Wall Street gets a bull stampede
By Julie Rannazzisi
CBS MarketWatch
Friday October 11, 4:14 pm ET
NEW YORK (CBS.MW) -- Wall Street got a bull stampede for a second consecutive session Friday as bargain hunters surfaced in many battered areas of the marketplace. General Electric's profit report and an analyst upgrade of IBM lit a fire under the Dow, sending the blue-chip index up 4.2 percent.
Nothing could stop the bulls: Even a plunge in consumer sentiment to a nine-year low failed to dampen investors' enthusiasm.
"Friday was a good test. We had bad news and the market didn't blink," said Joe Liro, equity analyst at Stone & McCarthy Research Associates. If bellwethers like Intel can register better-than-expected results next week, the strategist said, the market may find the stamina to further extend the current rally.
Third-quarter estimates have been ratcheted down so aggressively, analysts say, that beating them will certainly not be a Herculean task.
The Dow Jones Industrial Average (CBOT:^DJI - News) piled on 316 points, or 4.2 percent, to 7,850, buoyed by IBM, Honeywell, J.P. Morgan Chase, Alcoa, General Electric and Citigroup. All of the blue-chip barometer's 30 components advanced.
Investors snapped up stocks in all market sectors, with the most pronounced advances taking place in the chip, software, retail, financial, airline and more cyclical groups.
"The [rally of] the past couple of sessions was the response to a classically oversold condition. But we're still in the bottoming process that began in late July," remarked Jeffrey Kleintop, chief investment strategist at PNC Advisors.
The Nasdaq Composite (NasdaqSC:^IXIC - News) flew 47 points, or 4 percent, to 1,210 and the Nasdaq 100 Index (NasdaqSC:^NDX - News) surged 41 points, or 4.8 percent, to 890.
The Standard & Poor's 500 Index (CBOE:^SPX - News) rallied 3.9 percent while the Russell 2000 Index (CBOE:^RUT - News) of small-capitalization stocks added 2.6 percent.
One technical analyst warned of potential downside risks for stocks, even though he feels the current rally could have more legs.
"There appear to be plenty of technical reasons to expect at least a short and possibly intermediate-term move higher from current levels. Thursday provided a good start for at least a short-term move higher -- volume figures were well above the 20-day averages for [both the] NYSE and Nasdaq," said Richard Dickson, technical strategist at Hilliard Lyons.
Dickson also noted that most momentum indicators were at levels equivalent to those reached at market bottoms in Sept. 1998, Sept. 2001 and July 2002 just before Thursday's advance.
The bad news, the strategist added, is that technical anomalies exist in the market, hinting that it may have further to go on the downside before bottoming.
Dickson pointed out that volume decreased on the rally from the July low to the August high while increasing on the decline through Thursday's low -- exactly the opposite of what should be expected from a market reaching a major low.
"Our conclusion from all this is that while the market may be in the early stages of a trading rally that could carry prices 20 percent higher, we doubt this week's low represented the bottom for the bear market. Key levels for the near-term are 8,000 for the Dow, 850 for the S&P and 1,240 for the Nasdaq. A close above those levels should provide further evidence the market has embarked on at least a short-term and possibly intermediate-term move higher," Dickson said.
Volume was respectable at 1.81 billion on the NYSE and at 1.90 billion on the Nasdaq Stock Market. Market breadth was sharply positive, with advancers taking out decliners by 25 to 7 on the NYSE and by 22 to 11 on the Nasdaq.
On the fund flow front, Trim Tabs estimated that all equity funds had outflows of $4.2 billion in the week ending Oct. 9, compared with inflows of $2.0 billion in the prior week. And equity funds that invest primarily in U.S. stocks saw outflows of $2.7 billion vs. outflows of $500 million in the prior week. Finally, bond funds saw inflows of $2.3 billion compared with inflows of $1.7 billion the previous week.
Inside the data
Overall retail sales declined 1.2 percent in September, a shade more than the 1 percent drop that had been projected by economists polled by CBS.MarketWatch.com. When excluding autos, sales rose by an as-expected 0.1 percent.
"The chain store sales numbers were not hopeful and traders were expecting non-vehicle sales to be down. That they rose was good news for the markets, but it still does not say consumers are spending lots of money," noted Joel Naroff, chief economist at Naroff Economic Advisors.
In the meantime, the early October reading on the University of Michigan consumer sentiment index plunged to 80.4 from September's 86.2. Economists had predicted an 85.7 reading. The current conditions and expectations indexes also took a dive. Check story and see economic calendar and forecasts.
One strategist said the tumble in consumer sentiment did not ruffle feathers because market watchers had been bracing for bad news.
"The drop was likely due to talk of war with Iraq, the weak stock market, and the recent upward trend in jobless claims. The market's response to [Friday's] data indicates that the [drop in the] ABC News weekly consumer confidence poll helped to provide a warning about a potential decline. The reaction also shows that bearish sentiment in stocks and bullish sentiment in bonds had reached an extreme," maintained Tony Crescenzi, chief bond market strategist at Miller Tabak.
