Stocks finished with strong gains Tuesday as investors hunted for bargains after Monday's broad sell-off. According to Standard & Poor's, the equity gains could also be chalked up to short sellers covering positions, rumors that the Federal Reserve may cut interest rates to bolster the economy, and buying by foreign investors.
The Dow Jones industrial average gained 230.40 points, or 2.86%, to 8,274.09, after tumbling 3.24% on Monday. The tech-heavy Nasdaq composite index jumped 53.54 points, or 4.44%, to 1,259.55, after skidding 3.36% to a five-year low on Monday. And the broader Standard & Poor's 500-stock index was up 24.97 points, or 2.99%, to 859.57, after losing 3.43% on Monday.
Wall Street was eager to get a sign that demand for tech products is picking up as it awaited Cisco Systems' (CSCO) earnings release after the market close. The communications gear maker reported fourth-quarter EPS (pro forma) of 14 cents on revenue of about $4.83 billion. The earnings topped analysts' estimates, but revenue was a bit shy of forecasts. Cisco was scheduled to hold a conference call to discuss its results and outlook at 4:45 p.m. EDT.
In economic updates due Wednesday, S&P MMS expects wholesale trade to edge 0.1% higher in June after falling 0.2% in May. All of the strength is expected to come from nondurables, which are seen rising 0.2%. MMS also sees import prices in July rising 0.1%, while export prices should fall by 0.1%.
There were no major economic reports Tuesday, giving the markets a break from the spate of recent weak data. The latest reports -- namely the government's reduction of economic growth in 2001, a disappointing employment report, and the slower than expected pace of growth in the manufacturing and services sectors -- have made traders worried about the economy slipping back into a recession.
Though there have been rumblings the Fed could lower rates soon, S&P MMS believes the Fed will stay on hold for the rest of this year. Today, Lehman Brothers economists said they expect a rate cut in the next few months. On Friday, Goldman Sachs forecast that the Fed may lower the key federal funds rate to 1% by yearend, from 1.75% currently.
Sectors leading the way higher Tuesday included broadcasting and cable, which were pummelled Monday on downgrades and worries about a soft advertising environment. Semiconductor-related shares also rebounded strongly.
One stock rallying on earnings news was Omnicom Group (OMC). The advertising company reported better-than-expected second-quarter EPS of $1.00 on a 9.7% revenue rise.
In merger news, Nestle's (NSRGY) Nestle Holdings unit agreed to acquire privately-held Chef America, maker of the Hot Pockets brand of frozen sandwiches, for $2.6 billion cash, including the assumption of debt. The deal will give the Swiss food giant a bigger presence in the U.S. frozen food market.
Shares of Martha Stewart Living (MSO) were higher after a Wall Street Journal report that a Merrill Lynch trading assistant is further throwing into question Martha Stewart's explanation of her sale of ImClone (IMCL) stock.
Treasuries ended lower as stocks rebounded. Tuesday's auction of $22 billion in 5-year notes was sloppy, according to S&P MMS, and on the weak side, but in line with expectations. The notes were awarded at 3.348%. Traders are looking ahead to Wednesday's sale of $18 billion in 10-year notes.
European markets ended sharply higher after Monday's deep declines. In London, the Financial Times-Stock Exchange 100 index gained 134.60 points, or 3.37%, to 4,131.0. The surge was a rebound from oversold conditions, as the market seemed to shrug off reports that the UK job market in July grew at the slowest rate in four months and that industries have scaled back output expectations in most regions.
In France, the CAC 40 was up 169.41 points, or 5.44%, to 3,284.79. And in Germany, the DAX Index surged 235.99 points, or 7.08%, to 3,568.64. Stock gains were fueled by an asset allocation shift out of bonds and into stocks.
In Asia, the markets finished lower. The Nikkei was down 203.91 points, or 2.10%, to close at 9,501.02. Japan's major stock indices have declined for five consecutive days on prolonged concerns over the bellwether U.S. economy and equity worries after the country's July ISM services index fell to 53.1 from June's 57.2 and the benchmark averages tumbled overnight.
In Hong Kong, the market lost 161.64 points, or 1.64%, to close at 9,700.69.