Markets post a rare positive week

Dow rally of 564 points in 2 days stirs optimism

October 12, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

Despite several negative economic reports and rising fears that the country is heading for war, stocks roared for a second day in a row yesterday, fueled by positive news from two large blue-chip companies that sent the Dow Jones industrial average soaring more than 316 points.

The two-day, 564-point burst led the Dow to its first positive week since Aug. 19-23 and made some market experts believe the rally is for real and the worst could be over for investors.

"We are all moving in the right direction," said David L. Straus, senior portfolio manager at Johnston Lemon Asset Management in Washington. "If we can hold here, maybe the worst is over of this bear market. You can't open the champagne bottles yet. We are still in a tricky area."

There was nothing tricky about the stock market yesterday. The Dow index, made up of 30 large companies, began rising from the opening bell and stayed on course.

In early afternoon trading, it was up more than 360 points, but closed the day with a gain of 316.34 points, or 4.20 percent, to 7,850.29.

Despite the run-up, the Dow is still down 21.67 percent for the year and headed for its third consecutive annual loss.

Other indexes rose, too.

The Standard & Poor's 500 index, a broad gauge of the stock performance of big companies, climbed 31.40 points, or 3.91 percent, to 835.32. The Nasdaq composite index, which has many large technology companies, was up 47.10 points, or 4.05 percent, to 12,10.47.

Trading was heavy with 2.22 billion shares changing hands on the New York Stock Exchange, where 11 out of every 13 stocks advanced.

Not even Congress' vote giving President Bush authority to use military force against Iraq or a series of weak economic reports halted the climb.

A report released yesterday by the Commerce Department said that consumers slashed spending last month by 1.2 percent, the sharpest drop in almost a year. Consumers have almost single-handedly kept the recovery moving along and their spending makes up two-thirds of the economy.

A second report by the Labor Department showed that wholesale prices on goods such as clothing and cars rose 0.1 percent in September after being stable in August. Rising prices could signal higher inflation, but the report suggested that inflation is in check.

In addition, the University of Michigan said consumer sentiment sank unexpectedly this month to 80.4, from 86.1 in September.

Although the reports were negative, few industry experts were surprised, which helped the stock market, said Arthur Hogan, chief market analyst at Jefferies & Co., a Boston-based investment banking and institutional brokerage firm.

"The economic data was relatively in line," Hogan said.

Congress' vote might have also boosted the market by easing any uncertainty about war with Iraq, Straus said.

"It is almost as if the passage of the war resolution ... helped," Straus said. "It doesn't take much when you are in a bear market to give you these really strong up days."

The market fed off of a positive earnings report from Dow component General Electric Co., which said that its third-quarter profit rose 25 percent and was in line with analysts' expectations. Its stock rose $1.61, or 7.1 percent, to close at $24.21.

It was also helped after an analyst at Lehman Brothers Holdings Inc. raised his rating on International Business Machines Corp., which is also part of the Dow. Its stock shot up 11 percent, or by $6.34, to $63.92.

"IBM is a big piece of the move," Hogan said. "Also, GE making their number certainly helped."

GE's upbeat earnings announcement came on the heels of stronger-than-expected profits by Yahoo!, which reported Wednesday afternoon. Its earnings helped spark a stock market rally in the technology sector that pushed the Dow up 247 points Thursday.

The market's performance the past two days was in sharp contrast to Wednesday, when the Dow sank 215 points to 7,286.27, its lowest close since Oct. 27, 1997, when it was at 7,161.20.

"I would suspect what the market has basically been saying is that it is not economics, it's valuation," said John Silvia, chief economist at Charlotte, N.C.-based Wachovia Corp. "This has got to be good buying times. It is somewhat of a bouncing off the bottom situation. I really don't think it has much to do with economics."

Whether the two-day rally can break the bear market is anyone's guess.

If the market holds steady over the next week or two, then it could climb 15 to 20 percent, said Straus, the Johnston Lemon portfolio manager.

"I have got my fingers crossed," he said. "Of all of the bear market rallies that I have seen this year, this is probably the one that has impressed me the most."

Phil Dow, director of equity strategy at RBC Dain Rauscher in Minneapolis, said it will be important to watch how the market closes each day next week rather than how it opens. If it ends with sharp increases in the last hour of trading, then the institutional investors are jumping back in, he said.

"My sense is that could be a reasonable indicator that the market is on the heal," Dow said.

But Hogan, at Jefferies, said he isn't sure that the rally won't fizzle like the others.

"The market has been up for two days, it has been down for 2 1/2 years, and very hard over the last six weeks," Hogan said. "It is tough to go into a weekend predicting a bottom if you don't know where the next bomb is going to be dropped."

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