In other news, the September producer price index edged up 0.1 percent both overall and at the core, which strips out the often- volatile food and energy components. Economists had expected a 0.2 percent increase overall and 0.1 percent rise at the core. Over the past 12 months, the core PPI has been down a record 0.4 percent.
IBM, GE and Nortel advance; Lucent slides
IBM (NYSE:IBM - News) soared 10.1 percent and was the Dow's leading advancer. Lehman Bros.' Dan Niles upped Big Blue to an "overweight" rating from an "equal weight" on belief that concerns over the IT spending environment are overdone, as are worries over pension and stock options. Lehman thinks IT spending should improve slightly in 2003.
GE (NYSE:GE - News) surged 6.2 percent and was among the Dow's best performers after the industrial giant met its third-quarter profit target and reassured investors by re-affirming its full-year earnings target of $1.65 a share. See story.
Lucent Technologies (NYSE:LU - News) tumbled 18.6 percent after disclosing a more aggressive restructuring program that would see 10,000 more jobs eliminated as the telecom equipment company continued to be faced with a tough environment. The company sees a larger-than-expected loss in the fourth quarter as a result, though it expects to return to profitability in fiscal 2003. Less than a month ago, Lucent had warned that its fourth-quarter loss would be much wider than Wall Street's consensus. And in July, Lucent had announced a round of layoffs. Standard & Poor's lowered its credit rating on Lucent and placed the stock on CreditWatch with negative on concerns that distressed industry conditions may challenge its ability to return to profitability and positive cash flows over the coming year.
But fellow telecom gear maker Nortel Networks (NYSE:NT - News) tacked on 9.1 percent after backing its third-quarter revenue target and adding that its cash performance continues to "be strong."
Microsoft (NasdaqNM:MSFT - News) climbed 4 percent. UBS Warburg said its channel checks have confirmed a "huge surge" in Microsoft license sales in the September quarter, which is estimated at about $600 million in the U.S. and up to $1.5 billion globally. Warburg said it expects The Dow component to remain cautious on its outlook but is not expecting any major revisions.
Intel (NasdaqNM:INTC - News) put on 5.8 percent, even though the stock saw its profit estimates sliced by three Wall Street analysts. Salomon Smith Barney chopped its fourth-quarter, 2002 and 2003 earnings estimates on the chip titan due to slightly lower pricing and gross margins. UBS Warburg, meanwhile, trimmed its 2002, 2003 and 2004 earnings estimates on Intel to reflect its cautious outlook on PC demand. And SoundView Technology lowered its 2002 and 2003 numbers based on lower unit assumptions.
Juniper Networks (NasdaqNM:JNPR - News) was a red spot amid a market awash in green. The stock tumbled 11.4 percent after posting late Thursday a third-quarter loss that was in line with expectations while revenue came in short.
Dow component International Paper (NYSE:IP - News) rallied 6 percent in the face of a downgrade from Lehman Bros. to an "underweight" rating from an "equal weight." While the firm still expects upside in IP shares, it told investors it was making "room" for rival Georgia-Pacific's (NYSE:GP - News) upgrade. The latter was lifted an "overweight" rating from an "equal weight" and surged 11.3 percent.
Defense stocks took heart in an upgrade of Lockheed Martin, which sent its shares up 2.5 percent. The stock (NYSE:LMT - News) was lifted to an "outperform" rating from a "neutral" by CS First Boston. Other upside movers included L-3 Communications, up 4 percent, and General Dynamics, up 3 percent.
Royal Caribbean (NYSE:RCL - News) saw its shares sprint 9.3 percent after telling investors that it expects third-quarter earnings to come in higher vs. analysts' current projections on the heels of continued strength in bookings and a drop in costs.
And Coinstar (NasdaqNM:CSTR - News) jumped 11 percent after increasing its third-quarter revenue and earnings outlook thanks to continued expense controls.
Household International (NYSE:HI - News) swelled 4.8 percent after striking a preliminary consumer protection agreement related to its non-prime consumer lending businesses with a multi-state group of state attorneys and regulatory agencies.
Read Movers & Shakers for the latest individual stock action.
Treasurys whipped
Treasury issues got whacked after taking a beating on Thursday amid heady equity gains. The first round of data produced more vigorous selling in the fixed-income arena.
Treasurys closed at 2 p.m. ahead of the Columbus Day holiday. The fixed-income market will be shuttered on Monday.
The 10-year Treasury note surrendered 1 7/32 to yield (CBOE:^TNX - News) 3.80 percent while the 30-year government bond lost a whopping 1 20/32 to yield (CBOE:^TYX - News) 4.815 percent.
In the currency sector, the dollar extended gains vs. its major rivals. In recent action, the buck rose 0.3 percent to 124.02 yen while the euro declined 0.1 percent to 98.55 cents. |
