Microsoft rally propels stocks
Fed ease hopes also fuel market
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:18 PM ET Nov. 4, 2002
NEW YORK (CBS.MW) -- The Dow ended at its highest level since mid September Monday while the Nasdaq saw its best finish since late August thanks to a heady Microsoft advance and revved-up expectations for a Fed rate cut later this week.
Despite the upward close, blue chips pared the bulk of early gains in the final hour of trading on the back of heavy losses in consumer and retail stocks. The Nasdaq closed 2.6 percent higher and the Dow was up 0.6 percent.
Stocks have now rallied for four straight weeks, brushing off piece after piece of shabby economic news.
"I think investors [haven't been] ignoring weak economic news as much as they're laying a bet that we'll get past it. They're anticipating a steadily improving economy into the second half of next year and trying to get ahead of the curve," said John Forelli, portfolio manager at Independence Investments.
The Dow Jones Industrial Average ($INDU: news, chart, profile) added 53 points to 8,571, buoyed by Microsoft, J.P Morgan Chase, American Express, Walt Disney, Hewlett-Packard, SBC Communications and General Motors.
Microsoft (MSFT: news, chart, profile) -- a component of the Dow, Nasdaq and S&P 500 -- rallied 5.8 percent after a U.S. judge mostly approved a proposed settlement of the federal antitrust case against the company late Friday, casting aside calls by nine states for more stringent penalties. Standard & Poor's upped the stock to a "buy" from an "accumulate," citing the strength of the company's balance sheet, the quality of its earnings and the favorable Federal court ruling. See story.
Trading in the red were the shares of Coca-Cola, Home Depot, Procter & Gamble, Philip Morris and Exxon Mobil.
The Nasdaq Composite ($COMPQ: news, chart, profile) surged 35 points to 1,396 and the Nasdaq 100 Index ($NDX: news, chart, profile) ran up 27 points, or 2.7 percent, to 1,046.
The Standard & Poor's 500 Index ($SPX: news, chart, profile) tacked on 0.8 percent while the Russell 2000 Index ($RUT: news, chart, profile) of small-capitalization stocks added 0.9 percent.
Cornering sector action, chip and networking issues dominated the tech scene while airline, brokerage, insurance, biotech and utility stocks fetched the biggest gains in the broader market. Only oil, oil service, defense, retail and select consumer issues took a dip into the minus column. Check market stats and latest sector performance.
Volume was heavy at 1.62 million on the NYSE and 2.36 billion on the Nasdaq Stock Market. Advancers trounced decliners by 19 to 13 on the NYSE and by 21 to 12 on the Nasdaq.
On the fund flow front, Trim Tabs estimated that all U.S. equity funds had neutral inflows over the five days ended Thursday while bonds funds had a $5.4 billion inflow.
The fund flow tracker estimated that all equity funds had a $9.2 billion outflow in October while U.S. funds had $8.5 billion in net redemptions -- their fifth straight month of outflows.
Trim Tabs also revealed in its Monday research note that it's turning "cautiously bearish" from bullish as the new offering calendar keeps growing while corporate buying has slowed.
Rate cut now priced in
Poor economic numbers unleashed over the past few weeks has convinced the market that the central bank will slice the overnight rate by 25 basis points when the FOMC meets on Wednesday.
Though some economists are clamoring for a 50-basis-point move, most feel the data were not discouraging enough to warrant such an aggressive move.
The Fed last cut rates in December 2001, capping off a year that saw a total of 11 rate decreases. That vigorous rate cut campaign took the overnight rate to a 40-year low of 1.75 percent. Read Economic Preview.
"Although policymakers appear to believe that better growth will resume next year, they probably will want to provide some additional cushion against the uncertainty now weighing on both consumers and businesses," commented Lynn Reaser, chief economist and senior market strategist for Banc of America Capital Management.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, said rates must now be cut on Wednesday just to prevent the Dow from dropping a several hundred points.
"A cut, then. But how much? Neither the nonfarm payroll number nor the ISM was bad enough to make 50 basis points a done deal. Had the unemployment rate shot to 6 percent, it would have been different," the economist claimed.
Midterm elections also in focus
Aside from the Fed, Tuesday's midterm elections will be a driving factor for stocks this week. Heading into the final stretch, however, it's too close to call whether there will be a re-jiggering of control in the House or the Senate. See related story.
"The results of Tuesday's midterm elections may not have a strong impact on the market since many feel there will not be a majority change in the House or Senate. Furthermore, whether there's a majority change or not, the market still needs to wait for new economic-stimulus measures to be enacted and that takes time," opined Louis Navellier of the Navellier Performance Funds.
"There won't be much of a catalyst from the midterm elections as any majority will likely be razor thin. There will be no clear and resounding majority," remarked Art Hogan, chief market analyst at Jefferies & Co.
Florida-based HL Camp & Co. noted that since 1990, Mondays prior to election Tuesdays have seen the Dow close higher 79 percent of the time.
Cisco, chips in rally mode
Cisco Systems jumped 7.7 percent, pulling the entire networking sector ($NWX: news, chart, profile) sharply higher. Rival Juniper Networks, for one, soared 12 percent.
