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Small-Company Stocks Surge, Dow Gains 18

Markets: Rebound in tech shares pushes Nasdaq up 33 points to 1,086. Many mutual funds say individuals are buying again.


Small-company shares roared back in heavy trading on Wednesday, as the stock market continued the recovery that began Tuesday afternoon.

But blue-chip issues posted only modest gains overall, with the Dow Jones industrial average adding 18.12 points to 5,376.88--still off 326 points, or 5.7%, from its level on July 3, just before the latest sell-off began.

More encouraging, analysts said, was that many mutual fund companies reported that individual investors were buying again, apparently attracted by the market's steep dive in recent weeks.

Led by a rebound in many technology stocks that had been trounced since mid-May, the Nasdaq composite index of mostly smaller shares soared 33.18 points, or 3.2%, to 1,086.65 on Wednesday.

The Nasdaq index and most other major stock indexes staged a spectacular reversal on Tuesday afternoon after plummeting on Monday and then on Tuesday morning, as investors dumped shares on fears about higher interest rates and weakening corporate earnings.

The Dow, which sank 161 points on Monday, was off 167 points by midday Tuesday before buyers suddenly began bidding aggressively for stocks again, pushing the Dow up enough to finish the day with a 9.25-point gain.

On Wednesday, traders said the market's ability to sustain Tuesday's dramatic turnaround is a positive sign. But many also said the choppy performance of blue-chip shares Wednesday suggests that stocks overall aren't likely to rocket higher any time soon.

The Dow was up 33 points early Wednesday, then bounced around in a narrow range for much of the day before surrendering much of its advance near the close.

Wednesday "was encouraging, but not conclusive" in tone, said Eugene Peroni, technical analyst at brokerage Janney Montgomery Scott in Philadelphia. "I see us stuck in a trading range for a while."

Another batch of strong quarterly earnings reports from key companies helped boost optimism. Semiconductor giant Intel, which reported greater-than-expected earnings after the market closed Tuesday, jumped 1 5/8 to 71 5/8 and helped bring buyers back to tech stocks in general.


Importantly, breadth turned positive on Wednesday, with rising stocks on Nasdaq outnumbering losers for the first time in a week. Winners had a 31-to-12 edge on Nasdaq and a 17-to-7 edge on the New York Stock Exchange.

NYSE volume totaled 500 million shares, heavy but down sharply from Tuesday's record 683 million. Nasdaq volume fell to 701 million shares from Tuesday's record 877 million.

Traders said that whereas Wall Street dealers and NYSE floor "specialists" bought a lot of stock from panicked sellers on Tuesday, real buyers emerged Wednesday.

Mutual fund managers may have been encouraged to buy as cash began to flow in again from individual investors.

Many fund companies had reported modest redemptions from stock funds on Monday and Tuesday, as the severity of the market's slide spooked some small investors.

But on Wednesday, fund companies including Fidelity Investments, Stein Roe & Farnham, 20th Century and Invesco said their stock funds took in more money than was redeemed. Invesco, in fact, said it had its largest one-day inflow of the year, as $76 million flowed into its various stock funds.

At Stein Roe, in Chicago, a spokeswoman said some investors who had called to redeem shares on Monday and Tuesday called on Wednesday to try to undo those transactions (which fund companies can't legally oblige).

The market's turnaround emboldened some Wall Street analysts to predict that the pullback of recent weeks, or "correction," has run its course, despite lingering worries about interest rates' next move and the strength of future corporate earnings.

"The correction is over," said Bluford Putnam, investment strategist at Bankers Trust Co. in New York. "There is no other shoe to drop." He argued that stocks' sell-off, which by midday Tuesday had slashed 10.3% off the Dow index from its 1996 peak, reached on May 22, had reduced prices to a fair level relative to corporate earnings prospects overall.

"There is not much fluff left in prices," said Putnam, who expects blue-chip corporate profits to grow 6% to 8% in the second half of the year, versus a year ago.

Richard Eakle, analyst at Eakle Associates in Fair Haven, N.J., said key stock indexes had closed above some important technical barriers on Tuesday, signaling a market bottom. In particular, the Dow and the Nasdaq index had finished above their 200-day moving averages, Eakle said.


But Michael DiCarlo, manager of the John Hancock Special Equities stock fund in Boston, said that although he had rushed in to buy some stocks on Tuesday, "I think we're going to see more of this [decline]," and thus he is in no hurry to put the rest of his cash reserves to work.

"There are a lot of companies we want to own that are still too expensive," DiCarlo said.

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