Nasdaq rallies to near 3-month high
___________________________________________________
Tech buying also underpins Dow
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 5:13 PM ET May 21, 2001
<<NEW YORK (CBS.MW) -- The Nasdaq zoomed Monday as investors snapped up big-cap tech stocks with renewed vigor, allowing the index to end at a near 3-month high.
The heated tech buying also spilled over into the Dow Industrials, which overcame early weakness to close with a respectable advance.
The Dow broke out of its trading range last week by handily breaching the 11,000 level. Now the Nasdaq had its day in the sun by penetrating key resistance and rallying to a high of 2,305 on extremely positive breadth.
"The Nasdaq is catching up with the Dow. People are looking for the Fed's rate cuts to be a catalyst for growth down the road, even though the corporate news is still bad. Investors see how well technology has done from its lows and don't want to miss out on another leg up," said David Powers, senior technology strategist at Edward Jones.
"But issues of excess capacity and inventories continue to linger and the next major roadblock for the market is the pre-announcement phase," Powers added.
"It's a very quiet move higher for the Nasdaq. The market is assuming that lower rates will lead to an improvement in earnings, though that's not readily apparent in Nasdaq companies yet," echoed Steve Massocca, head of trading and president of Pacific Growth Equities.
In sector action, biotech, brokerage and retail issues led on the upside. All groups saw green, with the exception of oil shares. In the tech space, chip, Internet and software issues led on the upside, though all groups sported smart gains. Check latest stock market action.
The Dow Jones Industrial Average ($INDU: news, msgs, alerts) gained 36.18 points, or 0.3 percent, to 11,337.92.
Pushing the blue-chip barometer higher were American Express, Intel, Hewlett-Packard, Wal-Mart and J.P. Morgan Chase. But Walt Disney (DIS: news, msgs, alerts) was the Dow's biggest upside mover, rallying 5.2 percent on the back of a Salomon Smith Barney upgrade to a "buy" from an "outperform." The brokerage indicated that the psychological impact of a film like Pearl Harbor could add credence to the company's turnaround story. See full story.
Among the Dow's losers were sharers of Philip Morris, Procter & Gamble, SBC Communications, General Motors and Exxon Mobil.
The Nasdaq Composite ($COMPQ: news, msgs, alerts) flew 106.71 points, or 4.9 percent, to 2,305.59 while the Nasdaq 100 Index ($NDX: news, msgs, alerts) skyrocketed 124.88 points, or 6.5 percent, to 2,052.57.
Christine Callies, chief U.S. investment strategist at Merrill Lynch, noted that technology companies presenting at two recent Merrill conferences were less cautious than in the first quarter, with some firms referring to demand as not as bad as expected while others implied that trends were already firming.
"This change in tone corroborates our hypothesis that tech business trends should begin to stabilize around the May-June-July [period]. Relative valuations for the S&P software and semiconductor capital equipment companies have dropped near the trough levels of the mid-1990s. We believe this provides ample protection against the remaining cyclical risks," Callies said in a research note.
Among the Nasdaq's big-cap drivers Monday were shares of Cisco Systems, up 13.2 percent, Sun Microsystems, up 15 percent, Oracle, up 11.2 percent, JDS Uniphase, up 10.9 percent, and Qualcomm, up 8.6 percent.
The Standard & Poor's 500 Index ($SPX: news, msgs, alerts) gained 1.6 percent while the Russell 2000 Index ($RUT: news, msgs, alerts) of small-capitalization stocks rose 1.9 percent.
Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray, said the market is caught in a tug-of-war as investors deal with the quandary of whether to buy stocks now in anticipation of a turnaround or whether to stand pat awaiting better conditions to actually materialize.
"So far, investors have not waited to buy. However, with the recent run-up in prices, we believe a strenuous game of tug-of-war between short- and long-term disciplines is bound to create increased volatility heading into the summer, which is historically a much slower period," Belski cautioned. Still, he remains positive for the longer-term, indicating that the overall market is in its best fundamental condition in 18 months.
Volume was respectable, at 1.17 billion on the NYSE and at 2.31 billion on the Nasdaq Stock Market. Market breadth was a touch positive, with advancers outpacing decliners by 21 to 10 on the NYSE and by 26 to 14 on the Nasdaq.
The NYSE advance/decline line has been rising steadily since October. "So, despite all the talk of a bear market over the past year, in fact that bear has been confined to a relatively few number of issues -- just as the bull market from April 1998 to March 2000 was very selective in what stocks rose," observed Hilliard Lyons' Richard Dickson.
"One could argue that the market, based on the number of issues advancing, is on firmer footing now than it was two years ago," Dickson said. Still, he believes the rally off the April lows is ready for a rest as sentiment figures combined with intermediate-term overbought readings point to a needed pause.
Elsewhere, Trim Tabs estimates that all U.S. equity funds took in $5.7 billion in the three days ending May 17 for a monthly rate of $42 billion. Tracked technology funds got inflows of $133 million -- the first triple-digit infusion since March 8.
Trim Tabs said liquidity has turned bullish for the first time in three weeks as new offerings slow while new stock buybacks heated up, totaling $6.5 billion for the week and $21.5 billion over the past four weeks.
Sector action
Internet stocks were among the upside leaders in technology. AOL Time Warner (AOL: news, msgs, alerts) put on 4 percent. SG Cowen raised 2001 revenue and EBITA estimates on the Net colossus, indicating that ad channel checks and recent marketing deals have produced an increase in confidence. Yahoo piled on 11.1 percent, Amazon 11.3 percent and Merrill Lynch's Internet Holdrs (HHH: news, msgs, alerts) climbed 5.3 percent.
Software stocks got a big boost from Network Associates (NETA: news, msgs, alerts) , which rallied over 13 percent, sending the Goldman Sachs Software Index ($GSO: news, msgs, alerts) up a beefy 6.2 percent. The security software maker saw its shares upped by Morgan Stanley Dean Witter to a "strong buy" from "neutral." The brokerage said the company's turnaround continues to gain traction and that it trades at a discount to its peers. Oracle and Microsoft were also big gainers in the software space.
Chip issues took off and the Philly Semiconductor Index ($SOX: news, msgs, alerts) shot up 7.4 percent. The sector very effectively shrugged off a negative note from Merrill Lynch. The brokerage, in fact, lowered its earnings estimates on Intel (INTC: news, msgs, alerts) , Advanced Micro Devices (AMD: news, msgs, alerts) and Micron Technology (MU: news, msgs, alerts) . Merrill said continued weakness in the PC market was behind its caution on Intel and AMD. Intel rose 4 percent, AMD 5.9 percent and Micron 6.3 percent.
In the broad market, biotech stocks continued to shine and the Nasdaq Biotech Index ($NBI: news, msgs, alerts) saw its fourth consecutive day of gains. Most issues enjoyed lofty gains, with Human Genome Sciences among the biggest winners. Robertson Stephens upped the biotech concern (HGSI: news, msgs, alerts) to a "strong buy" from a "buy" based on strong fundamentals and shares put on 7.5 percent.
The retail sector also posted solid gains, with Lowe's (LOW: news, msgs, alerts) tacking on 6 percent and reaching a fresh 52-week high in intraday action on the wings of better-than-expected earnings news. The company made 58 cents a share in its first quarter, surpassing by four cents the Wall Street consensus estimate.>> |