The company's (CSCO: news, chart, profile) fiscal first-quarter earnings report, due out after the close on Wednesday, will hold sway on Wall Street this week. Analysts are forecasting the company to have made 13 cents a share in the quarter. See full story.
In analyst actions, Salomon Smith Barney reduced its sector weighting on semiconductor equipment to a "market weight" from an "overweight" on belief that stocks in the group are more "apt to move more in-line with the market" after dramatically outperforming in recent weeks. Salomon added that it has not changed its stance that an order bottom is approaching, though it now believes this view has been priced into stocks in the sector.
"Investors with longer-term time-horizons may find more suitable entry points. We would be aggressive buyers of selected names on 15 to 25 percent pullbacks," Salomon told clients.
Further, Banc of America trimmed its 2003 growth forecast for global chip sales to 8 to 10 percent from 15 percent after poring over the latest estimate revisions from chip companies following their third-quarter releases.
Chips took the news in stride, with equipment leader Applied Materials (AMAT: news, chart, profile) up 4.3 percent, Novellus Systems up 4.5 percent and KLA-Tencor up 3.2 percent.
Shares of Gateway (GTW: news, chart, profile) tacked on 20 percent after the hardware firm introduced a plasma TV that it hopes will undercut the prices of its larger competitors. See full story.
Disney, GM support Dow; retailers decline
With its 8.3-percent gain, Walt Disney (DIS: news, chart, profile) was one of the Dow's best performers ahead of its quarterly results on Thursday. A favorable mention in this week's edition of Barron's provided fodder to buyers. Read story.
General Motors (GM: news, chart, profile) put on 4.8 percent after Banc of America lifted its fourth-quarter earnings estimate on the Dow stock following the automaker's upped production schedule. On Friday, GM disclosed that October sales fell 32 percent. All the automakers reported deep declines in sales as economic jitters apparently overshadowed the lure of deep discounts. See full story. Ford rose 4.2 percent on Monday.
In other analyst moves, Banc of America Securities sliced 2003 earnings expectations for Merck (MRK: news, chart, profile) to reflect the effect of generic competition for the Dow company's anti-heartburn drug Prilosec. The stock advanced 1.8 percent and fellow Dow stock Johnson & Johnson added 1.2 percent.
Airline stocks (XX:$XAL: news, chart, profile) zoomed higher, propelled by UAL Corp.'s 29-percent advance. News that two employee groups said they would take pay cuts that may keep the troubled carrier (UAL: news, chart, profile) out of bankruptcy fueled the advance. Check story.
Positive results in patient testing of two key drugs from Amgen (AMGN: news, chart, profile) bolstered the biotech sector and sent shares of the bellwether up over 4 percent. See full story.
In merger news, General Electric's (GE: news, chart, profile) NBC television network agreed to buy cable channel Bravo for $1.25 billion in cash and stock from Cablevision Systems Corp. (CVC: news, chart, profile), sending shares of the latter up 16.7 percent. GE stock climbed 2.5 percent. Read the story.
Retail stocks were notable laggards throughout the trading day as Wall Street analysts downgraded a number of stocks in the sector. Goldman Sachs took down its view on May Dept. Stores (MAY: news, chart, profile) to an "underperformer" from an "in line," RBC Capital Markets took the hatchet to AnnTaylor Stores (ANN: news, chart, profile) to an "underperform" from an "outperform" on uncertainties over the company's merchandising turnaround while Prudential lowered its take on Kohl's (KSS: news, chart, profile) to a "hold" from a "buy" on valuation. All of the mentioned stocks declined, with AnnTaylor off 6 percent, Kohl's down 5 percent and May down 2.6 percent.
Investors also had an upgrade to chew on, with RBC lifting its view on The Gap (GPS: news, chart, profile) to an "outperform" from an "underperform." Still, shares fell 0.9 percent.
Read Movers & Shakers for the latest individual stock news.
Treasurys recede
Government bonds traded lower for another session as fixed-income investors have entirely priced in a rate cut at Wednesday's FOMC meeting by rallying furiously over the past weeks.
Governments also have to deal with supply this week, in the shape of Treasury's five- and 10-year refunding auctions.
The 10-year Treasury note lost 1/4 to yield ($TNX: news, chart, profile) 4.035 percent while the 30-year government bond lost 6/32 to yield ($TYX: news, chart, profile) 5.055 percent. See Bond Report.
Factory orders kicked off this week's light economic calendar. September orders fell by a larger-than-expected 2.3 percent, impacted mostly by the volatile transportation sector -- mostly aircraft. Orders excluding transportation were up 0.6 percent. See full story.
In other news, job placement firm Challenger, Gray & Christmas revealed that layoffs rose in October rose to their second highest level of the year. Check story and click for economic calendar and forecasts.
In the currency sector, the dollar lost 0.1 percent to 122.20 yen while the euro added 0.1 percent to 99.71 cents after briefly rising above parity on Friday.
Both the European Central Bank and the Bank of England are meeting on Thursday to decide on monetary policy. The heat is on the reluctant ECB to trim rates at a time when European growth is tripping. See London Calling.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com in New York. |
