Stocks pocketed hefty gains Wednesday, with the Nasdaq Composite surging nearly 6% as investors were encouraged by President Bush's comments on an upcoming economic stimulus package, stronger-than-expected economic data and a reassuring earnings update from Cisco Systems (CSCO).
Wednesday's rally is causing some market watchers to suggest that the worst of stock market losses is nearing a bottom. "People are saying this market has all the fundamental and technical factors to pick up," says Jay Suskind, director of equity trading at Ryan Beck & Co. While investors will continue to fret over "global uncertainties," they will also buy on other optimistic data, he says.
"There's been a tremendous amount of fiscal and monetary policy to stimulate this economy. After Sept. 11, the market is discounting that third and fourth quarter will be bad and people are looking for growth in 2002," Suskind says.
Bush confirmed that a stimulus plan of $60-$75 billion is being discussed with Congress. Stimulus could take on several forms, but the measures would aim to boost the economy without doing long-term damage. Secretary of the Treasury Paul O'Neill said a broad bipartisan agreement should deliver a net boost equal to 1% of GDP and not pressure long-term interest rates.
Comments from Cisco chairman John Chambers at a conference in New York lifted his company's shares more than 21% and led the technology stocks higher. He said that he was "very comfortable" with first quarter earnings estimates for the company. On average, analysts expect the company to earn $0.02 a share in its fiscal first quarter, with estimates ranging between a loss of $0.01 to a profit of $0.03.
"This is a very refreshing update in this environment," says Stephen Carl, principal and head of equity trading, at the Williams Capital Group LP, of Cisco's positive comments.
Earlier in the day, investors latched on to a better-than-expected read from the National Association of Purchasing Management's (NAPM) non-manufacturing index, which measures the services sector of the economy. The index rose to 50.2 in September, up from 45.5 in August. A reading below 50 for the index indicates contraction.
For its part, the Federal Reserve kept in line with its aggressive easing stance, by cutting interest rates at its policy-setting meeting on Tuesday. The U.S. central bank has cut rates a total of nine times in 2001. The Fed's key overnight lending rate is now at 2.5%, the lowest level in 39 years.
Though stocks staged an impressive rally Wednesday, the aftermath of the Sept. 11 attacks on the World Trade Center and the Pentagon has left many investors cautious. Plans for U.S. military actions against terrorists and a weakening economy at home and globally have many steering clear of stocks.
Investors chose not to focus on a pile of earnings warnings from high-profile companies. Eli Lilly (LLY), the maker of anti-depressant Prozac, issued a profit warning as sales of the drug, which recently began competing with generic versions, have declined faster than expected.
No. 1 telecom equipment maker Nortel Networks (NT) said after the close Tuesday that it will layoff another 10,000 employees on top of 10,000 cut from divestitures of some businesses. Nortel will lose $0.28 a share, on revenue of $3.5 billion.
High-end jewelry retailer Tiffany & Co. (TIF) and home and kitchen boutique Williams-Sonoma (WSM) also reduced their profit forecasts amid a difficult retail environment. Investors, however, bid these stocks up.
Software, semiconductors and networking led the stock market's gains while defensive groups like healthcare, gold and drugmakers moved lower.
The Dow Jones industrial average gained 173.19 points, or 1.93%, to 9,123.78. The Nasdaq Composite Index added 88.44 points, or 5.93%, to 1,580.77. The broader Standard & Poor's 500 Index rose 20.93 points, or 1.99%, to 1,072.26.
U.S. Treasuries finished higher even as a stronger-than-expected reading of the NAPM's non-manufacturing index and comments on an upcoming stimulus package helped stocks rally. However, investors continue to seek out "safe haven" investments. Along with the global tension and uncertainties over a military strike, troubles in emerging markets are adding to the flight to T-bills, says S&P's economic research unit MMS.
Concerns of U.S. military action in the Middle East and the prospects of a global slowdown continue to pressure world markets. However, European markets finished mixed.
In London, the Financial Times-Stock Exchange 100 index finished higher by 49.50 points, or 1.02%, to 4,881.80. The biggest contributors to the gain were drug maker GlaxoSmithKline and financial services company HSBC Holdings
Germany's DAX Index surged 132.46 points, or 3.08%, to 4,436.66. The biggest contributors to the gain in the DAX have been insurance concern Munich RE and business management software maker SAP. In economic news there, the Reuters European purchasing managers index of services fell to 49.0 in September, from 51.7 in August, suggesting economic contraction. European Central Bank's Welteke says he doesn't see a recession in Europe this year, but says growth next year might not reach potential.
In France, the CAC 40 finished down 20.41 points, or 0.50%, to 4,024.25.
In Asia, major stock markets ended lower. The Nikkei fell 212.33 points, or 2.09%, to 9,924.23, on profit-taking in telecom and auto stocks, reflecting concerns of lower earnings going into the second half of the fiscal year. Meantime, Hong Kong's Hang Seng stumbled 53.56 points, or 0.54%, to 9,897.14. By Amy Tsao in New York