Tech Rallies Amid Optimistic Signs
Technology stocks scored their biggest daily gain in almost four months in heavy trading Tuesday as Federal Reserve policymakers voted to keep interest rates steady at 45-year lows and a global trade group forecast strong growth in computer chip sales in 2004.
The Fed’s rate-setting committee said after its one-day meeting that low inflation remained its chief concern, suggesting it would keep rates down for the foreseeable future in an attempt to accelerate the economy’s recovery, which should in turn help corporations boost profits.
“It’s bullish for the stock market, which takes support in easy monetary policy,” said Rick Meckler, president of LibertyView Capital Management, commenting on the Fed’s vote. “Investors will think that the Fed wants to make sure that this recovery sticks and will take a bullish view of the markets.”
The Fed’s widely anticipated decision added momentum to a market already boosted by a recent spate of mega-mergers and news that the World Semiconductor Trade Statistics group raised its 2003 forecast for worldwide chip sales and saw even stronger growth in 2004.
Late Monday, R.J. Reynolds Tobacco Holdings said it would buy British American Tobacco’s U.S. cigarette business for more than $3 billion, adding to the rush of big deals kicked off early in the day with Bank of America’s agreement to buy FleetBoston Financial for $43 billion.
The sudden rush of deals has convinced many investors that corporate America has more confidence in the health of the economy and the stock market.
In addition, the Conference Board reported that consumer confidence rose in October. And a separate report from the Commerce Department showed that U.S. durable-goods orders rose in September for a fourth month in five, suggesting that a rebound in manufacturing is helping broaden the economic recovery.
The Dow Jones industrial average closed up 140.15 points, or 1.5%, at 9,748.31, its biggest daily percentage gain in four weeks. The broader Standard & Poor’s 500 index closed up 15.66 points, or 1.5%, at 1,046.79. The tech-heavy Nasdaq composite index closed up 49.35 points, or 2.6%, at 1,932.26, its biggest gain since July 7.
Winners beat losers by more than 2 to 1 on the New York Stock Exchange and by more than 5 to 2 on Nasdaq. Trading was heavy.
The Fed said there was evidence that spending was firming and the job market stabilizing, good news for retailers dependent on a strong consumer.
The waning prospect of a central bank rate hike anytime soon also boosted the bond market, which had wavered on the upbeat consumer confidence report. The yield on the benchmark 10-year Treasury note, which moves in the opposite direction of the security’s price, fell to 4.18% from Monday’s close of 4.26%.
Earnings, meanwhile, are accelerating, helping to boost stocks. Profits for the 347 members of the S&P; 500 that have reported quarterly results rose 20%, on average, according to Thomson Financial. That’s the fastest pace since the second quarter of 2000. Of those companies, 65% exceeded the average estimate.
In other highlights:
* Computer-chip makers and associated companies rose strongly with the upbeat global sales forecast. Shares of Applied Materials rose $1.83 to $22.55, Altera shares closed up $1.43 at $19.87 and Microchip Technology shares surged $3.52 to $31.72. The SOX index of semiconductor stocks leaped 6.3%.
* King Pharmaceuticals fell $3.16 to $12.85, for the steepest drop in the S&P; 500. The maker of Altace hypertension pills lowered its 2003 sales estimate to $1.53 billion to $1.56 billion from a July estimate of as much as $1.63 billion.
* JDS Uniphase took a hit after the maker of fiber optic components said Monday that it intended to sell $400 million in senior convertible notes. Its shares, the most active on Nasdaq, fell 11 cents to $3.47.
* Among other heavily traded stocks, R.J. Reynolds shares closed up $5.72, or 13.2%, at $48.97 after hitting a 52-week high at $49.
* Home Depot, the nation’s largest home-improvement chain, led the Dow in gains after broker Goldman Sachs raised its third-quarter profit estimate, citing continued strength in the housing market. Its shares jumped $1.50 to $37.50 -- a 52-week high.
Bloomberg News was used in compiling this report.
