U.S. Stocks Rise on Profit Optimism; Dow Industrials Set Intraday Record
By Deborah Stern and Phil Serafino
U.S. Stocks Rise as Jobs Report Leaves Profit Optimism Intact
New York, July 2 (Bloomberg) -- U.S. stocks rose, sending
the Dow Jones Industrial Average to its first record since May
13, after a government report on job growth and wages did nothing
to curb investor optimism for growing corporate profits.
Stocks pared gains in late trading before the long
Independence Day weekend. The market is closed Monday.
Major indexes still were on course for their best week since
October 1998, even after the Federal Reserve raised interest
rates for the first time since March 1997 and the economy added
more jobs than expected. Communications-equipment companies such
as Cisco Systems Inc. and financial stocks including American
Express Co. led the gains.
''We think earnings are going to be very strong in the
second quarter,'' said Philip Orlando, chief investment officer
for Value Line Asset Management, which oversees $6 billion. ''We
got exactly what we were hoping for out of the Fed on Wednesday,
and this morning's data didn't deter us from a summer rally.''
The Dow average rose for a sixth day, gaining 40.53, or 0.4
percent, to 11,106.95. The Standard & Poor's 500 Index advanced
9.86, or 0.7 percent, to 1390.82. The Nasdaq Composite Index
climbed 25.47, or 0.9 percent, to 2731.65. The S&P 500 and Nasdaq
both closed at records for a second day yesterday.
The Dow industrials rose 5.3 percent and S&P 500 gained 5.5
percent this week, and if the Dow closed now, it would be its
biggest one-week point gain ever. The Nasdaq is up about 7
percent, which would be its second-best five-day percentage gain.
''We felt we'd see a summer rally in stocks up to 11,500 on
the Dow, so we're more than halfway home,'' Orlando said.
''Anyone predicting a summer correction is looking for another
job.''
Almost four stocks rose for every three that fell on the New
York Stock Exchange, where 550 million shares had changed hands
by 3:15 p.m. New York time, compared with 683 million the same
time on June 2.
''Most of the desk is gone, most of the traders are gone,
let's get it closed and let's get outta here,'' said Edward
Collins, head of equity trading at Daiwa Securities Inc. ''I
shouldn't say no one really cares, but look at the volume.''
Gainers
Communications-equipment stocks contributed most to the S&P
500's gains, continuing last month's recovery. The S&P
Communication-Equipment Manufacturers Index fell 6.1 percent from
early April through May -- on course for a 37 percent loss for
the year. The index gained 20 percent in June.
Cisco Systems rose 2 1/4 to 66 5/8, Lucent Technologies Inc.
gained 2 3/8 to 70 7/16 and Tellabs Inc. advanced 1 5/16 to 69
11/16.
''The outlook for data-network infrastructure has continued
to be the one predictable bright spot in technology,'' said Craig
Ellis, manager of the $75 million Orbitex InfoTech and
Communications Fund. ''Cisco will do well this year, next year
and the year beyond.''
Ellis, who holds Cisco shares, said 4 percent of his fund is
made up of Juniper Networks Inc., a company that first sold
shares to the public at 34 a week ago and now trades at 138 1/4.
''The switch design they've put forth is in competition with
Cisco, and it's unrealistic to think Cisco will be the only one
in this market,'' Ellis said.
Computer companies rose for a fifth day. EMC Corp. gained 1
7/8 to 59, Sun Microsystems Inc. rose 2 3/8 to 70 9/16 and
International Business Machines Corp. rose 11/16 to 131 11/16.
American Express climbed 5 1/16 to 138 3/16, Merrill Lynch &
Co. gained 1 11/16 to 80 3/16 and J.P. Morgan & Co. rose 1 1/2 to
141 11/16. The Bloomberg Wall Street Index rose 1.8 percent.
''Anticipated stable rates through the summer months have a
positive influence'' on financial stocks, said Frank Barkocy, a
principal in Keefe Managers Inc., which oversees about $500
million in financial stocks. ''Second-quarter earnings
expectations are strong and that's generating interest'' in
financial stocks.
Economy
The Labor Department said the economy added 268,000 jobs in
June, and the unemployment rate rose to 4.3 percent from 4.2
percent in May. Economists surveyed by Bloomberg News forecast
217,000 new jobs and a jobless rate of 4.2 percent.
That did little to change investor expectations that the
Federal Reserve will raise interest rates later this year to cool
the economy and keep inflation in check. The Fed raised rates a
quarter-point on Wednesday but said it was inclined not to raise
them again soon unless inflation accelerates.
Average hourly earnings rose 0.4 percent in June, versus
expectations of an 0.3 percent increase. Labor costs account for
two-thirds of consumer prices, so Fed policy-makers watch them in
their deliberations on inflation and interest rates.
Higher rates lower the value of a company's future earnings
stream when it is discounted back to the present. They also hurt
profits by raising the cost of financing business and curbing
demand for goods and services. For financial companies, they mean
less demand for loans and lower prices for the bonds they own.
Still, analysts said there's reason to remain optimistic.
''This is good news for the stock market -- we have low
unemployment and low inflation, '' said Peter Canelo, U.S.
investment strategist at Morgan Stanley Dean Witter & Co. '' If
the bond market doesn't care, why should stocks care?'' Bonds
were little changed after the jobs report.
Movers
RealNetworks Inc. gained 10 7/8, or 14 percent, to 88 3/4,
after the top maker of software used to access audio and video
online said its software will be used in Microsoft Corp.'s WebTV
and Windows CE operating system. The shares gained 13 percent
yesterday after the agreement was announced.
Cablevision Systems Inc., the No. 1 U.S. cable-television
company, gained 3 15/16 to 76 3/16, and Comcast Corp., the No. 3
company, rose 7/16 to 37 7/16. Analyst Jessica Reif Cohen at
Merrill Lynch & Co. said Cablevision is one of the best-
positioned independent cable operators and reiterated her ''buy''
rating on the company.
Cohen said Comcast has one of the best management teams in
the industry and the best balance sheet. The company is likely to
post 8 percent growth in operating cash flow from its cable
business, she said.
Scotsman Industries Inc. jumped 10 3/4, or 49 percent, to 32
9/16 after Berisford Plc, a U.K. auto-parts and furniture maker,
said it offered $712 million in cash and debt for the U.S. maker
of commercial refrigeration products. Berisford is offering $33 a
share, or $364 million, in cash and will assume debt of $348
million. Scotsman Industries yesterday closed at 21 13/16, making
the offer a 51.3 percent premium to its closing price.
Mirage
Mirage Resorts Inc. dropped 1 3/4 to 15 after the third-
largest U.S. casino company said it expects to earn 7 cents to 10
cents a share in the second quarter -- far less than the 24-cent
average estimate of analysts polled by First Call Corp.
Day Runner Inc. fell 2 15/16 to 9 11/16 after North
America's top maker of loose-leaf paper organizers said it
expects a fiscal-fourth-quarter loss of 14 cents to 18 cents a
share, short of the average 10-cent estimate of analysts.
Ha-Lo Industries Inc. dropped 3 11/16, or 37 percent, to 6
3/16 after the largest U.S. distributor of promotional products
said earnings for the second-quarter and the next two years will
miss analysts' estimates as customers delay marketing programs.
The company said it sees second-quarter earnings of 2 cents a
share, far below the 17-cent average estimate of analysts polled
by First Call.
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