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Tech Stock Surge Stems Week's Losses

Wall Street: Nasdaq posts its second-biggest one-day gain, 7.87%, as strong profit reports and relative calm in Mideast buoy investors.

October 14, 2000|WALTER HAMILTON | TIMES STAFF WRITER

Friday the 13th proved to be Wall Street's lucky day as aggressive buying of beaten-down technology shares produced a stunning rebound from the stock market's recent sharp sell-off.

The Nasdaq composite index surged to its second-biggest one-day gain ever in percentage terms. Impressive earnings at several tech companies and a day of relative calm in the Middle East stirred hope that the market's relentless six-week sell-off had finally run its course.

"It was welcome relief," said Joseph Battipaglia, chief investment strategist at Gruntal & Co. "Now the rubber is going to hit the road. You just got a down payment on what is going to be a positive market for the rest of the year."

The Nasdaq leapt 242.09 points to 3,316.77, a 7.87% jump that was second only to its 7.94% bound May 30, 1987. The day was paced by aggressive buying of big-name tech stocks that had fallen hard since Sept. 1. Dell Computer, for example, surged almost 18%, Sun Microsystems climbed 13% and Cisco Systems jumped more than 12%.

The Dow Jones industrial average, after coming within 15 points of falling below 10,000 in early trading, rallied to pick up 157.60 points, or 1.6%, to close at 10,192.18.

Bulls were encouraged that the gains came despite a report showing inflation among wholesale goods to be stronger than expected last month, rising 0.9% rather than the 0.5% economists anticipated. A separate study showed that September retail sales also topped forecasts.

Trading volume was heavy at almost 2.1 billion shares on Nasdaq, where two stocks rose for every one that fell, and 1.2 billion on the New York Stock Exchange, where advancers led decliners by a 4-3 margin.

What's more, volume on stock-price upticks--a measure of whether investors are willing to pay successively higher prices to secure desired stocks--swamped down-tick activity by a whopping 4-1 margin on Nasdaq. Also, unlike recent days, stocks closed at their highs of the session, a good omen for Monday, experts said.

Stocks also got a boost from several Wall Street gurus, including Goldman Sachs' influential Abby Joseph Cohen, who commented that the U.S. economy is still in a "strong condition" and will grow a solid 3% to 4% annually.

"We think that adds up to a stock market that can go higher as soon as investors see there is no recession around the corner, and we don't see one," Cohen said on CNBC .

Friday's rally followed four days of heavy losses owing to fears that a slowing economy would crimp corporate earnings, particularly at richly valued tech companies. Those worries climaxed Thursday with a surprise profit warning from retail giant Home Depot, coupled with a suspected terrorist attack on a U.S. warship in Yemen and escalating fighting between Israelis and Palestinians.

But investors were buoyed Friday by strong profit reports from tech firms such as Juniper Networks, PMC-Sierra, Lam Research and Veritas Software.

"If earnings come in as good as we think they're going to come in [over the next few weeks], then investors should take some comfort [from the conclusion] that, 'yes, we're seeing the economy decelerate, but it's not a hard landing, it's a soft landing,' " said Jeffrey Applegate, chief investment strategist at Lehman Bros.

Many Wall Street analysts said the Middle East crisis forestalled a recovery that they had expected to take hold in the middle of the week.

"You had an oversold market that had been hit so bloody hard that it deserved to rally," said Marshall Acuff, strategist at Salomon Smith Barney.

But even though some experts pronounced the autumn downturn over, others on Wall Street weren't so sure. After all, despite Friday's big rally, major stock indexes were still down for the sixth straight week--their longest losing streak in 10 years.

The biggest potential stumbling block, they agreed, remains the Middle East. Crude oil prices dipped 3% Friday when tensions eased a bit. But further hostilities in the region could renew concerns about a disruption of oil exports.

Furthermore, some of Friday's gains were due to investors who had bet on a continued market downturn being forced to close out their losing positions. Though this "short-covering" drove prices higher, that is only a brief tonic for the market, experts said.

"In the last 15 minutes, [these investors] ran like hell to cover" their losing positions, said Larry Rice, chief investment officer at Josephthal & Co.

Among Friday's market highlights:

* Shares of Morgan Stanley Dean Witter surged more than 10% after an analyst withdrew an earlier report that raised fears the firm could be facing big losses in its portfolio of telecom junk bonds.

In a note to research clients Friday, Salomon Smith Barney analyst Guy Moszkowski said his earlier report may have concluded "something that in fact is really not knowable." A Morgan Stanley executive described Moszkowski's original report as "incomplete" and "misleading."

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