U.S. stocks rocket higher in widespread advance
By Julie Rannazzisi
Monday July 29, 3:23 pm Eastern Time
CBS MarketWatch
NEW YORK (CBS.MW) -- Stocks rocketed higher on Monday for a second consecutive session, with every area of the marketplace joining in the advance. Another day of outsized gains for the dollar contributed to the glee on Wall Street.
"We're having a very powerful day. Psychology is starting to turn [as] strength is no longer being sold into," said Peter Cardillo, chief investment strategist with Global Partner Securities. The Dow is up over 15 percent -- or over 1,100 points -- from its July 24 intraday low.
Bank shares were big winners in the broader market after being roiled last week by questions over Citigroup's and J.P. Morgan's role in financing now bankrupt Enron. Investors' concerns eased by week's end, allowing the Dow to stand on firmer footing. Investors also favored airline, oil service and insurance stocks on Monday, with the latter benefiting from an analyst upgrade in the sector.
In the tech sector, some of last week's hardest hit areas -- networking and chip -- mounted a robust rebound. Even the telecom sector held its own as Qwest tumbled amid a restatement of its financials.
In the meantime, a rash of economic news - including a few crucial indicators -- will give investors confused by recent mixed readings on the economy a better sense of July's performance. See Economic Preview.
The Dow Jones Industrial Average (CBOT:^DJI - News) piled on 407 points, or 4.9 percent, to 8,673, propelled by J.P. Morgan Chase, American Express, Walt Disney, Honeywell, General Motors and General Electric. Only SBC Communications and Boeing headed modestly lower.
"The market is coming off of extremely oversold conditions. But if follow-through buying persists and volume remains heavy, it'll be safe to say that last Wednesday represented a short-term low for stocks. This week will be crucial for stocks with all the economic data to sort through," Cardillo said.
The Nasdaq Composite (NasdaqSC:^IXIC - News) ascended 67 points, or 5.3 percent, to 1,329 and the Nasdaq 100 Index (NasdaqSC:^NDX - News) heaped on 57 points, or 6.4 percent, to 968.
The Standard & Poor's 500 Index (CBOE:^SPX - News) raced up 4.9 percent while the Russell 2000 Index (CBOE:^RUT - News) of small-capitalization stocks put on 4.3 percent.
Volume amounted to 1.43 billion on the NYSE and to 1.62 billion on the Nasdaq Stock Market. Market breadth remained extremely positive, with advancers squelching decliners by 26 to 6 on the NYSE and by 25 to 10 on the Nasdaq.
Undervalued or still risky?
UBS Warburg's chief strategist Ed Kerschner defined the current market the "most cyclically attractive market since 1980." The time it takes for the market to rebound, he said, will likely depend on the timing of a rebound in corporate earnings and the time it takes for corporate scandals to "fully play out."
But Merrill Lynch's chief U.S. strategist Richard Bernstein contends that the equity market does not appear overwhelmingly undervalued, even when taking into account the market's recent poor performance and current inflation and interest rate levels.
"The predictability of earnings is the lowest in more than 60 years. We continue to believe that the variability -- unpredictability -- of earnings is more important when determining the current market's valuation than are interest rates and inflation," the strategist told clients.
Bruce Steinberg, Merrill's chief economist, lowered second-half GDP growth forecasts to 3.5 percent from 4.5 percent and expects no Fed tightenings until 2003. He feels recent declines in equities will feed back into the real economy and expects both consumer and business spending to be negatively affected.
Connecticut-based research and money management firm Bridgewater Associates said how the economy responds to the large drop in equities will be one of the key questions over the next few months.
"The U.S. economy is growing at a moderate -- if sub par -- rate for this stage of the business cycle. The equity market hasn't been down following aggressive easing since the 1930s and the large drop over the last six months makes it quite possible that the market will drag the economy down into recession again. Households can ignore their falling wealth for only so long," Bridgewater told clients.
The lack of leadership is another problem cited by market watchers.
Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray, notes that market leadership remains questionable despite the improved tone over the past few trading sessions.
"While we acknowledge that new leadership takes time to sort out after broad market declines, stock leadership displayed during last week's rally was neither strategic nor disciplined," Belski said.
He remains overweight in the materials sector on expectations for a cyclical earnings recovery and is positive on the healthcare and financials groups, which he believes will deliver consistent earnings. The strategist revised his year-end S&P 500 target to 985 from 1,150.
