Dow rallies from 165-point hole to gain 25

Analysts note volatility, worries about Iraq, oil

Nasdaq falls 5

S&P 500 gains 1

May 13, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

The Dow Jones industrial average took a startling U-turn yesterday, plunging more than 165 points before bargain hunters sent it rocketing back up to close 25 points ahead.

Analysts said it was an extraordinarily volatile day for no obvious reasons beyond the persistent concerns about record high oil prices, increasing interest rates and dangerous instability in Iraq that have pushed the market down since April.

The blue-chip Dow closed at 10,045.16, up 25.69 points, or a quarter of a percent. The other major measures of U.S. stock performance also fell sharply only to rise sharply, though the Nasdaq composite index didn't quite make it into positive territory.

It finished at 1,925.59, down 5.76 points, or 0.3 percent. The Standard & Poor's 500 index closed at 1,097.28, up 1.83 points, or 0.2 percent.

"I think volatility is probably greater now than it's ever been," said Andrew M. Brooks, vice president and head of equity trading at T. Rowe Price Associates Inc. in Baltimore. "It's something investors have to get used to. ... These are some uncertain times."

Tal Daley, a senior vice president at Legg Mason Inc. in Baltimore, was pleased to see stocks rebound yesterday after trading that "was fairly ugly there for a good portion of the day."

"The only theory I have is that the smart money knows this is a minor correction, not a bear market," Daley said.

He said he counted on some pulling back in the first half of the year after the "stunning" stock performance of 2003. But some of the selling appears to be an overreaction to the 2000 high-tech stock crash, he added.

"For a lot of regular clients there's this notion that, `Gee, in 1999, early 2000, after a really good market, I didn't take my profits and therefore I lost them' ... they're not going to make that mistake again," he said. "However, I think after a year is a little too quick to be pulling the trigger."

He's expecting returns of at least 10 percent by the end of 2004, but he's not sure how quickly the market will pull itself out of this downward moving tug-of-war. Investors are dealing with conflicting information.

"Now the war is not going so well, yes the economy is doing great, but interest rates may be going higher, so there is a level of uncertainty that people are trying to price," Daley said.

Scott J. Brown, chief economist with Raymond James & Associates, an investment firm in St. Petersburg, Fla., thinks that oil prices hitting a record high yesterday was a key reason for the sell-off, which didn't break until almost 2 p.m.

The benchmark June contract for light sweet crude leapt 71 cents to finish at $40.77 a barrel, shattering the previous closing high of $40.42 set Oct. 11, 1990.

"Energy drives the country, and the cost of energy has been going up and up and up," said Jerrold Katz, principal of J.P. Katz & Associates, a financial consulting firm in Auburndale, Mass.

Brown sees underlying strength in the economy but said that investors wonder whether the economic turnaround is fragile enough to fall apart from the effect of higher energy prices and interest rates.

"It's kind of jittery at this point," he said of the stock market. "I think it's really unclear how long this is going to last."

John Pope, economic adviser for Investment Economics in Minneapolis, which does research and portfolio management, said some of the movement is a natural backtracking from a rally earlier in the year, though it's more than traders had expected.

Going to extremes

"Things kind of go to extremes," he said. "It's human nature. ... Sell first, ask questions later, play it safe."

Katz said investors also figure it will be difficult for companies to continue improving their revenues at the impressive rate of the first quarter because they kept down costs by putting off hiring. They can't do that forever, he said.

Drops in the stock market are a "realization that things aren't going to be as rosy as they were in the last few months," he said.

"I'm not saying we're going to head back to a recession," he added, "but the rate of growth is not going to be as rapid."

Elsewhere on the broad market, the Russell 2000 index, a benchmark of small-cap stocks, inched up 0.32 to 548.99, and the Wilshire 5000 total market index added 9.63 to 10,657.85.

The Sun-Bloomberg index of the top stocks in Maryland gained 0.66 to 264.13. Sandy Spring Bancorp Inc. advanced $1.54 to $35.64.

Advancing issues slightly outnumbered decliners on the New York Stock Exchange. Volume was 1.73 billion shares, compared with 1.56 billion shares Tuesday.

Cisco Systems Inc. closed down 29 cents at $21.96, missing the highest analyst forecast of 20 cents despite a rise in its quarterly profit as governments and businesses ratcheted up capital spending.

The world's largest network equipment maker said it added 200 jobs during the quarter, and plans to add another 1,000 positions by the end of the year.

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