Buyers set aside fears in bearish market

Surprising rally sends Dow back above 8,000

October 16, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

Investors, hungry for good news, got some yesterday as a number of prominent companies reported stronger than expected earnings, sending stock prices racing across the board and the Dow Jones industrial average up 378.28 points.

Yesterday's stunning rise marked the fourth consecutive day the stock market has climbed. The Dow is up 969.41 points, or 13.3 percent, since the rally began Thursday. It was the first time since Sept. 18 that the index closed over 8,000 points.

"It think it has taken everybody by surprise to a certain extent," said Thom Melcher, chief investment officer at Philadelphia-based PNC Advisors. "I don't know that there is anybody out there who expected it to move by this magnitude this quickly."

"This is a pretty big move ... in that short of a time period," added Clarence W. Woods, chief equity trader at Allied Investment Advisors in Baltimore. "It feels a little bit more positive."

But not everyone, Woods included, is convinced that the bear market has been broken. Many experts are still worried about the economy and war with Iraq.

Yet, investors cast concerns aside and bid stocks higher.

The Dow index, made up of 30 large companies, soared 378.28 points, or 4.80 percent, to 8,255.68. Despite the rally, the index is down 17.62 percent since the year began and is heading for its third straight losing year.

The rally lifted other indexes, including the Standard & Poor's 500 index, a broad gauge of the stock performance, which was up 39.83 points, or 4.73 percent, to 881.27. The Nasdaq composite index, made up of many well-known technology companies, rose 61.91 points, or 5.07 percent, to 1,282.44.

Trading was heavy, with 1.9 billion shares changing hands on the New York Stock Exchange. Advancing issues outpaced those that fell four to one.

The market drove straight up at the opening 9:30 a.m. bell, traded near the 300-point range for most of the day and surged about 70 points in the last half-hour of trading.

It was fueled by a bevy of positive earnings results from blue-chip companies including Citigroup Inc., which beat analysts' expectations by a penny. Its shares rose $3.83, or 12.64 percent, to $34.14. General Motors Corp. added a boost after its profit came in higher than expected. Its shares jumped $3.44, or 10.34 percent, to $36.70.

Johnson & Johnson helped the rally, announcing that its profits were a penny higher than expectations. Shares of the drug maker were up $1.73, or 2.99 percent, to $59.56. All three companies are among the 30 that make up the Dow index.

"Clearly, the focus of investors is on the economy and earnings," said Hugh A. Johnson, chief investment officer at First Albany Corp. "The earnings news for the last three days or four days has been good."

Other experts said short sellers - investors who wager that stocks will fall - were forced to cover their positions and buy stocks, which further propelled the market.

In addition, some portfolio managers, who have been holding cash because they are worried about the market's health and the sluggish economy, had little choice but to invest, experts said.

"I have a suspicion that there has to be a fair number of traders and others looking for an opportunity to get in," said Preston G. Athey, manager of the T. Rowe Price Associates Small-Cap Value Fund. "This is pretty broad-based - it is not just big stocks. I'm looking at my screen, and 90 percent of my stocks are up, and I have a lot of obscure things."

Athey said he is fully invested in the market. "I am down to the minimum amount of cash I can essentially hold," he said. "So, as far as I'm concerned, I am fully invested and loving every minute of this."

Despite the string of gains, not everybody believes the bear market is dead and that the rally can be sustained, especially at this pace. Many experts are worried about the economy's health and war with Iraq.

"Happy days are here again," Johnson said. "If you believe that, I have a bridge to sell you. You still have to worry that the economy ... will have another sinking spell. This may be just another false start. I hope not."

Woods, the Allied trader, agreed: "Everything that you didn't like about the market two weeks ago is still in place, with the economics and the Iraq issue."

Marvin Kline, portfolio manager at Logan Capital Management Inc. in Philadelphia, said investors' confidence is still shaky. He said that when the market was hot three years ago the mantra was: "Buy on the dips."

"Now, it is `sell the rallies,'" he said. "There are people hoping to reduce their equities. Investors are always very bearish at the bottom and bullish at the top."

Athey said most Wall Street experts he has talked to in the past several weeks believe the market cannot have a sustained rally until the country knows whether it is going to war in Iraq. And he isn't getting too worked up over yesterday's gains.

"It is just a big rally in the midst of what has been a pretty ugly summer and early fall," Athey said.

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