Wall St. stages comeback

By Alexandra Twin
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- U.S. stocks managed a tremendous turnaround by the close of Thursday's highly volatile session, with the Dow Jones industrial average recovering from sharp losses after a downgrade of General Motors and further accounting woes, and the Nasdaq surging on chip and networking strength.

The Dow Jones industrial average lost 11.97, or 0.14 percent, to 8,801.53. The index was down as much as 208 points at midsession. The Nasdaq composite gained 28.42, or 2.11 percent, to 1,374.43. The Standard & Poor's 500 index gained 6.90, or 0.75 percent, to 927.37.

All the indexes were sharply lower Wednesday, with the Nasdaq and S&P finishing at their lowest levels since 1997.

"It felt like a real relief rally," John Pickett, a specialist at LaBranche & Co., told CNNfn's Street Sweep. "Also on the Dow, we hit a key technical level and we were able to bounce back from it."

Looking forward, "in the next two or three weeks, the significance of earnings is going to be more than it's been in the last five years," he added. "The question is: Are investors going to look at these earnings and ask, 'Can we trust them?'"

After the close of trade, Juniper Networks (JNPR: up $0.11 to $7.22), a provider of communications equipment for telecoms, reported breakeven results for the second quarter, down from the 9 cents earned a year earlier. Analysts expected a loss of a penny.

Friday morning brings results from Dow component and diversified manufacturer General Electric (GE: up $0.30 to $27.35). The company is expected to report earnings per share of 44 cents, 12 percent better than the 39 cents earned one year earlier.

Also on Friday, the Census Bureau releases June retail numbers. Sales are projected to show a 0.6 percent rise after showing a 0.9 percent decline in May. Excluding the auto component, sales are projected to rise 0.4 percent, after declining 0.4 percent last month.

In addition, the preliminary University of Michigan reading on consumer sentiment is due. The index is expected to show a rise to 93.3 in July from 92.4 in June.

The indexes fluctuated wildly throughout the session Thursday, venturing well into both positive and negative territory. While the Dow settled into a mild decline, the Nasdaq managed a turnaround, partly in response to what analysts called "sharply oversold conditions," and partly due to some trading floor rumors.

According to Briefing.com, rumors were circulating that No. 1 chipmaker and Dow component Intel (INTC: up $1.44 to $18.25) might offer a positive pre-announcement after the bell, or a prominent analyst who has been bearish on the stock may be about to change his tune. However, analysts were very skeptical about the possibility of either of these rumors being true and no news emerged after the close.

"More likely, the recovery in chips today [Thursday] is probably more about the fact that the Soxx [the Philadelphia Semiconductor Index] hit a significant technical level earlier and is bouncing off that," said Charles Boucher, a semiconductor analyst at Bear Stearns who covers the stock.

Another positive factor that helped stocks recover was Morgan Stanley analyst Barton Biggs' raising his equity allocation in a model portfolio, saying that now is the time to step up and overweight equities.

UBS Warburg downgraded Dow component and automaker General Motors (GM: up $0.11 to $47.72) to "hold" from "buy." After pulling the Dow down throughout the session, shares of the stock managed to close a little higher. But Home Depot (HD: down $1.85 to $31.40), 3M (MMM: down $2.60 to $121.40) and Philip Morris (MO: down $1.17 to $44.00) were unable to recover their losses and ultimately pulled down the blue-chip indicator.

Two Dow components offered positive news. Eastman Kodak (EK: up $2.94 to $29.58) said it expects to report earnings of 85 cents per share for the second quarter, up from a previous estimate of 60 to 70 cents. The photographic products maker cited manufacturing productivity and operational performance for the improvement.

Wal-Mart (WMT: up $0.42 to $54.18) raised its forecast for its second quarter and fiscal year earnings per share, thanks to stronger-than-expected June sales at stores open for a year or more. But after an early boost, the world's No. 1 retailer was lower in the afternoon.

SEC investigates Bristol-Myers Squibb

The latest company facing accounting questions is pharmaceutical firm Bristol-Myers Squibb (BMY: down $1.04 to $22.11), which has confirmed it's being investigated by U.S. regulators for allegedly inflating sales last year by $1 billion.

Concerns about accounting may also be getting fresh play in the fallout from President Bush's speech Tuesday about the role of government in corporate responsibility and plans for reform.

Critics and some market watchers also have raised concerns that the president has condemned some practices that he himself engaged in when he was a member of the board of oil company Harken Energy, such as borrowing money from the company.

"It probably further weakens the confidence of some investors. The professional investor probably welcomes a lot of what Bush had to say, but it has definitely spooked other U.S. investors and the international investor," said Mike Farrell, head of asset allocation at David L. Babson.

Yahoo! hullabaloo

Yahoo! (YHOO: up $0.73 to $12.92) exemplified the day's turbulent nature.

Yahoo!'s shares rebounded from earlier losses that followed Merrill Lynch's downgrade of the Web portal operator. The rating change came a day after the company reported better-than-expected second-quarter profit and raised estimates for the rest of 2002.

Qwest Communications (Q: up $0.10 to $1.87) remained a pressure point. On Wednesday, the telecom lost 32 percent of its value after it disclosed that it is under criminal investigation by the U.S. Attorney's office.

Hurting software was a midday profit warning from German software company SAP (SAP: down $1.65 to $19.70). The company now expects to see 2002 sales growth of between 5 and 10 percent, down from the previous projection of 15 percent.

Also adding to the negative sentiment: The number of Americans filing new claims for unemployment rose last week to 403,000, topping estimates, from a revised 387,000 the prior week, the Labor Department said.

"We are experiencing these extreme levels of fear, with investors saying that they are not interested in hearing any positives, like the retail sales this morning, and that they want to throw the baby out with the bathwater," said Ram Kolluri, chief investment officer at GlobalValue Investors. "The silver lining is that this kind of panic is historically the classic feeling when a bear market is at its bottom."

In other economic news, the Producer Price Index, a measure of wholesale inflation, rose 0.1 percent in June after falling 0.4 percent in May, the Commerce Department said. Economists were expecting no change.

European and Asian stocks closed lower.

Treasury prices slipped a little, pushing the 10-year note yield up to 4.63 percent. The dollar fell versus the yen, but was a little stronger versus the euro. Light oil futures rose 6 cents to $26.83 a barrel in New York trade, and gold gained.

Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by almost 5-to-3 as 2.08 billion shares changed hands. On the Nasdaq, losers beat winners 4-to-3 as 2.25 billion shares traded.

"Clearly, there is a pent-up demand, but there has to be a reason to buy," said Tony Dwyer, chief market strategist at Kirlin Securities. "We may see a little technical bounce in the next day or two, but it won't amount to much. There's still too much negativity out there."