U.S. Stocks Rally on Cisco Profit Report
A strong profit report from Cisco Systems sparked a furious stock market rally Wednesday, as investors starved for good news sent the Dow industrials up more than 300 points and the Nasdaq composite index up 7.8%, the tech-laden index’s best gain in more than a year.
But Wall Street pros and individual investors said the bounce could be short-lived--like so many others during the bear market of the last two years.
“The stock market was way oversold and looking for any excuse to bounce, but we’ve seen these kinds of days many times all the way down,” said Bob Dickey, managing director at brokerage RBC Dain Rauscher. “I’m not surprised by this rally, but I don’t necessarily believe it either.”
The Nasdaq rocketed 122.47 points to 1,696.29, its biggest one-day gain since April 2001. Cisco--which released earnings after the market closed Tuesday--zoomed $3.19 to $16.27, and among other major tech names, Microsoft soared $5.50 to $54.97, Dell Computer rose $3.32 to $25.65, Intel gained $2.83 to $28.98 and Qualcomm climbed $4.63 to $29.43.
The Dow Jones industrial average jumped 305.28 points, or 3.1%, to 10,141.83, pushing the widely followed barometer back over the 10,000 mark and into positive territory for the year with a 1.2% year-to-date gain. The broader Standard & Poor’s 500 index soared 39.36 points, or 3.8% to 1,088.85. It was the biggest one-day gain for both indexes since Sept. 24, helped by computer giant IBM, which rose $6.10 to $82.45 after hitting a 31/2-year low Monday.
Winners topped losers by 2 to 1 on Nasdaq and 12 to 5 on the New York Stock Exchange in heavy trading.
The Nasdaq rally snapped a five-day losing streak and provided a needed bounce for the index, which has slumped seven of the last eight weeks. Even with Wednesday’s surge, the index is down 13% this year and 66% since its March 2000 peak, as tech and telecom stocks have suffered the brunt of the bear market damage.
With the mood on Wall Street so glum lately, investors were relieved by the combination of Cisco’s profit report, growing prospects for a settlement in the New York attorney general’s probe of brokerage giant Merrill Lynch over conflict-of-interest allegations and a robust productivity report earlier this week.
“People needed a reason to celebrate and we’ve just gotten several,” said Mark Keller, investment strategist at A.G. Edwards.
But the market’s ability to sustain the rally will depend on corporate earnings, strategists said.
“Cisco was a positive surprise, but so far an isolated one,” Dickey said. “We need to see other companies beat their profit estimates and see analysts raise their forecasts for later in the year.”
Indeed, analysts said Cisco’s surprisingly strong earnings may prove to be little more than a blip.
“The general economy is doing well, and so are the majority of stocks, but I don’t see much end demand for tech and telecom,” Keller said, noting that Cisco’s latest quarterly sales were up only slightly from a year ago.
Individual investors also expressed wariness, especially toward the big, battered tech stocks weighing down the indexes.
“Two parts of the three-legged stool are working right now. Inflation and interest rates are low, but corporate earnings are unclear,” said Jim Peoples, a health-care consultant in Agoura Hills. “You have to step back and ask whether Cisco did well because of cost-cutting and inventory re-stocking, or a sustainable trend based on demand.”
Analysts said so-called short covering also powered the rally, a trend that might not continue. In a short sale, an investor bets on a decline in price using borrowed shares; in a “short covering rally,” traders rush to close out their bets by buying back the shares to lock in gains or stem losses.
With first-quarter earnings season over, the market could bounce along in a “trading range” over the next few months of roughly 1,550 to 1,700 on the Nasdaq and 9,700 to 10,200 on the Dow, Dickey said--typical of the market’s “summer doldrums.”
Crude oil prices and oil stocks also rallied after the latest suicide bombing in Israel renewed fears that escalating Middle East violence might disrupt supplies. Crude rose $1.22 to $27.85 a barrel in New York trading. A key index of oilfield services stocks gained 4%, led by Schlumberger, up $2.32 to $56.35.
Treasury bond yields jumped as the rally in stocks drew cash away from fixed-income investments. Traders also expressed concern that the Federal Reserve might hike interest rates, still at 40-year lows, as early as August to keep inflation at bay.
The yield on the benchmark 10-year note rose to 5.22% from 5.06% Tuesday, its biggest one-day rise in two months.
Among other market highlights:
* Several Southern California tech stocks posted big gains, including Qlogic, up $10.24 to $48.50; Vitesse Semiconductor, up $1.33 to $6.10; and Broadcom, up $3.65 to $28.37.
* Expedia and Hotels.com sank after two large hotel chains said they will offer lower rates than those available through Internet booking sites. Expedia lost $5.06 to $76.59 and Hotels.com slipped $5.52 to $55.30.
* Overseas, Japan’s Nikkei index gained 1.8%, while in Europe, Germany’s DAX rose 3.2%, Britain’s FTSE 100 climbed 1.7%, and France’s CAC-40 gained 2.5%.
Market Roundup, C6-7
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