Stocks Surge for 4th Day on Earnings
Stocks on Tuesday staged their biggest rally since the summer, lifting the Dow industrials 378 points as investors cheered generally upbeat third-quarter earnings reports from a variety of companies.
But despite four straight winning sessions for stocks, analysts remained reluctant to declare an end to the 31-month-old bear market. The economy still looks shaky, and geopolitical tensions are on the rise, they said, and after the close of trading, tech giant Intel rattled nerves with a profit shortfall.
“Four days of rally does not a new bull market make,” said Kevin Marder, strategist at Ladenburg Thalmann Asset Management in Los Angeles.
Added Jon Burnham, manager of the Burnham Fund: “I’m impressed, but I’m not convinced. I don’t see how anything has changed since last week. The economy still seems to have a lot of problems, and if anything, the world situation is worse.”
Still, the rally that began Thursday continued for at least another day, with the Dow Jones industrial average surging 378.28 points, or 4.8%, to 8,255.68 -- its biggest one-day gain since July 29. The broader Standard & Poor’s 500 index climbed 39.83 points, or 4.7%, to 881.27. The technology-loaded Nasdaq composite index notched its biggest gain since Aug. 14, jumping 61.91 points, or 5.1%, to 1,282.44.
Winners outnumbered losers by about 3 to 1 on Nasdaq and the New York Stock Exchange. Volume was active.
Treasury yields soared, meanwhile, as investors shifted money out of government bonds and into stocks.
The Dow and S&P; 500 index reached five-year lows Oct. 9, while Nasdaq sank to a six-year low. Since then, the S&P; 500, considered by many the best barometer for blue-chip stocks, has risen 13.5% in four sessions. But it’s still off 23.2% year to date as the market flirts with a third straight losing year -- which hasn’t happened since 1939-40, the early years of World War II.
Solid earnings reports from financial companies and other big names sparked the day’s gains, amounting to what Burnham called “a sigh of relief” from investors who were braced for more bad news. Citigroup, Bank of America and Wells Fargo all matched or topped profit expectations, helping lift an index of 24 major bank stocks more than 7%.
Solid earnings reports also boosted blue chips such as General Motors, up $3.44 to $36.70; Maytag, up $3.45 to $24.02; and Johnson & Johnson, up $1.73 to $59.56.
“Third-quarter earnings have shown some daylight,” said Dennis Ferro, chief investment officer at Evergreen Investments in Charlotte, N.C. “But for this recovery to be meaningful, we need validation on the economic front that business orders are picking up and pricing is firming up.”
Ferro said he expects the flood of earnings reports this week and next to “help tell the tale,” along with economic data due this week, including housing construction and industrial production figures expected Thursday and inflation and trade numbers expected Friday.
Since the third quarter began, overall profit growth estimates for companies in the S&P; 500 have tumbled by two-thirds, from about 17% to 5.5%, said Alan Skrainka, strategist at brokerage Edward Jones in St. Louis.
“When you set the bar of expectations so low, it’s easy to step over it,” Skrainka said.
After the close of regular trading, leading chip maker Intel provided the freshest reminder of the economy’s fragility, missing analysts’ consensus estimate and warning of soft demand from its customers. Its shares, which rose $1.42 to $16.52 in Nasdaq trading, tumbled 13% in after-hours trading, leading analysts to speculate that tech stocks could face selling pressure today as traders take profits.
Regardless, Tuesday’s market rally prompted investors to move assets out of perceived havens such as Treasury bonds and gold stocks, the most defensive stock sector. The Amex index of gold mining stocks fell 2.9% as gold prices fell $5.20 to $312.60 an ounce in New York trading.
“Most encouraging was the message about the economy delivered by the market -- that the chances for a ‘double dip’ recession have waned,” Ladenburg Thalmann’s Marder said. “Cyclical” stock groups such as retail, finance, transportation and home builders rallied while defensive names lagged, he noted.
Many analysts say the steady sell-off from late August through Oct. 9 left stocks overdue for at least a bounce. How long the bounce lasts is anyone’s guess, but Skrainka said one encouraging note is that the market is heading into its strongest period historically -- November through January.
In other highlights:
* Mortgage giant Fannie Mae climbed $4.50 to $70.98 after topping earnings forecasts, and elsewhere in the financial sector, insurance stocks rallied after executives at several companies said they expect to be able to raise premiums next year and possibly in 2004, Bloomberg News reported. AIG jumped $5.70 to $64 and Ace rose $2.76 to $33.25.
* Overseas markets rallied. Key indexes rose 7% in Germany and France, 5% in Britain and 1% in Japan.
* In currency trading, the continuing strength on Wall Street gave the U.S. dollar a boost against the euro and the yen.
Market Roundup, C8-9
