Bulls mull a job well done

March 5, 2002 Posted: 1354 GMT

NEW YORK (CNN/Money) -- Investors hoping that a two-day U.S. stock market rally stages a three-peat have a tough task Tuesday without more signs that the economy is really on the mend.

S&P and Nasdaq futures were flat to lower early Tuesday, pointing to an uneven start for the major markets.

The Institute for Supply Management gets a second chance in five days to cheer investors when it issues its February report on services activity after trading begins. The ISM services index is forecast to have risen to 51 from 49.6 in January, signaling expansion, according to a consensus of economists surveyed by Briefing.com.

That could encourage investors after last Friday's ISM report on manufacturing -- which, by going above the benchmark 50 level for the first time since July 2000, set in motion the powerful rally that has taken the Dow Jones industrial average to its highest level in more than seven months.

The Dow industrials start the session at 10,586.82 after rising 218 points Monday and 263 points Friday after the ISM's manufacturing report cheered investors. The Nasdaq composite index starts at 1,859.32, having gained more than 56 points Monday, while the Standard & Poor's 500 is at 1,153.84, following a 22-point advance that wiped out its losses for the year.

"I think we have seen the bottom," Vince Farrell of Victory Capital Management told CNNfn's CNNmoney Morning. But "I don't think we are at the beginning of a new exuberant bull market."

Salomon Smith Barney's chief market strategist, Tobias Levkovich, sounded more upbeat. Levkoich upped his year-end target for the Dow industrials to 11,400, a 7.7 percent gain from Monday's close.

"We do not think that investors have given up on the equity markets and we remain bullish over the next few months," said Levkovich, who cited "the beginnings of an economic tailwind, the probability of needed incremental upward earnings revisions, reasonable valuation and relatively strong degrees of skepticism amongst investors we talk to."

Most Asian markets finished higher Tuesday, although Tokyo's Nikkei index lost nearly 1 percent. European markets were lower at mid-session.

Treasury prices edged lower, with the 10-year note yield rising to 5.02 percent from 4.99 percent Monday. The dollar edged higher versus the euro and slipped versus the yen. Brent oil futures rose 36 cents to $22.35 a barrel in London, where gold slipped.

Early gainers included Intel (INTC: Research, Estimates) , whose shares rose 85 cents to $32.70 before hours, after Morgan Stanley upgraded the chip maker to "strong buy." The semiconductor maker said on its Web site that it cut prices of Celeron chips for inexpensive personal computers by between 7 percent and 18 percent, effective March 3.

Oracle (ORCL: Research, Estimates)  recouped 29 cents to $13.96 early Tuesday. The software maker's shares tumbled nearly 15 percent Monday on a profit warning.

But retailers could stumble after Credit Suisse First Boston downgraded many in the group.

It's also key day in the Hewlett-Packard-Compaq Computer saga, as a proxy advisory firm issues its opinion about the proposed merger of the two computer makers. Analysts believe that the Institutional Shareholder Services report, due after the closing bell, will sway nearly a quarter of those eligible to vote on the hotly contested merger.

HP (HWP: Research, Estimates) shares rose 42 cents Monday to $20.55, while Compaq (CPQ: Research, Estimates) added 24 cents to $10.65.

Fourth-quarter profit at office retailer Staples (SPLS: Research, Estimates)  came in at 29 cents a share, topping  forecasts. The company's shares rose 58 cents to $20.58 before hours Tuesday.

After the close, investors will be parsing results from discount apparel merchant Kohl's (KSS: Research, Estimates), among others.

Credit Suisse First Boston cut ratings on Abercrombie & Fitch (ANF: Research, Estimates) , Dollar General (FDO: Research, Estimates) , J.C. Penney (JCP: Research, Estimates)  and Zale (ZLC: Research, Estimates) .

In other household names, Formica, best-known for its counter tops, filed for Chapter 11 bankruptcy protection Tuesday.