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Dow Strikes Back With Gain of 320

Markets: As technology shares continue to falter, 'old-economy' stocks post some of their best performances of the year.

March 16, 2000|THOMAS S. MULLIGAN | TIMES STAFF WRITER

NEW YORK — In a sharp reversal of the recent trend, "old-economy" stocks rallied explosively Wednesday, while technology issues extended their slump.

With bank, drug and heavy-industry shares racking up some of their best gains of the year, the Dow Jones industrial average leaped 320.17 points, or 3.3%, to 10,131.41--its best one-day percentage rise in more than a year and its fourth-largest point gain ever.

The technology-driven Nasdaq composite index, on the other hand, suffered a third straight day of selling, falling 124.01 points, or 2.6%, to 4,582.62. Internet stocks accounted for much of the decline.

The Nasdaq index has now fallen 9.2% from last Friday's record high. Despite the drop, Nasdaq remains up 12.6% year to date, while the Dow is down 12%.

But depressed blue chips were the stars on Wednesday, as New York Stock Exchange volume topped 1.3 billion shares, in the third-busiest session in the Big Board's history.

Winners outnumbered losers by 19 to 11 on the NYSE, while losers had a 27-to-15 edge on Nasdaq.

Some analysts are already calling Nasdaq's tumble the start of a long-expected "correction" in what has been the hottest part of the stock market for more than a year.

Richard T. McCabe, chief market analyst at Merrill Lynch, thinks the Nasdaq index could fall to 4,000. Although that would be a decline of more than 20% from the peak, it would only bring the index back to around where it stood at the end of January.

Suddenly, "People don't see the Nasdaq as being a sure bet, particularly the biotechs," said Rick Meckler, senior managing director at Liberty View in Jersey City, N.J. "But people are still interested in investing. They are just rotating into the next area, and the area they have picked up now is the old-economy stocks, which are beaten down."

Still, investors have shown great willingness to pile back into tech shares after every pullback. This week's action could represent short-term profit-taking rather than any real disenchantment with the sector, analysts said.

Lehman Bros. strategist Jeffrey M. Applegate continues to keep more than half of his portfolio in tech stocks. Although there may be more stumbles like this week's, he said there is no fundamental change that would cause the sector to under-perform over the long term.

Meanwhile, the rebound in "cyclical" stocks will have to continue for at least a few days for many investors to believe it's sustainable in the weeks and months ahead, experts said.

Applegate recalled last April's big rally in cyclical issues such as Alcoa, Caterpillar and Ford Motor. It was a nice bounce, but for investors who thought it was time to jump into the heavy industrials for good, "it didn't work out real well," he noted. Many industrial and financial stocks began to slide late last spring, and have plunged as much as 40% since.

Wednesday's blue-chip rally, which included interest-rate-sensitive stocks such as banks and insurers, in part signaled confidence ahead of a report on inflation at the wholesale level, due out today, analysts said.

A tame inflation report could assure that the Federal Reserve, which meets next week, won't raise its key short-term interest rate more than the expected 0.25 percentage point, to 6%.

In the bond market Wednesday, yields were mostly flat.

Among the leaders of the Dow pack, financial services firms bounded ahead, with J.P. Morgan & Co. up $6.44 to $117.50 and American Express Co. up $4.44 to $132.88.

Falling oil prices also helped sentiment on Wednesday, in particular for transportation and chemical companies, which have to spend relatively more on oil than other industries.

April oil futures in New York slid 97 cents to $30.72 a barrel after Saudi Arabia, the world's largest oil exporter, said late Tuesday that it favored a large increase in supplies, beginning April 1. Restrictions on oil output, approved by major oil producers, will expire at the end of March.

Rail giant CSX soared $1.81 to $23.38 and Alaska Airlines surged $4.13 to $30.06.

Also strong were the Dow's conglomerates such as General Electric, up $6.56 to $133.56, and 3M, up $3.38 to $82.50.

Some biotech stocks, which prompted Tuesday's 200-point Nasdaq sell-off, regained their footing after Wall Street analysts came to the sector's defense.

Amgen, for example, jumped $6.25 to $58.50 after an analyst said the firm's battered stock price was an invitation for buying.

Depressed major drug stocks, however, were in far greater demand than most biotech shares. Merck jumped $3.31 to $59.81 and Lilly shot up $5.31 to $62.75.

Many Internet names picked up where biotech's decline left off. Yahoo tumbled $10.25 to $158.50, Spyglass slid $11.25 to $68.19 and Redback Networks lost $24.50 to $336.

In the telecom sector, JDS Uniphase fell $6.25 to $118.75 and Ericsson lost $4.19 to $89.19.

Bigger tech names, however, fared better. Software giant Oracle, Nasdaq's most actively traded stock, added $1.63 to $78.63 in the wake of its better-than-expected earnings report.

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