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Profit Forecasts Boost Stocks

Wall Street: Dow racks up its biggest one-day gain in six weeks as investors fuel a strong rally. But some analysts remain skeptical.

September 26, 2002|From Times Staff and Wire Reports

Stocks leaped off multiyear lows Wednesday after General Electric helped calm worries about the U.S. economy and corporate earnings with a reassuring profit forecast.

GE helped push the Dow Jones industrials to their biggest one-day gain in almost six weeks, one day after they sank to a four-year low. Technology investors took heart after wireless chip maker RF Micro Devices raised its outlook for earnings and revenue, helping lift the Nasdaq composite index off six-year lows.

But some market watchers remained skeptical as they fretted about a possible U.S. war on Iraq and concerns over the fragile economic recovery, the primary reasons why September is on track to be the worst month for the market this year.

"We got a nice bounce after hitting a four-year low, but I don't expect this to be the start of a turnaround," said Stephen Carl, head of U.S. equity trading for Williams Capital Group. "There's still too much uncertainty over the third-quarter earnings outlook and the prospects for war."

The Dow climbed 158.69 points, or 2.1%, to 7,841.82. The Dow dropped 2.4% on Tuesday, pulling it down to its lowest point since October 1998. Even including a small gain on Friday, the Dow had lost almost 500 points over the previous four trading sessions.

The technology-laden Nasdaq composite shot up 40.12 points, or 3.4%, to 1,222.29, after falling Tuesday to its lowest close since September 1996. The broader Standard & Poor's 500 index surged 20.37 points, or 2.5%, to 839.66. The benchmark S&P remains about 5% above the five-year low it reached in July.

Winners trounced losers by almost 3 to 1 on the New York Stock Exchange and by nearly 2 to 1 on Nasdaq. Trading was heavy.

GE climbed $1.10 to $27 after it said third-quarter earnings are on track to rise at least 20%--good news at a time when many companies are slashing outlooks.

Rival and fellow Dow component United Technologies added to the positive mood after it reaffirmed its 2002 earnings outlook. Its shares gained $1.66 to $57.64.

Pension fund managers and other investors who are required to keep a set percentage of their portfolios' value in stocks helped drive Wednesday's rally, said David Guy, who helps manage $20 billion at J. & W. Seligman & Co.

After the S&P 500 plunged to a five-year low in July, Guy bought stocks to bring the equities portion of the stock-and-bond fund he runs up to its required 60%. "Such a rally could occur in coming days [because] the Dow and Nasdaq returned to their July lows," he said.

The rush into stocks pulled money away from gold and Treasury securities, which have rallied in recent days as investors sought refuge from war worries and falling stock prices.

Yields on Treasuries had their biggest jump in six weeks as the yield on the 10-year Treasury note climbed to 3.75% after hitting a 40-year low of 3.64% on Tuesday.

"It just shows that it's hard for investors to be excited about buying Treasuries when yields are at generational lows," said Mike Ryan, fixed-income strategist at UBS PaineWebber.

Supply issues also weighed on the bond market with the Treasury auctioning a record-matching $27 billion in new two-year notes. The sale attracted bids for twice the amount of debt offered, a little above the average for the year--respectable given that the yield of 1.96% was the lowest for any two-year auction.

The day's economic data were soft, with sales of existing homes down 1.7% in August, confounding analysts who had looked for a rise.

Gold dropped $3.70 to $322.20 an ounce in New York trading, its biggest loss in more than five weeks.

In other highlights Wednesday:

* RF Micro climbed 15 cents to $6.23 on its positive outlook and gave a boost to the whole chip sector. The SOX semiconductor index soared 7% with all 17 members rising. Among the biggest gainers: Xilinx, up $2.15 to $16.44; KLA-Tencor, up $2.05 to $30.01; and Novellus Systems, up $1.65 to $22.66.

Other tech winners included IBM, up $3.26 to $63.01, and Cisco Systems, up 53 cents to $11.96.

* International Paper climbed $1.39 to $33.33 after saying third-quarter earnings will be in line with estimates. The news came as a positive surprise after rival Weyerhaeuser said Tuesday that quarterly profit would lag behind forecasts after struggling with low wood prices. Weyerhaeuser shares rose $1.04 to $44.83 Wednesday.

* Bank stocks rallied. Bank of America gained $1.50 to $63.50, Comerica rose $1.43 to $48.86 and East West Bancorp jumped $2.32 to $33.42.

* Beaten-down biotech shares attracted buyers. Amgen rose $1.99 to $44.06, OSI Pharmaceuticals surged $2.37 to $19.10 and Myriad Genetics was up $1.68 to $15.52.

*

Reuters and Bloomberg News were used in compiling this report.

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