Qwest recovers, AOL up
Shares of Qwest Communications (NYSE:Q - News) turned higher in a swift afternoon move, rising 5.3 percent after falling as much as 26 percent out of the gate. The telecom company informed investors on Sunday that it would restate its financial reports for 1999 through 2001 due to accounting errors. The carrier is already under investigation by the Securities and Exchange Commission and the Department of Justices. The stock was cut to a "sell" rating from Jefferies.
Meanwhile, media and entertainment titan AOL Time Warner (NYSE:AOL - News) gained 2.7 percent following a tumble in after-hours action on Friday after rating agency Standard & Poor's revised its outlook on the company to a "negative" from "stable. " S&P cited, among other things, deteriorating advertising sales. Shares of the company lost 6 percent of their value last week amid questions about some of the accounting practices in the company's AOL unit.
Cisco Systems' (CSCO - News) 9.1-percent advance propelled the networking sector (AMEX:^NWX - News) . UBS Warburg said it expects the company to "meet its guidance of flat to slightly higher sequential revenues for the July quarter." But given the ongoing lack of visibility in capital spending, the firm expects Cisco to provide a cautious outlook.
Handheld device maker Palm (NasdaqNM:PALM - News) tumbled 17 percent after announcing late Friday that its board had approved a proposal to implement a reverse stock split. See Net Stocks.
Insurance stocks ascend
Insurance stocks were hoisted by UBS Warburg's upgrade of American International Group (NYSE:AIG - News) to a "strong buy" rating from a "buy" on belief its current valuation significantly understates the company's "excellent earnings power and operating prospects." AIG shares rallied 7.1 percent. See the Ratings Game.
The Chubb Corp. (NYSE:CB - News) , meanwhile, reported second-quarter operating earnings-per-share that fell short of analysts' projections. For the full-year, the insurance company sees operating earnings-per-share of about $4.60 vs. the $4.67 currently expected by Wall Street. Still, shares tacked on 5.6 percent.
In earnings news, generic drug maker King Pharmaceuticals (NYSE:KG - News) posted in-line second-quarter earnings and projected 2002 earnings of $1.29 to $1.35 a share, which surrounds the Wall Street estimate of $1.33 a share. The stock sprinted 3.1 percent.
Williams Cos. (NYSE:WMB - News) reported a second-quarter loss from operations that compared favorably to the Thomson Financial/First Call estimate. The stock tacked on 36.8 percent. And Dynegy (NYSE:DYN - News) zoomed 76.5 percent higher after selling its pipeline for $928 million in cash to privately-held MidAmerican Energy, which will also assume $950 million in debt owed by the Northern Natural Gas pipeline.
Leader Amgen (AMGN - News) gave up early losses and headed up 0.5 percent after being called by SG Cowen its top "large-cap pick" in the biotech sector on belief the company's second-quarter earnings will serve as a catalyst for the stock. Biogen, meanwhile, sprinted 4 percent.
Dow stock and retail sector bellwether Wal-Mart (NYSE:WMT - News) gained 2 percent following declines out of the gate after reporting that last week's sales were slightly below expectations. And William-Sonoma (NYSE:WSM - News) surged 11.6 percent after Lehman Brothers upped the stock to a "buy" from a "market perform" on belief that recent price weakness provides an "attractive buying opportunity."
Charter Communications (NasdaqNM:CHTR - News) soared 19.3 percent following a New York Times article that Chairman Paul Allen could increase his stake in the company -- or even take it private.
Read Movers & Shakers for the latest individual stock news.
Bonds squashed
Treasury prices lost considerable yardage across the board as they reacted to a vigorous rally in the stock market.
The 10-year Treasury note descended 29/32 to yield (CBOE:^TNX - News) 4.50 percent while the 30-year government bond shaved 27/32 to yield (CBOE:^TYX - News) 5.37 percent.
While no numbers are on tap for Monday, the week will be flooded with data giving investors a first glimpse into economic performance during the month of July.
Among the key reports on tap: July consumer confidence, the advance reading on second-quarter gross domestic product, the July Institute of Supply Management Index, June personal income and spending figures and the July employment report.
In the currency sector, the dollar jumped 0.9 percent to 119.82 yen while the euro remained below parity, declining 0.7 percent to 97.82 cents. |
