Dow up by 447, raising hopes

With little bad news, new federal legislation, investors in better mood

Not out of woods, experts warn

July 30, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

Stocks surged yesterday, carrying the Dow Jones industrial average soaring more than 447 points amid hopes that the market's deep and painful slide might finally have hit bottom.

The Dow index of 30 large companies shot up 5.41 percent, or 447.49 points, to close at 8,711.88.

It was the second time in four trading days that the Dow rose more than 400 points in a single day. Last Wednesday, it jumped 488.95 points.

The index has risen more than 1,000 points, or 13.1 percent, since July 23, when it closed at 7,702.34.

But the gain does little to recoup the losses that millions of investors have had. Since March 2000, when the stock market reached its peak, more than $7 trillion in value has been erased.

"It is a great pop," said Kent G. Croft, president of Croft-Leominster Inc., an investment management firm based in Baltimore. "I think it will have a positive psychological impact."

Other indexes also rose on a day when there was little negative news to send investors scrambling for cover.

The Standard & Poor's 500 index, a broad gauge of the stock performance of big companies, rose 46.12 points, or 5.41 percent, to 898.96. The Nasdaq composite index, which is heavily weighted with large technology companies, was up 73.13 points, or 5.79 percent, to 1,335.25.

Trading was light yesterday, with slightly more than 1.8 billion shares changing hands on the New York Stock Exchange, where four out of every five stocks advanced. Of the 30 Dow stocks, only one, SBC Communications Inc., didn't increase in value.

The Dow jumped at the 9:30 a.m. opening bell and climbed steadily for much of the day. Trading was unlike that of pervious days, when nervous investors dumped stocks and the market fell in sudden, volatile bursts.

Traders and money managers seemed relieved with the market's calm.

"There is a comfortable feeling out there," said Michael Murphy, head of equity trading at Wachovia Securities Inc. in Baltimore. "You feel like people are out there buying some things. It is nice to start the week this way."

It was the first time since June 24 that the Dow rose on a Monday. On that day, it squeaked out a gain of 28.03 points.

Not even Qwest Communications International Inc.'s admission that it will have to restate financial results for 2000 and last year jarred the market. The communications company, which is based in Denver, is under investigation for accounting errors.

Money managers hoped that yesterday's rally signaled the market's bottom and that an upward trend might begin.

"Is the worst over? I would guess we have seen most of the carnage," said Brian Rogers, who oversees the $10 billion Equity Income Fund for T. Rowe Price Associates Inc. in Baltimore. "We are 2 1/2 years into a bear market.

"Prices are down a lot, the S&P is down a lot and the Nasdaq has been basically decimated. At some point, you would expect to see some kind of rally. People are just fatigued" with selling.

Experts said investors' mood is improving after the federal government's quick action approving legislation to levy stiff penalties against business executives for corporate fraud and shredding documents.

Last week, the founder of Adelphia Communications, his sons and two other executives were arrested on allegations of looting the now-bankrupt cable company and using it as their "personal piggy bank."

That action sparked a rally that sent the Dow up 488.95 points.

"You get the feeling that psychology clearly has improved over the course of the last week," Rogers said. "Why the market is up 400 points instead of 200 points - nobody knows that."

David Straus, senior portfolio manager with Washington--based Johnston Lemon Asset Management, said other signs indicate the market could be bottoming.

He said investor sentiment, which was optimistic in the spring, has only recently become pessimistic. Another signal: Seventy percent of the stocks on the New York Stock Exchange were recently trading above their 10-week moving average, but early last week only 4 percent were trading above the range, Straus said. "It just lets you know that every stock has been hit across the board. It is another indication that people are finally giving up."

Straus believes the "worst is over for now."

"There is a good chance now that you have seen the lows for the year," he said. "Everybody who wanted out is finally out. It gets a lot easier to have these big one-day rallies."

But one day doesn't break the back of the bear market, experts said. Straus expects more volatile days ahead and sees the market bounding to the lows later in the year.

Croft said it will take a string of solid increases in the stock market before he is a believer that the market has hit bottom: "I couldn't tell you whether we have hit bottom. At the very least, we are a lot closer to the bottom. I think we are approaching it."

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