Market rally raises hopes

Dow Jones closes above 10,000 for first time in weeks

`Very likely we hit bottom'

April 11, 2001|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

For the first time since mid-March, the Dow Jones industrial average closed above 10,000 yesterday, leading some market watchers to be cautiously optimistic that the stock market may have finally hit bottom.

But others warn that stocks may still be vulnerable to a downslide depending on first-quarter earnings reports that are beginning to be released.

The Dow, an index of 30 blue chip stocks, rose 257.59 points, or 2.62 percent, to 10,102.74, closing above the psychologically important 10,000 mark for the first time since March 15.

"You can't ever pick a low with any precision, but we are pretty optimistic," said David Straus, senior portfolio manager with Washington--based Johnston Lemon Asset Management Inc. Straus blamed some of the recent market declines on investors raising money to pay taxes.

Yesterday's broad-based rally carried over to the other two major indexes. The technology-heavy Nasdaq composite index rose 106.32 points, or 6.09 percent, to 1,852.03. The Nasdaq was helped by healthy gains in computer chip, telecommunications and Internet-related stocks.

Standard & Poor's 500 index, a broader measure of market performance, gained 30.79 points, or 2.71 percent, and closed at 1,168.38.

Less than three weeks ago, the Dow was on the verge of joining the two other major market indexes in bear market territory, which is generally defined as a decline of at least 20 percent. From its closing high of 11,722 on Jan. 14, 2000, the Dow fell to a closing low of 9,389 on March 22 - a fall of 19.9 percent.

In recent days, the market has rallied, only to fall back.

Despite the fits and starts, some market experts have become more optimistic.

"It is very likely that we hit bottom," said Joseph Cirelli, a financial consultant with Salomon Smith Barney in Baltimore. Even if stock prices slide again, it's not likely the market will fall much lower than recent levels, he said.

Salomon Smith Barney has become more bullish, upping the equity stake in its model asset allocation portfolio last week by 5 percentage points to 70 percent, Cirelli added.

But Bob Streed, portfolio manager of Northern Select Equity Fund, doesn't see it that way.

"The bear market is still in force," he said. "This rally is a good and an important sign that maybe we're starting to bottom, but there's no evidence we've bottomed yet."

A number of factors contributed to yesterday's rally.

Investors who had been on the sidelines recently as others dumped stocks jumped back in for fear of missing a potential big rally, some analysts said.

"Most of these stocks have discounted the depth of the slowdown that we expect," said John Barlett, portfolio manager at Commerce Bank in St. Louis. "Earnings revisions may well stop going down pretty soon, and it may be that investors are getting some sense of that."

There's also growing optimism that the Federal Reserve will cut interest rates before its mid-May meeting, said Alan Ackerman, a market strategist with Fahnestock & Co., a New York brokerage.

Yesterday's rally built on Monday's 54-point gain in the Dow, Ackerman said. "Volume has broadened out, the rally has more spunk to it, and short sellers [investors who bet that stock prices will fall] are starting to perspire somewhat," he said.

Still, some market experts aren't convinced.

All through March, investors were confronted with bad economic and earnings reports, but there hasn't been much news divulged so far this month, said Tom Pence, portfolio manager of Strong Enterprise Fund in Indianapolis.

"We are clearly in an oversold position, and now in the absence of any bad news on the earnings front, the market seems to be biased to the upside," he said.

"This quarter is a very key quarter," he said.

Rick Jandrain, chief investment officer for Banc One Investment Advisors in Columbus, Ohio, said the market's fits and starts show "there's not a lot of conviction. Before we stop going down, we have to go sideways for a while. I'd be happy just showing some stabilization."

Some are more bearish.

"In the short term, it looks like we found a bottom," said Michael Metz, a portfolio manager with CIBC World Markets in New York.

But Metz predicts an economic slowdown that will last into 2002, putting a crimp in consumer and capital spending. That's not the best environment for strong earnings or stock gains, he said.

But whether the market is poised for a rebound now or later, when it happens there will be plenty of investors to participate.

"There is a huge amount of cash on the sidelines," Cirelli said. "There is a lot of fuel to fund the upside of this market if the psychology truly changes."

Wire services contributed to this article.

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