Stocks End Higher in Late-Day Rally
Jun 20 5:05pm ET
By Elizabeth Lazarowitz
NEW YORK (Reuters) - Stocks finished higher on Wednesday after a seesaw session, as investor expectations that the economic slump has reached its nadir won out against nagging worries about dwindling corporate profits.
Major market gauges fell at the open after a slew of profit warnings from tech firms, including telecommunications gear maker Tellabs Inc. , hit Wall Street. Stock for much of the day zigzagged in and out of positive territory, but rallied in the late afternoon.
Internet and media giant AOL Time Warner Inc. helped put the market in a better mood after its chief executive told Reuters that advertising revenues were stabilizing and the company is on track to meet 2001 financial targets. Its stock rose $2.96 to $52.80 and boosted media-related stocks .
Investors looked past the barrage of bad news and focused on the end of the profit warning season in a few days and expectations for another interest rate cut at the Federal Reserve's policy-setting meeting next week, said Robert Stovall, analyst at Prudential Securities.
"Hope springs eternal among the market participants after seven or eight bad days," Stovall said.
The Nasdaq composite index <.IXIC> climbed 38.6 points, or 1.94 percent, to close at 2,031.24. The technology-heavy index broke a seven-session losing streak on Tuesday when it eked out a gain of just 4 points.
The blue-chip Dow Jones industrial average <.DJI> rose 50.66 points, or 0.48 percent, to 10,647.33, while the Standard & Poor's 500 Index <.SPX> climbed 10.56 points, or 0.87 percent, to 1,223.14.
Honeywell International Inc. dragged on the blue-chip Dow after the European Commission recommended that the European Union reject General Electric's proposed purchase of the arms contractor, although no final decision has been made. Honeywell fell $1.46 to $37.04.
In Washington, a senior Democratic senator said the U.S. government might retaliate if the EC rejects GE's $42 billion bid for Honeywell.
The latest economic news briefly underpinned stocks after a key forecasting gauge showed the U.S. economy logged its biggest jump in almost 1-1/2 years in May, although growth will be slow for the next few months. The U.S. index of leading economic indicators rose 0.5 percent in May, beating analysts' forecasts of a 0.2 percent gain, The Conference Board said.
There was also some upbeat corporate news. Homebuilders gained, helped by M.D.C. Holdings Inc. , which said it would top Wall Street forecasts, citing higher home prices and buyers choosing more optional features in their homes. M.D.C. rose $1.95 to $34.85, while the Standard & Poor's Homebuilding index jumped nearly 8 percent.
Homebuilder Lennar Corp. rose $4.61 to $40.78 after it sailed past forecasts with a 166 percent gain in quarterly earnings and raised its profit outlook through fiscal 2002 because of a healthy backlog.
eBay Inc. rose $6.35 to $69.50 after Merrill Lynch raised its quarterly earnings estimates on the strength of the online auction site's international operations.
Investors soaked up comments from Federal Reserve Chairman Alan Greenspan, who testified before the Senate Banking Committee days before a key policy-setting meeting. He said U.S. inflation remains tame despite rising labor and energy costs, but warned it needed close monitoring.
The remarks yielded little clues, however, to what the Fed will do next on interest rates, with a debate raging on Wall Street over whether the central bank will cut rates by another quarter or half a percentage point, analysts said. The Fed has cut rates by 2-1/2 percentage points so far this year.
Dismal earnings forecasts from tech companies, however, undermined investors' confidence and raise questions about when earnings will rebound.
Many telecommunications-related shares suffered after Tellabs gave a grim profit forecast, adding its name to a growing list of companies in the industry complaining of dismal profits amid the U.S. economic slowdown. Tellabs slumped $5.16 to $16.04 after it said it would slash its second-quarter financial outlook as the slowing economy causes its customers to spend less.
Telecoms giant Nortel Networks Corp. , which warned last week of a massive quarterly loss, slumped to a fresh 52-week low at $7.62, while telecoms gear maker Lucent Technologies Inc. hit a record low of $5.04. Lucent fell 20 cents to $5.31 and Nortel fell 36 cents to $8.01.
Qwest Communications International also took a hit after Morgan Stanley cut the company's investment rating because of uncertainty about the company's earnings visibility and industry weakness. Qwest rebutted the report and said it stood by its financial outlook through 2005, but its shares fell $1.25 to $30.02.
"(Technology) is the first to go and the hardest hit and you're not seeing any sign of life there," said Jon Brorson, director of equities at Northern Trust, which oversees a total of $330 billion. "We've been through now the bulk of the interest rate cycle, and we haven't yet seen the turn."
German chipmaker Infineon on Wednesday said it would have a loss of up to 600 million euros ($512.4 million) and warned it could not rule out a loss for its full fiscal year as the slumping global economy cuts into demand for its products.
Infineon's U.S.-traded shares fell $4.45 to $25.40.
"I'm selling on strength," said Uri Landesman, who helps manage $250 million for AFA Management Partners. "I'd rather be holding cash than holding names I don't expect to see moving for three to four months."
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