Stocks Surge on Economic Data, IBM, GE - Dow up 4.2%

October 11, 2002

NEW YORK — Stocks rose sharply for the second straight session Friday as a Wall Street analyst's brighter outlook for IBM (IBM) and reassuring earnings from GE (GE) helped restore hopes for a corporate profit rebound. The indexes had their first week of gains in seven.

The blue-chip Dow Jones industrial average jumped 316.34 points, or 4.20 percent, to 7,850.29, according to the latest available data. The broad Standard & Poor's 500 Index rose 31.40 points, or 3.91 percent, to 835.32. The Nasdaq Composite Index soared 47.11 points, or 4.05 percent, to 1,210.48.

The last time the Dow was up more than 3 percent on back-to-back days was March 16, 2000, according to market tracker MarketHistory.com. For the week, the Dow was up about 4.5 percent, S&P was up 4.9 percent and Nasdaq rose about 6.7 percent.

"The market has been pounded with so much bad news, it's nice to see some good news for a change," said Burton Schlichter, senior market analyst at Lind-Waldock & Co., a division of Refco LLC.

IBM, the world's largest computer maker, raked in an 11 percent gain, leading the Dow higher after a bullish call by an investment bank. Conglomerate GE, another Dow heavyweight, scrambled up 7 percent after scoring a 25 percent rise in third-quarter earnings while forecasting solid 2003 growth.

The hefty gains come after the broad market scraped out a new 5-year low this week on a steady pounding of profit warnings, analyst downgrades and fears of a U.S. war against Iraq. Stocks wrapped up the week with back-to-back rallies as bargain hunters swept into the market, but doubts linger ahead of a rush of earnings reports next week.

"People feel a little better because things haven't gotten worse, but there isn't a full-blown feeling that things are 100 percent better," said Edgar Peters, chief investment officer at PanAgora Asset Management, which manages about $15 billion.



"Valuations are no longer an issue, expectations have come down and it looks like we are going to have year-over-year earnings growth for a second quarter in a row," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank Private Banking, which oversees $7 billion. "A lot of that is starting to build, and a lot of the negatives are starting to disappear."

Traders pinned part of the gains on short covering. Short sellers, investors who sold borrowed stock and hoped to buy it back later at a lower price, covered their short positions and bought shares as the market began to climb for a second day.

GE rose $1.61 to $24.21. The company said third-quarter earnings rose 25 percent, in line with forecasts, as NBC television and the sale of GE's Internet commerce unit helped offset sluggish demand for plastics and weakness in the aerospace and power markets. GE executives said they expect solid growth next year, but plan aggressive cost-cutting throughout the company.

IBM jumped $6.34 to $63.92. Investment bank Lehman Brothers raised its rating on IBM to "overweight" from "equal weight" and said third-quarter earnings should be in line with estimates, adding that information technology spending by corporations should improve in 2003.

"We're seeing some real buying as people come back with the conviction that, even if we haven't seen the bottom, certainly there's no risk of another huge decline," said Tom Schrader, head of listed trading at Legg Mason Wood Walker.

Other technology shares caught fire after Lehman's bullish comments. Web equipment maker Cisco Systems Inc. (CSCO) tacked on 57 cents, or almost 6 percent, to $10.32. No. 1 chipmaker Intel Corp. (INTC) advanced $1.04, or 7 percent, to $15.22. Software leader Microsoft Corp. (MSFT) jumped $2.49, or 5 percent, to $48.87.

Maytag Corp. (MYG), the No. 3 U.S. home appliance maker, rose $1.25, or 6 percent, to $21.38. The company said it plans to close a refrigeration plant in Illinois and cut nearly 8 percent of its workforce to cut costs and keep up with rivals. Maytag said it will open a similar factory in Mexico.

But struggling telecommunications gear maker Lucent Technologies (LU) fell 12 cents, or more than 17 percent, to 58 cents. The company said it will report a wider-than-expected loss in the fourth quarter, cut 10,000 more jobs, and take billions in charges for severance and a decline in its pension assets.

The company also said it canceled a $1.5 billion credit line, which it said it had not drawn from, to avoid a likely technical default.

Equity futures climbed before the opening bell after two economic reports landed in the range of expectations after months of dour economic readings.

The Commerce Department said overall retail sales fell 1.2 percent in September, hurt by weak car sales. But excluding autos, September sales actually squeezed out a gain of 0.1 percent.

U.S. wholesale prices inched up 0.1 percent last month after an unchanged reading in August, according to the Labor Department's Producer Price Index. The closely watched "core" PPI, which strips out volatile food and energy costs, also rose 0.1 percent in September following a 0.1 percent drop.

The market, however, took a brief dip after an index of consumer sentiment, maintained by the University of Michigan, fell to a 9-year low in its preliminary reading for October. The index dipped to 80.4 from September's 86.1, according to market sources.

Winners trounced losers by a ratio of almost 4 to 1 on the New York Stock Exchange and more than 2 to 1 on the Nasdaq. Trading was heavy with more than 1.84 million shares changing hands on the Big Board. More than 1.92 million shares were traded on Nasdaq.

The Russell 2000 index, a barometer of smaller company stocks, rose 11.57, or 3.4 percent, to 347.75. 

Overseas, Japan's Nikkei stock average finished Friday higher 1.1 percent. In Europe, France's CAC-40 rose 5.2 percent, Britain's FTSE 100 climbed 4.7 percent, and Germany's DAX index was up 5.7 percent.

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