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Iraq deal spurs Wall St. comeback
By Parija Bhatnagar, CNN/Money Staff Writer
NEW YORK (CNN/Money) -- The Dow Jones industrial average made a fighting comeback with a triple-digit rally Tuesday, posting its strongest gain in six weeks at the start of a new month and new quarter. Blue-chip stocks soared more than 300 points in the final hour of trading, following news that Iraq had reached agreement to allow the return of U.N. weapons inspectors; an advance team is due in Baghdad in about two weeks. The development dampens war prospects and also helped push a weak manufacturing report out of the picture. The possibility of war between Iraq and the United States has hurt stocks in recent months, contributing to one of the market's worst selloffs in memory. "The Iraq news definitely was a positive. This morning, people were fearful of the ISM data, which came mostly in line. So stocks tracked higher on these developments," said Tony Dwyer, market strategist with Kirlin Securities. But some traders curbed their enthusiasm over the day's performance. "I think people are waiting for the dust to settle," Tim Smalls, equity trader with SG Cowen, told CNNfn's Street Sweep. "We've had so many issues to deal with over the past year that this one day and a great start to the quarter -- it gets us off on a good note. But I wouldn't necessarily put a tremendous amount of stock into it as changing people's psyche on the markets." The market rally came a day after the major stock indexes closed the book on both an abysmal September and the worst third quarter since the market crash of 1987. The Dow Jones industrial average (up 346.86 to 7938.79) rose 4.5 percent -- its third-best percent gain for the year -- to close at a session high. The Nasdaq composite (up 41.66 to 1213.72) gained 3.5 percent, and the Standard & Poor's 500 (up 32.63 to 847.91) rose 4 percent -- its fourth-biggest percentage gain for the year. The Nasdaq overcame its losses earlier in the session by taking cheer from an upgrade of Dell Computer and a "lucky" mistake by Sun Microsystems. Job cuts fallMarket watchers said a combination of hope and anxiety on the part of investors provided some early support to the market despite some troubling news on the economy. "The Dow [showed] some resolve. I think it [had] to do with a key report on employment that indicates the jobs picture may be firming up," said Charles Payne, CEO and chief market strategist with Wall Street Strategies. Employment research firm Challenger Gray & Christmas said in a report published Tuesday that job cuts announced at U.S. firms fell to their lowest level in 22 months in September, indicating a 41 percent drop in layoff announcements from August to September. Payne said the data suggested a possible turnaround in the nation's employment picture and may bode well for Friday's September jobs report. That report, however, is expected to show that the unemployment rate has ticked back to 5.9 percent from 5.7 percent in August. Tuesday morning's updates on manufacturing activity in September and construction activity in August showed declines. The Institute of Supply Management's index of manufacturing activity fell to 49.5 in September from 50.5 in August. A number below the key level of 50 denotes contraction in manufacturing activity. IBM seals billion-dollar dealAmong the market movers, Dell (DELL: up $1.13 to $24.64) took off after Banc of America late Monday upgraded the stock to "buy," citing stronger conviction of sustainable growth, including the PC maker's recent entry into new market segments. The brokerage's note came a day ahead of Dell's two-day analysts meeting in Austin, Texas. Sun Microsystems (SUNW: up $0.17 to $2.76), the leading supplier of Unix servers, late Monday restated its fourth-quarter earnings higher, citing lower costs than previously calculated. But Goldman Sachs dented the positive news by widening its loss-per-share estimate for the company's September quarter, saying it believes the "ongoing macro weakness will finally drive Sun to reduce headcount further early in the current quarter." Shares of tech bellwetherIBM (IBM: up $2.86 to $61.17) were boosted after Britain's top health and beauty retailer Boots announced a $1.1 billion 10-year deal with IBM to manage to manage its computer infrastructure and telecommunications systems. Still cautiousBut it was not all smooth sailing for techs as some other prominent companies were hit with analysts' estimate downgrades. UBS Warburg cut its third-quarter, 2002 and 2003 estimates for software maker PeopleSoft (PSFT: up $0.10 to $12.47), saying it believes the company will miss its target for the quarter due to a weak spending environment in its European market. Separately, J.P. Morgan said it was still cautious on the market outlook, believing that equity valuations remain stretched. In a morning note entitled "Still expensive, still over-owned," the brokerage set a year-end 2003 target for the S&P 500 of 800 -- about 2 percent below current levels -- citing a weak earnings outlook. However, the firm also said that the potential for a short-term relief rally exists if factors such as the Iraq war concerns are resolved.
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