Wall St. recovers, but hardly celebrating


A trouble-free Fourth of July could improve investor sentiment in the U.S.

By Kim Khan
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- After two punishing days, U.S. stock markets eked out gains ahead of the Fourth of July holiday, despite concerns of possible terrorism, with investors covering bets late in the day that stocks would fall further.

The Dow Jones industrial average jumped 47.22 points to 9,054.97, up about 0.5 percent and snapping a three-session losing streak. The Nasdaq composite index closed up 22.35 to 1,380.17, up about 1.7 percent. The Standard and Poor's 500 index rose 5.90 to 953.99.

The upward trend could continue in the shortened trading session Friday if the Fourth is terrorism-free, and gains could even be exaggerated because of the light volume.

"[A safe Independence Day] would be a good psychological boost, but we need some fundamental news as well," said Charles Payne, CEO of Wall Street Strategies.

"We need some good employment data. That would be the one-two punch we'd need to spur a good rally."

The government issues the June employment report before the markets open Friday. The unemployment rate is expected to rise to 5.9 percent in June from 5.8 percent in May, according to a survey by Briefing.com.

After being down for most of the day Wednesday on concerns about a possible Fourth of July disaster, stocks turned around on what market watchers said was typical "short covering."

Traders "short sell" stocks they have borrowed, hoping the price will go down. If the price looks like it may rise, short sellers buy to cover their bets and stem any losses.

"I think a lot of people expected the market to have follow-through on the downside and when it didn't there was probably covering," said David Horner, senior financial strategist at Merrill Lynch.

"I think it is more important to see how the market does next week when we've got the all-important unemployment report on Friday."

WorldCom trade heavy

WorldCom (WCOME: up $0.12 to $0.22, Research, Estimates) shares remained heavily traded a week after the company announced one of the biggest accounting scandals in history.

More than 1 billion shares had changed hands, with the battered stock doubling in value after IDT (IDT: up $0.08 to $16.50, Research, Estimates) offered to buy some of the phone service provider's assets for $5 billion.

That accounted for about nearly 40 percent of the volume on the Nasdaq, but Art Hogan, chief market analyst at Jefferies & Co., said it was mainly with arbitrage traders.

"People are holding [WorldCom] for few minutes at the most," he said. "If you look at the stock that was at 5 [cents] and now it's 22 [cents], that is a four-bagger right now for the guys that play it that way. And you can trade this thing all day long."

Financial stocks were weak on the Dow, with J.P. Morgan Chase (JPM: down $0.28 to $30.95, Research, Estimates), Citigroup (C: down $0.47 to $37.01, Research, Estimates) and American Express (AXP: down $0.64 to $36.19, Research, Estimates) all struggling.

General Electric (GE: down $0.20 to $27.90, Research, Estimates), also active in financial services, traded at its lowest point in nearly four years.

Sales warning

"People are starting to wake up to the [credit] exposure J.P. Morgan and Citigroup have to WorldCom," Hogan said.

But Dow component Intel (INTC: up $1.18 to $17.75, Research, Estimates) rose slightly after its competitor, Advanced Micro Devices, issued another sales warning.

In its warning, AMD (AMD: down $0.37 to $8.43, Research, Estimates) said sales for the quarter just ended were about $600 million, below the projection of $620 million to $700 million issued June 18 -- which itself was a reduction of the previous $820 million-to-$900 million forecast.

And shares of AOL Time Warner (AOL: up $1.54 to $14.06, Research, Estimates) finished strongly. Merrill Lynch reiterated an intermediate "buy" rating and a long-term "strong buy" on the company, saying that despite broader market and sector weakness, the "stock has been the standout underperformer in the media universe."

The firm said it believes that concerns of fraud and accounting irregularities regarding WorldCom and Adelphia are exaggerated, saying "we believe both these issues are overblown and would use the current weakness in AOL shares as a buying opportunity." AOL is the parent company of CNN/Money.

Biotechs struggle

On the Nasdaq, biotechs struggled after European regulators ruled that NaPro BioTherapeutics (NPRO: down $1.30 to $4.80, Research, Estimates)' patent for its cancer drug paclitaxel is invalid and Deutsche Securities downgraded Genentech (DNA: down $1.25 to $28.70, Research, Estimates) to "market perform" from "buy" on valuation and near-term pipeline concerns.

Bellwether Amgen (AMGN: down $1.12 to $35.83, Research, Estimates) tumbled, as did Immunogen (IMGN: down $0.11 to $2.07, Research, Estimates) and Biogen (BGEN: down $0.26 to $37.24, Research, Estimates).

But bellwether names pushed the Nasdaq higher late in the day, with strong gains from Sun Microsystems (SUNW: up $0.50 to $4.89, Research, Estimates) and Oracle (ORCL: up $0.87 to $9.55, Research, Estimates).

Asian-Pacific stocks ended mostly higher Wednesday, with Tokyo's Nikkei index up 1.8 percent. European markets dropped sharply.

Treasury prices fell, pushing the 10-year note yield to 4.77 percent. The dollar continued to strengthen against the euro, but fell against the yen.

Light crude oil futures rose 3 cents to $26.80 a barrel in New York, where gold finished lower at less than $312 per ounce.

Employment data

Market breadth was negative. On the New York Stock Exchange, decliners led advancers more than 5-to-3 as 1.52 billion shares changed hands. On the Nasdaq, losers topped winners by 4-to-3 on volume of 2.66 billion shares.

In economic data released Wednesday, the number of Americans filing new unemployment claims fell to 382,000 from a revised 393,000 in the previous week.

Economists surveyed by Briefing.com expected claims to come in at 388,000. The number remains below the 400,000 benchmark that symbolizes economic weakness.

The Institute for Supply Management's June services index fell further than expected, to 57.2 percent from 60.1 percent in May. The figure is still well above the level that signifies expansion in the sector.

And factory orders for May rose 0.7 percent, matching the April increase and surpassing expectations of a 0.6 percent boost.