Anticlimactic Session Ends Upbeat Year
Wall Street’s raucous 2003 ended on a quiet note Wednesday as investors caught their breath after a year that saw the stock market rebound with unexpected strength.
Amid light, pre-holiday trading, blue-chip indexes closed slightly higher for the day and the technology-heavy Nasdaq composite index finished modestly lower, but still above the 2,000 level.
The tranquil ending belied the fireworks of the previous 12 months.
“It was a great year -- more than anybody had expected, even the most bullish of the bullish,” said Dan Sullivan, editor of The Chartist investing newsletter in Seal Beach.
Wall Street broke its three-year losing skid in 2003 with gains of 25.3% for the Dow Jones industrial average, 26.4% for the Standard & Poor’s 500 index and 50% for the Nasdaq.
The rally was less spectacular than the tech-driven surge of 1999, when the Nasdaq zoomed 85.6%. But it was far wider, with the vast majority of stocks notching gains, including 25 of the 30 members of the Dow and 96 of the 100 companies in the Nasdaq 100.
The market suffered no serious setbacks once it began gaining momentum in mid-March after a sell off in the weeks leading up to the war in Iraq. “You really have to go back to 1991 to see this kind of across-the-board strength,” Sullivan said.
Big winners in 2003 included tech names like BlackBerry e-mail device maker Research In Motion, up 409.4%; DVD subscriber service Netflix, up 396.7%; telecom equipment maker Corning, up 215.1%; online retailer Amazon.com, up 178.6%; and chip maker Intel, up 105.8%.
Stocks of cyclical companies, whose fortunes tend to rise and fall with the economy’s swings, also fared well: Construction equipment maker Caterpillar jumped 81.6%, aluminum maker Alcoa rose 66.8% and auto giant Ford Motor soared 72%.
The housing boom powered homebuilders Lennar, up 104.5% and KB Home, up 69.2%, as well as mortgage providers such as Countrywide Financial, which gained 95.8%.
Mining company shares jumped, benefiting from an 18% advance in gold prices that helped a key index of precious metals stocks gain 42%.
On average, the rally lifted small-company stocks more than large-company shares. The S&P; 600 smallcap index rose 38%.
Not only did the market rise sharply, but it also continued to hold on to its gains: For an unusually long span of more than 200 days, the blue-chip S&P; 500 hasn’t sustained as much as a 5% decline from its most recent peak.
Two key reasons for the rally and investors’ seeming reluctance to sell: a big pickup in the economy’s growth pace and an accompanying rebound in corporate earnings.
At the start of the year, economists were predicting roughly 2% growth in gross domestic product for 2003, but the final tally will be closer to 4%, said Phil Dow, strategist at Minneapolis brokerage RBC Dain Rauscher.
Also, analysts initially were looking for overall profit growth of 10% or less for the S&P; 500 from 2002; the latest estimate is 13%.
“The economy responded strongly to the Herculean amount of fiscal and monetary stimulus,” said Russ Koesterich, U.S. equity strategist at State Street Global Markets in Boston, pointing to the Federal Reserve’s campaign of interest rate cuts and the tax reductions pushed by President Bush.
Investors were leery of stocks earlier in the year as the U.S. marched toward war with Iraq and fears of terrorism and SARS took center stage, Koesterich said. Although global tensions remain high, “some of the nightmare scenarios have not come to pass,” he said, which has led to an increased appetite for risk.
More recently, investors have shrugged off scandals that enveloped the New York Stock Exchange and the mutual fund industry.
Adding to the gains on Wall Street, bearish investors were caught flat-footed in 2003, spurring “short covering.”
Short sellers borrow shares and sell them, hoping to buy them back later at a cheaper price and pocket the difference. But in a short-covering rally, the market’s upswing is accelerated when those traders scramble to buy shares before they rise even further and deepen their losses.
Early in the year, short sellers had bet heavily against the Nasdaq and dot-com stocks -- the names that were pummeled hardest during the 2000-02 bear market. That’s one reason stocks such as Amazon.com and Yahoo fared so well in 2003, Dow said.
Most foreign markets posted gains for the year. In Europe, bourses rose 37% in Germany, 16% in France and 14% in Britain. Elsewhere, Brazil’s Bovespa index jumped 97% and Japan’s Nikkei 225 index climbed 25%.
The gains were even richer for U.S. investors who bought stocks in countries whose currencies -- such as the euro and the Japanese yen -- surged against the dollar last year.
The weaker dollar also boosted shares of U.S. exporters such as tech companies, as their goods were more competitive and their foreign profits were fattened when translated into greenbacks.
On Wall Street, Wednesday’s trading was almost an afterthought, analysts said, as many traders left early for the holiday. U.S. and most foreign markets will be closed today for New Year’s Day.
The Dow added 28.88 points, or 0.3%, to 10,453.92; the S&P; 500 rose 2.28 points, or 0.2%, to 1,111.92; and the Nasdaq fell 6.51 points, or 0.3%, to 2,003.37.
Decliners edged advancers on the Nasdaq, while breadth was about even on the New York Stock Exchange.
Investors appeared to be unimpressed by recently released figures confirming an improving employment picture. Even with the latest numbers, hiring has remained “anemic by historic standards,” Koesterich said.
In other highlights:
* Drug distributor AmeriSourceBergen sank $7.35 to $56.15 after announcing the end of its Veterans Administration contract. Rival McKesson climbed $1.06 to $32.16 after landing a VA contract.
* The euro hit a new high against the dollar, climbing to $1.257 from $1.255. It started the year at $1.05.
* Treasury bond yields were mostly flat. The 10-year T-note ended at 4.25%. It was at 3.82% at the start of the year.
* Cattle futures fell by less than the market limit for the first time in five sessions after nine of 82 cattle sought in an investigation of “mad cow” disease in the U.S. were located. Cattle for February delivery fell 2.65 cents to 73.525 cents a pound on the Chicago Mercantile Exchange. The daily limit for price moves was raised this week to 5 cents from the normal 1.5 cents.
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Global gains
While stocks rose worldwide last year, the gains were sweeter for U.S. investors who dabbled in markets priced in currencies that rose against the dollar.
*--* Percentage gain in 2003: in in local Country/Index dollars currency Brazil/Bovespa 142% 97% Germany/DAX 65% 37% Spain/IBEX 54% 28% Canada/TSX 51% 24% Australia/ASX-200 47% 10% France/CAC-40 40% 16% Japan/Nikkei 225 38% 25% Hong Kong/Hang Seng 36% 35% Switzerland/SMI 33% 19% Britain/FT-100 26% 14%
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Source: Bloomberg News
