Wall St.'s Santa rally ebbs

December 26, 2001 Posted: 2203 GMT

By Staff Writer Jake Ulick

NEW YORK (CNN/Money) -- U.S. stocks rose Wednesday amid signs that some companies fared well during a tough season for holiday sales. But the best gains faded by the close as investors braced for another round of profit warnings.

Yahoo!'s online sales nearly doubled this quarter and Wal-Mart said December revenue will come in at the top end of targets. Elsewhere, oil stocks rose amid expectations that OPEC will cut production to lift crude prices.

And technology stocks continued the run that began two weeks after the September terror attacks.

But the stock market's third straight month of gains may not save investors from a second consecutive year of declines. And with trading volume light Wednesday, the first full trading session of the week, some investors bet the gains are another head fake in a bear market.

The market's slide from its best levels came amid reports that the Al Jazeera news organization has a new tape of Osama bin Laden. A full broadcast is expected Thursday.

David Briggs, head trader for Federated Investors, linked Wednesday's advance to historical trading trends, not improving corporate fundamentals. He expects stocks to pull back in January.

"The market has followed the same pattern for years," Briggs said. "People like holidays."

Stocks surged in October and November. But a steady stream of profit and sales warnings slowed the gains this month. Ahead, more financial disappointments are expected as companies close out a tough fourth quarter.

Still, the Dow Jones industrial average rose 52.73 points, or 0.5 percent, to 10,088.07 Wednesday, after being up as much as 135 points.

Up as much as 39 points, the Nasdaq composite index finished at 1,960.70 for a gain of 16.22 points, or 0.83 percent. The Standard & Poor's 500 rose 4.72 to 1,149.37.

More stocks rose than fell. On the New York Stock Exchange, advancing stocks topped declining ones by a 2-to-1 margin as 792 million shares traded. Nasdaq winners beat losers 3-to-2 as 1.1 billion shares changed hands, the fourth-lightest trading session of the year.

In other markets, the dollar rose to a new three-year high against the yen but was little changed versus the euro. Treasury securities fell.

The home stretch

With three trading sessions left in 2001, the major indexes look set to record a second straight year of losses for the first time since 1974.

The Dow industrials are down 6.7 percent on the year. Tech stocks have fared worse, with the Nasdaq off 20.6 percent in 2001.

But shares of Yahoo! (YHOO: up $0.84 to $17.51, Research, Estimates) rose 5 percent Wednesday after the company said sales through its shopping service jumped 86 percent during the holiday season -- the day after Thanksgiving to Christmas Eve -- compared with the same period a year ago. The company also said sales through Yahoo! Shopping hit $10.3 billion in the fourth quarter, led by video-game consoles, digital cameras and laptop computers.

The gains spread to Amazon.com (AMZN: up $1.27 to $11.10, Research, Estimates), which has vowed to post its first-ever profit in the current quarter.

One of the Dow's biggest gainers, Wal-Mart (WMT: up $1.02 to $58.15, Research, Estimates), said sales at stores open at least a year should rise 4-to-6 percent in December, meeting the upper end of its targets.

Fellow Dow retailer Home Depot (HD: up $0.30 to $51.62, Research, Estimates) also rose.

Still, one survey, the Redbook Retail Sales Average, showed that overall retail sales dropped 4.5 percent in the three weeks ended Dec. 22 as consumers worried about job security cut spending. The unemployment rate, which jumped to a six-year high in November, is expected to tick higher in December when the government reports the figures next week.

An unscientific CNNfn poll showed that few consumers are spending more on holiday gifts this year.

The gains continued for Exxon Mobil (XOM: up $0.60 to $39.60, Research, Estimates) two days before OPEC is expected to announce a cut in oil output to boost the sagging price of crude. ChevronTexaco (CVX: up $0.65 to $89.20, Research, Estimates) and Royal Dutch Petroleum (RD: up $0.48 to $48.83, Research, Estimates) also rose.

One of the only Dow stocks to fall, AT&T (T: down $0.10 to $18.25, Research, Estimates) sold off its remaining stake in AT&T Wireless Services (AWE: up $0.59 to $13.88, Research, Estimates), the wireless company said.

John McGowan, of Cohen Duffy McGowen, said traders are watching rising tension between India and Pakistan, the latest sign of global instability.

Still, he expects mostly quiet action during the last full trading week of the year.

"I think a lot of traders are watching from home," McGowan told CNNfn's Before Hours.

The gains on the first full trading session of the week have historical precedent, according to Jim Waggoner, chief market strategist with Sands Brothers Asset Management.

"The percentages say that the day after Christmas, the market goes up," Waggoner told CNNfn's Market Call. "Eighty percent of the time, stocks rise."

U.S. markets closed early Monday ahead of Tuesday's full Christmas shuttering.

Given the outlook for profits, Jim Melcher, president of Balestra Capital, says stocks are still expensive. Melcher expects a sideways market for the next several years until stock prices fall in line with earnings.

"It's going to be a rocky road going forward," Melcher told CNNfn's The Money Gang. "You're going to have to work for your money."

But Barry Hyman, chief investment strategist at Ehrenkrantz, King Nussbaum, expects the Nasdaq to rise to about 2,550 next year, a 30 percent gain from Wednesday's levels.

"We do think growth is going to be the place to be again," Hyman told CNNfn's Street Sweep.

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