Stocks pocketed solid gains Tuesday with help from a much better-than-expected rise in the latest read on consumer confidence.
The major stock indexes all finished higher, though gains were pared by some profit-taking in the afternoon. The Dow Jones industrial average finished up 71.69 points, or 0.70%, to 10,353.36. Earlier in the session, the index was up more than 100 points. The Nasdaq Composite index finished up 11.68 points, or 0.64%, to 1,824.17. The broader Standard & Poor's 500 Index gained 6.45 points, or 0.57%, to 1,138.32.
The Conference Board's consumer confidence index for March rose to 110.2 from 94.1 in February, significantly above Wall Street forecasts. The closely monitored expectations index sprinted to 109.3 compared with 94 while the present situation index rose to 111.5 from 96.4 -- the biggest one-month gain in 25 years. Analysts had anticipated an incremental increase. The robust rise suggests that the consumer may be far from running out of steam.
"Strong consumer sentiment numbers sparked a rally this morning, but weren't enough to sustain it," says Stephen Carl, principal and head of U.S. Equity Trading at the Williams Group. "There's still a lot of concern about the strength of the recovery, and many investors are looking to see if Thursday's University of Michigan consumer confidence figures corroborate today's data."
Tuesday's consumer confidence surprise gave the market a reason to rally. However, concerns remain that first-quarter 2002 corporate profits will not provide the earnings power to drive stocks higher. The prospect of interest rate hikes by the Fed in the coming months is also on investors' minds.
On Wednesday, investors will digest another report on the housing market. S&P economists expect new home sales for the month of February to come in at 820,000, down from 890,000 in January.
There was plenty of news from the tech sector Tuesday. Rating downgrades from equity analysts put some pressure on the tech-focused Nasdaq Composite index. Gerard Klauer Mattison lowered its opinion of semiconductor maker Applied Materials (AMAT) to "neutral" from "buy", saying that a pick-up in capital equipment orders is already built into the company's current share price.
And UBS Warburg cut its rating on telecom concern WorldCom (WCOM) to a "hold" from a "buy" on weak demand for data services and a difficult operating environment.
In company news, fiber optics company Ciena (CIEN) said that it would slash 22% of its work force in a bid to return to profitability. It said it would take a restructuring charge in its fiscal second quarter as well as an inventory-related charge.
Meanwhile, investment firm Morgan Stanley said its quarterly profit fell 21% amid an industry-wide slowdown in investment banking and slow business at its brokerage business due to ongoing stock market jitters.
More concerns about corporate accounting practices came to light Tuesday. Network Associates (NET) shares were lower after the company announced that the U.S. Securities and Exchange Commission plans to investigate into its fiscal 2000 accounting. The network security company said it feels comfortable that its practices were proper after reviews with outside accountants.
U.S. Treasuries finished higher as bond-friendly data on durable goods orders offset the effects of the sharp rise in consumer confidence. The durable goods report showed a rise of 1.5% in February after a revised 1.3% gain in January. This is the third consecutive monthly gain. Nondefense capital good orders were up 4.9% after a 2.1% decline in January. Much of the strength was in defense, however, up 78.6%, and transportation, up 8.6%. Shipments fell 3.2% after a revised 1.8% gain.
While Tuesday's durable goods orders data for February were a little stronger than expected, the downward revision for January to a gain of 1.3% takes out some of the strength, notes Standard & Poor's economists at MMS.
European stocks ended mixed. In London, the Financial Times-Stock Exchange 100 index finished down 8.10 points, or 0.16%, to 5,195.50, with little reaction to a report that said business investment fell 0.3% in the fourth quarter. In France, the CAC 40 added 39.71 points, or 0.87%, to 4,628.07. In Germany, the DAX Index jumped 73.21 points, or 1.38%, to 5,390.59, after the March read on the Ifo business confidence index showed a rise to 91.8 from 88.5 in February.
In Asia, the markets ended lower. In Japan stocks fell 53.17 points, or 0.47%, to 11,207.92. The Nikkei fell for the fourth consecutive day following a poor showing in the U.S. stock market overnight on concerns over first-quarter earnings warnings. Hong Kong's Hang Seng index dipped 49.72 points, or 0.46%, to 10,786.92.