Stocks rebounded from early losses to close higher as investors continue to adjust their portfolios for the new year. Strength in semiconductor and networking stocks, along with some tech bellwethers, helped boost the market. Many of the stocks which saw profit-taking on Monday attracted buyers.
A stronger-than-expected report on manufacturing activity provided some support. The Institute for Supply Management (formerly National Association of Purchasing Management) index for December rose to 48.2 from 44.5 in November. S&P was expecting the index to come in at 45.0.
Still, the index remains below 50, showing contraction in manufacturing activity. Some data in the report sparked hopes for a rebound. The new orders index, a key indicator of future demand for factory goods, rose to 54.9 from 48.8 in November. The next economic report to watch is Friday's employment report.
The Dow Jones industrial average ended the first trading day of 2002 with a gain of 51.90 points, or 0.52%, to 10,073.40. The tech-heavy Nasdaq composite index rose 28.85 points, or 1.48%, to 1,979.25. The broader S&P index gained 6.59 points, or 0.57%, to 1,154.67.
Before the late rally, the markets started off the new year struggling for direction after a dismal 2001. Standard & Poor's 500 index fell 13% in 2001, while the blue-chip Dow Jones industrial average fell 7%. The Nasdaq declined 21% for the year.
Signs of a recovery in the tech sector boosted sentiment Wednesday. Chip stocks rallied as South Korea's Hynix Semiconductor said it recently raised chip prices by an average of 30% to reflect increased prices in the spot market. This news also helped boost networking equipment stocks like Cisco Systems (CSCO) as it seems demand is picking up in the high-tech arena.
But many highflying winners of last year, such as homebuilders and some specialty retailers, came under pressure as investors booked profits.
The energy sector was lower as many investors remain skeptical that OPEC's proposed production cuts will boost crude oil prices. Oil & gas equipment stocks were down after Warburg and JP Morgan downgraded BJ Services (BJS).
Retailers were on the move as analysts sifted through holiday sales news. On Wednesday, Prudential cut its rating on Kmart (KM) to sell from hold amid disappointing fourth quarter sales and concerns about cash flow. The shares fell 14% in the wake of the downgrade. But some apparel retailers rallied after Banc of America upgraded AnnTaylor (ANN), Limited (LTD), and Intimate Brands (IBI) to buy from market perform.
In the telecom area, long distance giant AT&T (T) rallied on news that Merrill Lynch raised its rating on the stock. The company is reportedly raising its phone service rates and fees.
The euro, meanwhile, posted gains against the dollar as the notes and coins were introduced in 12 European countries on Jan. 1.
Treasuries were sharply lower after the ISM's manufacturing report for December was stronger than expected. The markets are also bracing for Friday's employment report that could show if there has been any improvement in the economy.
Most European markets ended mixed as the euro currency was introduced with few problems reported. In London, the Financial Times-Stock Exchange 100 index inched up 0.90 points to 5,218.30. The CIPS manufacturing fell slightly for tenth consecutive month and the Hometrack survey showed UK house prices rose 0.1% in December.
In Germany, the DAX Index gained 7.78 points, or 0.15%, to 5,167.88 amid reports that Germans are worried about unemployment and pensions as some brokerages issue bullish forecasts. And in France, the CAC 40 was down 44.14 points, or 0.95%, to 4,580.44.
In Japan, the markets are closed until Thursday for the holidays. The Nikkei ended 2001 at 10,542.62. In Hong Kong on Wednesday, the Hang Seng shed 46.36 points, or 0.41%, to 11350.85.