Optimistic investors send Dow and Nasdaq soaring

Cisco earnings report called spark for day's rally

May 09, 2002|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

Seizing on an unexpectedly good earnings report from Cisco Systems Inc. as a reason to jump back into the stock market yesterday, optimistic investors sent the Dow Jones industrial average soaring more than 300 points and the Nasdaq to the eighth-biggest percentage gain in its history.

"It's sure nice to see it. We had a rough six weeks," said Andy Brooks, head of equity trading at T. Rowe Price Associates in Baltimore. "It's overdue."

Even so, analysts said they weren't sure yesterday's rally would be sustainable. The market, they said, has been on a seesaw - good one month, weak the next.

"We're in a recovery," Brooks said. "I don't know if this is the liftoff point."

Said Scott Horsburgh, chief investment officer for Michigan money manager Seger-Elvekrog: "It will take more."

Stock prices aren't so cheap now that the only way to go is up, he said.

"An improving economy is going to help," Horsburgh said. "If it does get better, corporate earnings should be better." And that should boost the market.

Yesterday's boost came from Cisco, a bellwether for technology stocks and one of the last major companies to release quarterly earnings. Many investors had been expecting bad news from the network equipment maker, but instead the company announced after the markets closed Tuesday that it earned 11 cents a share, excluding one-time items, or 2 cents more than analysts expected.

The Dow, an index of 30 blue-chip stocks, rose 305.28 points, or 3.1 percent, to 10,141.83.

Technology stocks led the rally. The Nasdaq composite index, heavy with tech stocks, soared 122.47 points, or 7.78 percent, and closed at 1,696.29.

The broader-based Standard & Poor's 500 Index gained 39.36 points, or 3.75 percent, to 1,088.85.

"With so much negative news, it caught [investors] by surprise. Here was a reason to buy rather than sell every day," Horsburgh said.

Cisco's stock yesterday jumped $3.19 a share, or 24.39 percent, and closed at $16.27.

Al Goldman, chief market strategist for A.G. Edwards in St. Louis, said the market had been so oversold in past weeks that it was ripe for a rally.

Investors have been worried about weak corporate profits, the conflict in the Middle East and the prospects of a double-dip recession, where the economy shrinks again.

The Nasdaq had finished down 13 out of the past 15 trading days. The S&P 500 lost ground in 10 of the past 12 trading days.

"That's the type of environment that you get a good up spike in the market," Goldman said. "And the Cisco news came, which was like manna from heaven. The tech group had not received any good news for a couple of years."

While Cisco might have been the match that lighted the rally's fuse, there were other contributing factors, analysts said.

"The rally is too broad-based to be only Cisco-related," said Tom Schrader, senior vice president of listed institutional equity trading for Legg Mason Wood Walker Inc. in Baltimore.

Financial services stocks gave a strong performance, buoyed by news that Merrill Lynch was nearing a settlement with the New York attorney general over allegations that its analysts had publicly endorsed stocks that they had privately bad-mouthed.

"Merrill Lynch is good news for Wall Street," Goldman said. "To get that terrible situation behind us and cleared out this quickly would be positive for the brokerage industry and Wall Street overall."

Al Kugel, senior investment strategist with Stein Roe Investment Counsel in Chicago, pointed to Tuesday's report on first-quarter productivity, which soared 8.6 percent and was the best performance in 19 years.

Gains in productivity mean companies can raise workers' wages without boosting prices, which allows the economy to grow faster without triggering inflation.

Brooks said investors also have the Federal Reserve to thank for the rally. Though the Fed left interest rates unchanged Tuesday as was expected, and made basically the same statement it did in March when it left rates alone, "they didn't surprise people, either," Brooks said.

While they aren't sure about what will happen in the short term, market analysts such as Goldman are optimistic about the second half of the year.

By year-end, he predicted, the Dow will be at 11,200 and the Nasdaq at 1,900.

"Those are etched in sand," he said, "not granite."

Wire services contributed to this article.

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