Market stages a Fifth of July fireworks show

Dow surges 324 points in abbreviated session

Nasdaq jumps 68

`A little bit of a relief rally'

Squeezed short sellers may have had to buy fast

July 06, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

The stock market, which has been battered for weeks by accounting scandals, a slow-growing economy and the threat of more terrorist attacks, surged yesterday as the Dow Jones industrial average soared more than 300 points for the first time in nine months.

Despite a shorter than normal trading day, stocks shot up across-the-board as investors bought beaten-down shares after breathing a sigh of relief that there were no terrorist attacks on the Independence Day holiday, experts said.

"It was a little bit of a relief rally," said Stuart Freeman, chief equity strategist at A.G. Edwards & Sons Inc. in St. Louis. "We got to [July 5] and some investors looked around and saw some opportunities to buy some cheap stocks and they went at it."

The Dow, the bellwether index of 30 blue-chip stocks, jumped 324.53 points, or 3.58 percent, to 9,379.50. The last time that the Dow had risen more than 300 points was Sept. 24, 2001, when the index shot up 368.05 points. It also marked the first time in six weeks that the Dow gained more points in a week than it lost.

Other indexes showed impressive gains as well yesterday. The Standard & Poor's 500 index, a broad gauge of the stock performance of big companies, gained 35.04 points, or 3.67 percent, to 989.03. The Nasdaq composite index, which tracks many large technology companies, jumped 68.19 points, or 4.94 percent, to 1,448.36.

For the 3 1/2 -day trading week, the Dow was up 136.24, or 1.5 percent. The Nasdaq was down 14.85, or 1 percent, and the S&P was just marginally below last week's 989.82 close.

Trading was light on the New York Stock Exchange, with 708.7 million shares changing hands, compared with 1.54 billion Wednesday.

The tone was decidedly positive from the 9:30 a.m. opening bell as stocks climbed until the 1 p.m. closing.

Badly beaten technology, health care and manufacturing stocks soared in a day that lacked news to produce such a sharp spike. Even the Labor Department's report that the country's unemployment rate inched up last month to 5.9 percent from 5.8 percent in May didn't bother investors.

But no news was good news, especially when there were concerns about a terrorist attack on the Independence Day holiday.

"We didn't have Armageddon on the Fourth, that was part of it," said Richard Cripps, chief market strategist at Legg Mason Inc., a Baltimore asset management and brokerage company.

Freeman said nervous investors sold heavily in the days leading up to the holiday, anticipating the worst.

"There was selling ahead of the holiday, and stocks got cheaper," Freeman said. "Those who came in were looking for some values."

Other experts said short sellers - investors who bet that certain stocks will fall in price - were forced to cover their positions as the market rose by buying shares of the companies they shorted.

"Those shorts that were still hanging out there found themselves somewhat more squeezed than expected," said Alan Ackerman, a market strategist with Fahnestock & Co. in New York.

Until yesterday, investors haven't had much to cheer about. The market has been battered through much of the year by fears of terrorism, accounting scandals and weak corporate profits. The Dow is down 6.41 percent for the year; the S&P, 13.85 percent; and the Nasdaq, 25.74 percent.

Cripps, however, sees positive signs that could push the market higher this year. The economy, he said, is growing, corporate earnings are expected to improve, interest rates are low, and companies are buying back their own stock - a sign that managers are confident that prices are low and prospects are improving.

"All of those factors are accumulating," he said. "We are getting into corporate earnings. We have probably seen the bad stuff, so the good is ... on the table."

But Cripps and other experts don't expect yesterday's run-up to spark a sustained rally. "There is no real feeling that this rally has a great deal of durability," Ackerman said.

Freeman called yesterday's gain "not meaningful."

"Could it carry into Monday? Yeah," he said. "I wouldn't be willing to say that the volatility is behind us."

Investors, who have suffered through 2 1/2 years of difficult markets, have to be patient, experts said.

Many experts believe that the market can still show positive returns for the year, but much less than the ones produced in the late 1990s and 2000.

"People have got to get over some of the expectations created by the '98-'99 market when things went up so rapidly, so consistently," said Clyde Randall, a portfolio manager at Allied Investment Advisors in Baltimore. "Just getting the market closer to even by the end of the year would help a lot with the tone and keep people interested in owning stocks."

Elsewhere on the broad market yesterday, the Russell 2000 index, a benchmark of small-cap stocks, rose 11.45, or 2.67 percent, to 440.92. It was down 21.73, or 4.7 percent, for the week.

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