A Big Blue Tide Lifts Stocks

A solid earnings report from IBM and rising hopes for a rate cut sparked a buying spree

Nothing like an old sea captain staring down a raging storm - and winning. Blue-chip tech giant International Business Machines Corp (IBM ) did just that Thursday as a better-than-expected fourth quarter sent its stock up 12% and sailed the market into positive waters.

Meanwhile, a report released Thursday showed the manufacturing sector in the mid-Atlantic region contracted in January to its most dismal level in more than a decade. Coupled with the depressing economic data that could spell another interest rate cut, the IBM news sent investors charging ahead. Buying was concentrated in computer and semiconductor stocks, two groups that have disappointed as of late.

"IBM was providing a pretty good umbrella today," said Richard Cripps, chief market strategist at Legg Mason Wood Walker. "But the rally occurred in the overall context of improvement in volume and in confidence. It's as general improvement pattern," he said. Cripps said that many buyers in today's session were portfolio managers who could ill afford to be sitting on cash if the market starts to move higher.

IBM, a Dow component, soared 11-5/8, to 108-5/16, after it reported that net climbed 28% on sales of mainframe computers, profitability in PCs and cost-cutting. Big Blue results beat forecasts and helped offset profit warnings from other computer firms. Even though computer maker Apple (APPL ) reported its first loss in three years, the Dow Jones Computer Index ended up 7.2%.

Earnings reports were at the bow of investors' minds as a slew of companies - from both the New and Old Economies - unleashed fourth quarter results. Outside of IBM, today's fleet of earnings reports was mostly disappointing, but optimism that a turnaround is underway could not be quelled. The tech-heavy Nasdaq Composite Index finished up 26.09 points, or 3.2%, at 2,768.87.

"We've had some very spotty and ugly earnings from companies. However, the market seems to have discounted much of this and has even rewarded some companies with mediocre profit numbers," Steve Crowley, manager of Kopp Emerging Growth Fund, told Standard & Poor's AdvisorInsight. "The good thing about all this is that we have lowered the bar on earnings expectations. This is a sign that the worst may be over for this market."

Specialty semiconductor maker Xilinx Inc. (XLNX ) reported earnings that slightly missed Wall Street's forecast. Nonetheless, investors, betting on more interest rate cuts and a hi-tech turnaround, bought up chipmakers, pushing the Philadelphia Semiconductor Index up 7.1%. Shares in Intel (INTC ) led the rally in the group, climbing 1-11/16, to 32-3/16.

Redback Networks (RBAK ) was one of the most actively traded issues on the Nasdaq, falling 7-11/16, to 40-7/8, after it posted fourth quarter pro forma earnings per share of $0.05 compared with $0.02 a year ago on a sharp rise in revenues. SG Cowen downgraded the stock to buy from strong buy.

Among old-line companies, auto giant Ford Motor Co. (F ), reported a 33% drop in fourth-quarter operating earnings, largely due to weaker results from its core North American automotive operations. Construction equipment company Caterpillar Inc. (CAT ) said its fourth quarter profit rose 10 percent, beating Wall Street's estimates.

Investors are hoping that continued evidence of a slowing economy will prompt the U.S. Federal Reserve to hack interest rates some more in 2001. The next Fed meeting will be held on January 30 and 31.

Dow component GE (GE ) ended up 15/16, at 47-5/8, after it reported fourth-quarter net rose 16%, meeting expectations. Automaker General Motors (GM ) rose 1-1/8, to 56, after it reported earnings slid 51% and warned of weakness in the first quarter. Financial services giant J.P. Morgan Chase (JPM ) weighed on the blue-chip index after it reported lower than expected earnings. posted lower-than-expected earnings. JP Morgan fell 1-9/16, to 51-7/16.

After posting triple-digit gains for most of the day, the Dow Jones Industrial Average finished up 93.94 points, or 0.8%, at 10,678.28. The broader Standard & Poor's 500 Index ended up 18.54 points, or 1.3%, at 1,348.01.

Investors will turn their attention next to earnings reports from tech bigwigs Microsoft Corp. (MSFT ), Nortel Networks Corp.(NT ) and Sun Microsystems Inc. (SUNW ). Those firms are expected to release results after the close of trading today.

Treasury Market

U.S. treasuries soared even as a fresh batch of economic data seemed contrary to recent evidence that the economy is cooling. Housing starts rose 0.3% in December while Standard & Poor's economic research unit MMS had expected to fall 4.0% to a 1.5 million unit rate. The data was surprising since investors were expecting a softening in the housing market. In other economic data, new claims for unemployment benefits fell 37,000 to 306,000 in the week ended Jan. 13. MMS had expected a rise of 5,000 to 350,000.

But the key to investors' rate cut optimism was data from the Federal Reserve Bank of Philadelphia that said its January business conditions index slipped to its lowest level in more than a decade.

Stocks in the News

Circuit maker Advanced Micro Devices (AMD ) posted $0.53 compared with $0.21 fourth quarter earnings per share on a 22% rise in revenues. Thc company expects flat growth in first quarter revenues. Standard & Poor's cut its estimates on the company while UBS Piper restated its neutral rating and Robertson Stephens upgraded the stock to buy.

Retailer Sears (S ) reported $1.91 compared with $1.98 for fourth quarter EPS from operations as higher costs offset a 2.4% revenue rise. The company said a slowing economy effected results. It expects high-single to low-double digit EPS growth in 2001.

World Markets

European markets closed mixed. London's Financial Times-Stock Exchange 100 index ended up 12.50 points, or 0.20%, to 6,209.90. In Germany, the DAX Index finished down 17.62 points, or 0.26%, to 6,635.76. Meanwhile, France's CAC 40 ended with a loss of 23.93 points, or 0.41%, at 5,860.16.

The Asian markets finished up. Japan's Nikkei ended higher by 206.29 points, or 1.51%, at 13,873.92. Hong Kong's Hang Seng Index finished with a gain of 267.27 points, or 1.75%, at 15,528.75.

By Amy Tsao in New York

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