Stocks run wild again

March 4, 2002 Posted: 2157 GMT

By Staff Writer Alexandra Twin

NEW YORK (CNN/Money) -- U.S. stock investors took the bull by the horns Monday, boosting Wall Street to a second straight session of sharp gains as signs of an economic rebound proved too encouraging to ignore.

The Dow Jones industrial average added 217.20 to 10,586.08, its highest close since July 19, 2001, when it finished at 10,610. Including its 262 point gain on Friday, the Dow recorded its biggest two-day point gain since December 2000.

The Nasdaq composite also added 56.20 to 1,858.94. The Standard & Poor's 500 rose 22.0 to 1,153.78, pushing it into positive territory for the year.

Friday's economic data got the ball rolling. A report from the Institute for Supply Management showed expansion in the manufacturing sector for the first time since July 2000.

"The market needed to see that the economy was doing better and it saw that last Friday," Brian Finnerty, co-head of capital markets at C.E. Unterberg, Towbin told CNNfn's Street Sweep.

Some analysts also pointed to a tendency for short-covering, in which investors who have been betting on markets going down need to quickly cover their positions, when there's a sudden rally after a long period of selling.

"Basically, the (people on the) sidelines are coming in. The economic signals are just too strong to ignore," Larry Wachtel, market analyst at Prudential Financial told CNNfn's Street Sweep.

The Dow's biggest gainer was General Motors (GM: up $3.73 to $58.70, Research, Estimates) which added strength after J.P. Morgan Chase upgraded the No. 1 automaker to "buy" from "market outperform."

Also higher were financial sector names including J.P. Morgan (JPM: up $2.84 to $32.50, Research, Estimates) and American Express (AXP: up $2.07 to $39.38, Research, Estimates), as well as tech issues' Microsoft (MSFT: up $1.93 to $63.30, Research, Estimates) and IBM (IBM: up $2.88 to $105.90, Research, Estimates).

The Nasdaq composite shrugged off weakness in business software maker Oracle following a late Friday profit warning, and instead focused on strength in a variety of sectors, particularly networking, computer hardware and Internet.

However, looking forward, Prudential's Wachtel said, "we may have gotten overbought a little. We are probably going to see a pullback in the next few days."

Overseas, Asian stocks rose while European bourses were broadly higher at the close.

Treasury prices closed lower, with the 10-year note yield up to 5.00 percent from 4.98 percent Friday. The dollar fell against both the yen and the euro. Light crude oil futures were down 4 cents to $22.36 a barrel in New York. Gold slipped in Chicago.

Market breadth was positive in active trading. On the New York Stock Exchange, advancers beat decliners more than 2-to-1 as 1.59 billion shares changed hands. On the Nasdaq, winners beat losers 11-to-6 as 2.27 billion shares traded.

Dow financials get a boost

Oracle (ORCL: down $2.32 to $13.67, Research, Estimates) warned late Friday that profit and sales in its just-ended third-quarter were weaker than expected, partly due to slow sales in Asia.

Merrill Lynch downgraded its rating on the stock to "neutral" from "buy" and cut its earnings estimates. Prudential and Credit Suisse First Boston were among the other brokerages also cutting expectations.

"Six months ago this (Oracle news) would have tanked us, but markets are strong enough to shrug this off," Jeff Benton, trader at Performance Specialist Group, told CNNfn's Market Call.

PeopleSoft (PSFT: up $1.78 to $34.38, Research, Estimates) and Siebel Systems (SEBL: up $2.10 to $32.53, Research, Estimates), Oracle competitors, rebounded from early weakness.

Internet names were higher on a pair of upgrades.

CIBC World Markets raised its rating on Web portal Yahoo! (YHOO: up $1.20 to $17.81, Research, Estimates) to "buy" from "hold" and set a 12-month price target of $21. Deutsche Bank Alex. Brown raised its rating on online auctioneer eBay (EBAY: up $4.60 to $59.46, Research, Estimates) to "strong buy" from "buy" and maintained its 12-month price target of $80.

Prudential put out a midday research note, saying that the firm is positive on the semiconductor equipment sector and that there should be an order recovery starting in the March-through-April period. Applied Materials (AMAT: up $2.08 to $50.06, Research, Estimates) and Novellus (NVLS: up $2.45 to $51.01, Research, Estimates) were among the names benefiting in afternoon trade.

Pricing and delivery software maker Manugistics Group (MANU: up $3.03 to $17.60, Research, Estimates) said fiscal fourth-quarter results will beat its own guidance and analysts' expectations. Sector mate i2 Technologies (ITWO: up $0.75 to $6.64, Research, Estimates) rose as well.

IBM will make programmable chips for Xilinx (XLNX: up $2.56 to $42.18, Research, Estimates) in a $100 million, two-year deal.

Perhaps helping the Dow financial sector, Credit Suisse First Boston issued a bullish note on consumer financials such as MBNA (KRB: up $2.25 to $37.45, Research, Estimates), while Lehman Bros. said it is increasing its exposure to the financial sector, primarily in Europe.

Home Depot (HD: down $0.39 to $49.90, Research, Estimates) was a notable Dow laggard after UBS Warburg downgraded the home-improvement retailer.

3M (MMM: up $2.69 to $123.01, Research, Estimates) gained despite news that Lehman cut 2002 and 2003 earnings per share estimates.

TRW (TRW: up $0.55 to $50.60, Research, Estimates) rejected an unsolicited $5.9 billion bid from aerospace firm Northrop Grumman (NOC: down $4.25 to $103.50, Research, Estimates) Sunday, saying the offer undervalues the company. On Monday, Northrop began a hostile bid for TRW. In response, TRW has advised its shareholders not to act until it issues a recommendation, which it should do by March 15.

In the ongoing military action overseas, the Pentagon has reported that a U.S. helicopter was shot down in eastern Afghanistan, although the circumstances of the attack were unknown. A total of nine U.S. fatalities were reported as a result of this and another, unrelated crash.

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