Bulls take the reins
Yahoo! profit, Aetna forecast help stocks bounce higher after hitting multi-year lows.
October 10, 2002: 1:37 PM EDT
By Alexandra Twin, CNN/Money Staff Writer
NEW YORK (CNN/Money) - U.S. stocks surged Thursday afternoon, bouncing off recently depressed levels on support from Internet bellwether Yahoo!'s better-than-expected profit and a recovery in some of the hardest-hit stocks of late.
Around 1:35 p.m. ET, the Dow Jones industrial average (up 190.80 to 7477.07, Charts), Nasdaq composite (up 42.30 to 1156.41, Charts) and the Standard & Poor's 500 index (up 21.33 to 798.09, Charts) all rallied, a day after plummeting to multi-year lows.
"You've got Yahoo acting well, the semis, others," John Wilson, chief equity strategist at Morgan Keegan told CNNfn's Halftime Report. "One day doesn't mean the sun is shining from now on, but bottoms aren't set in one day, it's a process."
A broad range of techs rose, with buying in software, Internet, chips, telecom and storage.
Internet stocks rose after Web media company Yahoo! (YHOO: up $2.18 to $12.16, Research, Estimates) reported a third-quarter profit of 5 cents a share late Wednesday, a penny above estimates, and also raised its revenue forecast for 2002.
Semiconductors rallied after memory chip maker Rambus (RMBS: up $0.42 to $4.42, Research, Estimates) reported fiscal-fourth quarter earnings of 6 cents a share late Wednesday, a penny better than expected, on revenue that declined slightly from the year-earlier period.
Among the Dow stocks moving the market, aerospace parts maker United Technologies (UTX: up $2.59 to $51.78, Research, Estimates) gained after the company said late Wednesday that it expects its total 2002 share buybacks to total $700 million, $100 million more than previous guidance. News that a company is buying back shares of its stock often increases buying interest in the stock as it is perceived as a sign of corporate confidence.
Shares of construction and machinery firm Caterpillar (CAT: up $0.74 to $34.60, Research, Estimates) bounced up after declining sharply in the previous session on a Salomon Smith Barney profit estimate cut.
Shares of automakers also rebounded after being hurt by brokerages' profit concerns in the first half of the week. General Motors (GM: up $2.12 to $33.13, Research, Estimates), Ford Motor (F: up $0.54 to $7.69, Research, Estimates) and DaimlerChrysler (DCX: up $1.76 to $31.93, Research, Estimates) all shot higher.
And at a time when investors are worried about declining profits, news that Aetna (AET: up $5.16 to $36.85, Research, Estimates) will see far better-than-expected results in its third quarter and full year offered some much-needed encouragement. The U.S. health insurer said that third-quarter profit will be twice what analysts are expecting due to higher premiums and the impact of a decline in medical cost trends.
A stronger-than-expected weekly jobless claims number also gave stocks some support. The number of Americans filing new claims for unemployment last week fell 40,000 to 384,000 from a revised 424,000 the previous week. Economists were only expecting a dip to 411,000. However, the labor market is still struggling, with the more reliable 4-week moving average coming in at 412,250.
Despite so much generally positive news, some market participants didn't see the advance as anything more than an aberration.
"This is purely a technical rally. There is no economic news, no company or sector specific news that's causing this," said Tim Heekin, head of stock trading at Thomas Weisel Partners. "What happened is that the S&P broke through its intraday low from July 24, which was a temporary bottom, and the Vix (the Volatility Index) shot past 50 -- and that signaled a whole bunch of traders to jump in."
The Vix is a measure of the volatility of options on the Nasdaq 100, and is followed by a lot of technical analysts. Generally, when stock selling accelerates, the Vix rises, and when stock selling declines, the Vix drops.
"Whether this is sustainable remains to be seen," Heekin said. "If the S&P can close around 805, we can go higher tomorrow. If it drops back down to the lows of the morning, we won't."
GE earnings awaited
Dow component General Electric (GE: up $0.18 to $22.18, Research, Estimates) recovered from its early losses after Merrill Lynch cut its rating to "neutral" from "buy" and cut its 2003 earnings estimate for the company. Merrill said fairly high operating profit increases in some of its business units will leave less room for earnings growth, unless the economy turns around. Merrill's downgrade came a day after Morgan Stanley cut its 2003 earnings-per-share estimate on GE, which reports quarterly results Friday.
Retail stocks were also a little lower after a number of store chains said their sales in September were weak and forecast further softness in the current quarter. Wal-Mart Stores (WMT: up $0.97 to $51.71, Research, Estimates) typified the experience of many retailers. The world's largest retailer said September sales at stores open a year or more rose only 3.3 percent from the same period one year earlier, when sales rose 6.3 percent.
The year-earlier period included the weeks just after Sept. 11 when sales were hit hard by the fallout from the terrorist attacks against the United States. Analysts had been expecting retailers to see better growth this year, but the slowdown in the economy and the recent West Coast port dispute have undermined these expectations.
"We were so oversold and there's been this lack of liquidity, so when the buying kicks in, it really takes off, which is what we're seeing today," said Donald Selkin, director of research at Joseph Stevens. "This is a capitulation level for now. But is it the start of something new? I don't know."
European markets were mostly higher at the close, while Asian-Pacific stocks finished sharply lower Thursday, with Tokyo's Nikkei index lost 1.1 percent and South Korea's Kospi index down a whopping 6 percent.
Treasury prices fell, pushing the 10-year note yield up to 3.63 percent. The dollar was stronger against both the euro and the yen.
Light crude oil futures fell 70 cents to $28.65 a barrel. Gold fell in early trading.
Market breadth was positive. On the New York Stock Exchange, advancers edged decliners 5-to-4 as 1.25 billion shares changed hands. On the Nasdaq, winners beat losers 10-to-7 as 1.16 billion shares traded.
"It's encouraging today," Morgan Keegan's Wilson said. "You've got the Dow more than 48 percent above its normal volume for this time of day. You've got the Nasdaq trading about 20 percent above its normal volume right now." |
