Stocks End Higher to Close a Dismal Quarter

Window dressing by portfolio managers lifted the markets. But the second quarter may bring more misery

Stocks closed higher on Friday, March 30, as futures related buy programs kicked in and portfolio managers engaged in a bit of end of quarter "window dressing", snapping up shares of outperforming stocks and unloading laggards.

Despite the upbeat close, the session wrapped up the worst performing quarter in the history of the Nasdaq Composite, and one of the worst for the Dow Jones Industrial Average. The Nasdaq was pummeled during the quarter, losing 26.4% year-to-date. The Dow fared somewhat better, dropping 9%. The broader-based S&P 500 shed 13% in the first quarter.

The Dow closed the session higher on gains in American Express (AXP ), Exxon Mobil (XOM ) and International Business Machines (IBM ).

Friday's data releases painted a confusing picture of the state of the economy. The University of Michigan's final reading of March consumer sentiment dipped to 91.5 from a preliminary reading of 91.8. However, the figure is a modest improvement over the final February reading of 90.6.

But the Chicago Purchasing Managers Index (PMI), a key gauge of manufacturing activity in the Midwest, plunged to 35.0 in March from 43.2 in February, well below expectations. Indeed, it was the lowest reading since March 1982. The orders index fell to 35.1 from 43.0 and production dropped to 34.8 from 43.1. Employment fell to 32.3 from 42.2.

Standard & Poor's economic research unit says the data suggest notable downside risk to the more broad-based National Association of Purchasing Management (NAPM) report, scheduled for release on Apr. 2. And similar weakness in the NAPM would imply another cycle of hefty manufacturing declines in the likes of upcoming employment and production reports. Overall, the weakness in this data will help to keep expectations for more Fed easings firmly in place.

Joseph Barthel, chief investment strategist, Fahnestock says the big economic news is next week. "My sense is that today's numbers while having some importance probably won't be as important as the numbers we get next week." The strategist notes that the distance between Main Street and Wall Street is not as far as many might think. "Consumer confidence is now based on what happens on Wall Street - if stocks go lower, consumer confidence is going to go lower."

As far as the state of the market and its volatility, Barthel believes there's more to come. "I don't think the bottom is in place," he says. "We could get a rally - whether it happens now as a counter trend rally or at the end of the market decline and produces a more significant rally - is debatable."

With market experts predicting more negativity from the corporate earnings front, there might be stormier weather ahead before the calm.

Treasury Markets

Treasuries finished higher after a shockingly low Chicago PMI resuscitated talk of a more aggressive Fed as the index fell to historic lows.

There are several Fed officials speaking next week, with Federal Reserve chairman Alan Greenspan is headlining the bill on Wednesday. He will be testifying before the Senate Finance Committee on trade policy. On Apr. 2, Governor Edward Gramlich will speak on Social Security, on Apr. 3, Other Fed board members to speak include Anthony Santomero and William J. McDonough. Also on April 3, Laurence Meyer is scheduled to testify on banking.

Stocks in the News

BusinessWeek's Inside Wall Street reports that there is speculation that Citigroup (C ) chairman Sandy Weill wants to acquire American Express. John Hancock's Tom Goggins thinks AXP is worth $70 per share.

Micron Technology posted a $0.01 per share Q2 loss vs. $0.30 EPS from continuing operations on an 8% total sales decline.

Plexus Corp. (PLXS ) cut its Q2 guidance to $0.26-$0.28 EPS on sales of $278 to $282 million and Q3 to $0.20-$0.24 EPS on sales of $235 to $250 million.

World Markets

In London, the Financial Times-Stock Exchange 100 index closed up 45.30 points, or 0.81%, to 5633.70 as some surveys show UK economy will outpace U.S. growth. In Germany, the DAX Index ended down 50.86 points, or 0.87% to 5828.44. In France, the CAC 40 ended up 22.53 points, or 0.44% to 5180.45 as French unemployment rate fell to 8.8% in February from 9% in January.

The Tokyo market proved unable to maintain its strength on the last day of fiscal 2000, giving up modest gains made in early trade. The Nikkei 225 closed down 0.56% at 12,999.7, not far above a technical support of roughly 12,850, and marking a 36% decline from the previous fiscal year. In Hong Kong, the Hang Seng gained 82.75, or 0.65%, to 12760.64.

By Alan Hughes in New York

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