with Compaq--tumbled $4.92 to $47.25.
Among other tech giants, Ciena slumped $2.07 to $15.05, Corning plunged 88 cents to $11.13, Cisco Systems lost 56 cents to $15.77 and Sun Microsystems dropped 50 cents to $10.95.
* Manufacturing-related stocks helped keep the Dow in the black, including International Paper, which rose 96 cents to $41.10; 3M, up 45 cents to $104.55; and aluminum producer Alcoa, which gained 42 cents to $38.54.
Some retail issues also rebounded, including Home Depot, up 87 cents to $46.82.
* In foreign trading, Japan’s Nikkei stock average soared 3.5%, although it was down sharply in early trading today.
In European trading, Germany’s DAX climbed 2.2% and Britain’s FTSE-100 gained 1.3%.
Market Roundup, C7, C8
