Techs lead Wall St. rebound


A guilty plea by a former Enron executive helped boost sentiment

By Alexandra Twin
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- The stock market resumed its rally Wednesday as investors managed to shrug off early declines and blue-chip volatility to close broadly higher, led by gains in technology shares.

The major indexes rallied sharply on Monday and sold off on Tuesday before recovering some positive momentum by the end of Wednesday's session.

The Nasdaq added 32.66, or 2.37 percent to 1,409.25. The Dow added 85.16, 0.96 percent, to close at 8,957.23. The Standard & Poor's 500 index gained 11.93, or 1.27 percent, to end the day at 949.36.

But despite the gains, analysts cautioned investors not to lose sight of the forest for the trees.

"This recent rally may have legs, but we're still on a downtrend," David Briggs, head of equity trading at Federated Investors, told CNNfn's Street Sweep, adding that he'd like to see a little more cash coming in before he's ready to call a bottom.

The long-speculated AOL Time Warner (AOL: up $0.97 to $14.33) buyout of AT&T's (T: up $1.00 to $12.18) stake in Time Warner Entertainment was announced Wednesday.

The deal -- for $3.6 billion in cash and stock plus a stake in a Time Warner Cable spinoff -- would give AOL, parent of CNN/Money, control of HBO and Warner Bros. studios, among other holdings.

The deal provided strength to both the technology-heavy Nasdaq and the Dow industrials, of which AT&T is a component.

In addition, a number of tech companies that were hit hard on Tuesday's selloff saw a recovery.

"Tech is performing better today (Wednesday)," said Tom Shrader, head of listed trading at Legg Mason.

Enron plea

"The semis are following through from last week's gains and from Advanced Micro Devices (AMD: up $0.51 to $10.70) introducing a new Athlon chip today. Software is getting a bounce, too."

Cisco Systems (CSCO: up $0.38 to $15.11) helped lead the network stocks higher. A bounce in semiconductor issues Intel (INTC: up $0.62 to $19.59) and Applied Materials (AMAT: up $1.01 to $16.04) led the Philadelphia Semiconductor index, or Soxx, up 4.6 percent.

Among other positives for the markets were comments from officials that an incident at Miami International Airport which caused at least 35 people to suffer from respiratory problems wasn't a biological or chemical attack.

The officials told CNN they believe an irritant from a construction site may have been the source of the problem.

Another contributor to the rally: Former Enron executive Michael Kopper pled guilty Wednesday to federal charges of conspiracy to commit money laundering and wire fraud.

However, few analysts were eager to call the rally sustainable.

"Bulls have had a run of the market recently," said Charles Payne, CEO and chief analyst at Wall Street Strategies. "But we face reality again in a few weeks, when everyone comes back after Labor Day."

Home Depot rally

Home Depot (HD: up $2.43 to $32.68) joined AT&T atop the list of Dow gainers. On Tuesday the Home improvement retailer reported second-quarter earnings of 50 cents a share, 3 cents better than expected and an improvement over the 39 cents earned a year earlier.

"Home Depot gave an upside surprise yesterday (Tuesday) and we think the strength you're seeing right now is just a continuation of that," said Donald Trott, a retail analyst at Jefferies & Co., who covers the stock.

In addition, a Merrill Lynch analyst who downgraded Home Depot in July was dismissed by the firm. Sources said the departure was because analyst Peter Caruso leaked word of the downgrade to select clients; Merrill officials wouldn't confirm the reason for the dismissal and Caruso wasn't available for comment.

On the downside, shares of Dow component Philip Morris (MO: down $1.10 to $50.60) led the tobacco sector lower. Wednesday marked the start of a closely watched California trial, brought against the company by a woman dying of lung cancer.

In addition, consumer electronics retailer RadioShack (RSH: down $4.74 to $24.21) warned that third-quarter earnings per share will be weaker than it previously anticipated due to poor August sales.

Treasury prices fell, sending the 10-year note yield up to 4.20 percent. The dollar declined against the yen and euro.

"We're up 15 or 20 percent off our (July 24) lows," said Legg Mason's Shrader. "But September is a tricky month historically. We could retest recent lows by as much as 10 percent before we're able to really move higher."