Rally Jump-Starts Fourth Quarter; Dow Climbs 4.6%
After suffering through the worst quarter in 15 years for U.S. stocks, Wall Street started the fourth quarter on a bright note Tuesday as the Dow industrials notched their best gain in more than two months.
Investors were encouraged by upbeat earnings outlooks from a variety of companies and by an accord between Iraq and the United Nations that tempered fears of war.
Also, after major indexes tumbled to multiyear lows in the third quarter--which ended Monday--investors were primed for a rally, analysts said.
“The market has gotten so oversold, if it senses any corporate confidence it will respond positively,” said Subodh Kumar, strategist at CIBC World Markets in New York.
The rally came despite reminders that the market’s underlying problems haven’t gone away. The day’s economic reports were lackluster, and the U.S. responded negatively to the U.N.-Iraq pact.
“I’m not sure the fundamental news that came out [Tuesday] really jibes with the reaction in the market,” said Thomas McManus, strategist at Banc of America Securities in New York.
In active trading, the Dow soared 346.86 points, or 4.6%, to 7,938.79 as all 30 of its members rose. It was the biggest gain for the Dow since July 29.
The broader Standard & Poor’s 500 index rallied 32.63 points, or 4%, to 847.91, while the technology-heavy Nasdaq composite index rose 41.66 points, or 3.6%, to 1,213.72. Two stocks rose for every one that fell on the New York Stock Exchange, while winners edged losers by 4 to 3 on Nasdaq.
The gains came one day after the Dow and S&P; 500 closed out their worst quarter since the crash of 1987. In the quarter, the Dow fell 17.9% and the S&P; 500 17.6%.
On the corporate earnings front Tuesday, a diverse group of companies that included Walt Disney, Verizon Communications, Dell Computer and Forest Labs provided comments that “were encouraging in one way or another” for 2003, Kumar said.
Phone giant Verizon gained $2.14 to $29.58 after saying it will meet its 2002 profit forecast. Drug maker Forest Labs soared $7.84 to $89.85 after saying earnings in the latest quarter will beat analysts’ consensus estimate. Disney climbed 56 cents to $15.70 after Chief Executive Michael Eisner said he expects “strong double-digit” profit growth next year.
Dell, meanwhile, said after regular trading ended that its third-quarter sales would beat forecasts.
The rally got underway in earnest after U.N. and Iraqi negotiators said Baghdad agreed to a resumption of weapons inspections, which gave some relief to investors fearing war between the U.S. and Iraq. However, the Bush administration termed the agreement inadequate and said inspections shouldn’t resume without a new, more forceful U.N. resolution.
“As I talk to individuals and professionals I get the sense that Iraq is weighing more heavily on the minds of investors than some people realize,” said Mark Keller, chief investment officer at A.G. Edwards Asset Management in St. Louis. “Certainly, the market seems to react to each development.”
Meanwhile, investors seemed to shrug off reports that construction and manufacturing spending remain weak and that auto sales slowed last month. A string of weak economic reports has spurred speculation that the Federal Reserve may cut interest rates again to buoy the fragile recovery.
But Treasury bond yields jumped Tuesday as some investors moved money from bonds to stocks.
In other highlights:
* Teen clothing retailer Aeropostale sank $8.90, or 58%, to $6.50 on a reduced profit forecast. Other clothing firms that cater to teens also fell. Abercrombie & Fitch lost $1.47 to $18.20, Pacific Sunwear of California fell $1.11 to $19.25, Quiksilver fell $1.49 to $21.10 and Wet Seal lost $1.02 to $8.98.
* Oil prices rose toward 19-month highs as the threat of a severe storm disruption to Gulf of Mexico oil and gas operations pushed crude up 38 cents a barrel to $30.83 in New York trading. Oil stocks rose in tandem: Exxon Mobil gained $2.02 to $33.92, ChevronTexaco jumped $2.86 to $72.11 and ConocoPhillips tacked on $1.87 to $48.11.
* IBM rose $2.86 to $61.17 after winning a 10-year, $1.12-billion contract to manage computers and telecommunications for Boots, Britain’s largest pharmacy chain.
Reuters and Bloomberg News were used in compiling this report.
Market Roundup, C6-7
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Big Bounces
Tuesday’s surge was one of the biggest this year by the Dow industrials. The Dow’s biggest one-day percentage gains in 2002
Date Point chg. % chg.
7/24 +488.95 +6.4%
7/29 +447.49 +5.4
10/1 +346.86 +4.6
7/5 +324.53 +3.6
5/8 +305.28 +3.1
8/14 +260.92 +3.1
8/8 +255.87 +3.0
Source: Bloomberg News
