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Wall St. rally led by data
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June 1, 2001: 4:38 p.m. ET
Betting on better economic times ahead, investors cautiously step back in
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - U.S. stocks rallied Friday as investors started placing bets on an economic turnaround, after a key report showed some strength returning to the job market.
"It's (the rally) positive follow-through on today's employment numbers," said Peter Coolidge, senior trader with Brean Murray & Co. "The market is looking at the glass half-full and cash is being put to work but I'm looking at pretty thin volume."
The gains come at the end of a week that started off on a post-holiday sluggish note; all three indexes finished lower on the week. The Nasdaq fell 4.5 percent, the Dow slipped 0.13 percent, and the S&P shed 1.3 percent. But analysts were still encouraged by the two-session rebound.
"The bears came out this week and didn't spook everyone off. When the market was too weak, there were buyers and as long as there are buyers on weakness we're OK," said Charles Payne, president of Wall Street Strategies.
Technology stocks led the gains but cyclical issues, which had gyrated for most of the session, jumped on the buying bandwagon, signaling some growing optimism that the economy is close to turning the corner.
"When we got to a certain point of weakness there were buyers and that's been one of the characteristics of the market recently – the re-emergence of the 'buy on dips' crowd," said Payne. "It's a more disciplined crowd but they are certainly nibbling at excessive weakness and that's a good undertone."
The Nasdaq composite index added 38.95 points to close at 2,149.44. The Dow Jones industrial average gained 78.47 points to end the day at 10,990.41. The S&P 500 rose 4.85 to 1,260.67.
"We've been rallying most of this last quarter on the basis of a little more hope that we have bottomed and that the consumer economy would not suffer the weakness of the manufacturing economy," Henry Cavanna, senior U.S. equity portfolio manager with J.P. Morgan Fleming Asset Management, told CNNfn's Street Sweep. "Today's job report gives us some hope that that is happening."
And Maureen Allyn, chief economist with Zurich Scudder Investments, told CNNfn's The Money Gang that, while the labor market remained weak, there were underlying encouraging signs. (427K WAV) (427K AIFF)
As negative pre-announcements of corporate results continued to filter into the market, the possibility for another rate cut is encouraging enough for investors who are looking for an economic and earnings rebound by the end of 2001.
Market breadth was positive. Advancing issues on the Nasdaq topped declining ones 2,168 to 1,605 as 1.51 billion shares changed hands. New York Stock Exchange winners topped losers, 1,819 to 1,241, as 1.0 billion shares traded.
In other markets, Treasury securities rose. The dollar was flat against the yen but weaker versus the euro.
Strength in data encourages investors
While the unemployment report still showed weakness in the manufacturing sector, there were revisions for April and March that showed more overall strength than originally reported. That strength was encouraging, but a weak job market leaves room for another rate cut by the Federal Reserve.
"The revisions are in the right direction, but there's still some softness in the manufacturing sector which keeps the Fed on watch in terms of interest rates," said Art Hogan, chief market analyst with Jefferies & Co. "It's sort of an 'in line' number, but not really closing the door to keeping the Fed aggressive with monetary policy."
The unemployment rate fell for the first time in eight months in May, according to the Labor Department, meaning the U.S. labor market was a little stronger than expected even though businesses continued to cut jobs.
And the unemployment rate edged down to 4.4 percent in May from 4.5 percent in April. Wall Street analysts polled by Briefing.com expected unemployment to jump to 4.6 percent.
The National Association of Purchasing Management's report on May manufacturing fell to 42.1 percent, well below the expected 43.7 percent and down from 43.2 percent in April. A reading below 50 points to contraction in the manufacturing sector.
While investors digested the two key reports, attention shifted beyond the second quarter – and investors signaled optimism that both earnings and the economy would look brighter by the end of 2001.
"There is an underlying bullish tone," said Richard Cripps, chief market strategist with Legg Mason Wood Walker. "We continue to see the action on the downside, in terms of force, to be not as great as what it's been on the upside. (The reports) didn't really change anything."
Select tech stocks such as Intel (INTC: up $1.73 to $28.74, Research, Estimates), JDS Uniphase (JDSU: up $0.58 to $17.29, Research, Estimates), IBM (IBM: up $1.09 to $112.89, Research, Estimates), and Yahoo! (YHOO: up $1.35 to $19.46, Research, Estimates) attracted buying.
Shares of chip-equipment maker Novellus Systems (NVLS: up $2.50 to $50.40, Research, Estimates) gained after company executives told analysts that they expect to meet their previously stated financial targets for the quarter.
And shares of specialty semiconductor maker Altera (ALTR: up $1.11 to $25.11, Research, Estimates) gained despite its warning late Thursday that second-quarter sales would be below Wall Street forecasts, due to larger-than-expected declines outside North America.
Joining in the tech rally were cyclical issues like Boeing (BA: up $2.11 to $65.00, Research, Estimates), Citigroup (C: up $0.55 to $51.80, Research, Estimates), and General Motors (GM: up $1.64 to $58.54, Research, Estimates).
"It's time to start thinking about good investment ideas beyond the next couple of months – don't be too defensive and stretch out your time horizon," said Cavanna. "It's time to look into early next year and the market starts discounting out six-to-nine months when it has reason not to fear too much and we're moving into that mode right now."
BellSouth (BLS: down $0.67 to $40.56, Research, Estimates) warned that the weakening value of Brazilian and Colombian currencies will hurt profit.
That warning came just days after workstation and server maker Sun Microsystems (SUNW: up $0.16 to $16.63, Research, Estimates) warned that its fiscal fourth-quarter earnings would fall short of expectations due to weakness in European orders.
Analysts said investors are skittish about the potentially negative impact currency fluctuations would have on other multinational companies.
Haughty Houghton
In the day's prominent corporate deal, Vivendi Universal (V: down $0.05 to $63.75, Research, Estimates), the multinational media company, said it has agreed to buy book publisher Houghton Mifflin (HTN: up $4.99 to $59.55, Research, Estimates) for $2.2 billion, including $500 million in debt. The $60 a share cash price represents a 10 percent premium from Houghton Mifflin's close Thursday.
Bridgestone/Firestone has asked the federal government to investigate the safety of Ford Explorer sport/utility vehicles, saying it's the SUVs and not its tires that are to blame for rollover problems linked to 174 deaths. Ford Motor (F: up $0.24 to $24.59, Research, Estimates) blames the tires for the problems, and has started a recall of 13 million of them in addition to the 6.5 million pulled off the SUVs last year.
Abbott Laboratories (ABT: down $0.36 to $51.62, Research, Estimates) may face a problem with its popular Synthroid drug for treating thyroid gland problems. The Wall Street Journal reported Friday that the drugmaker has received notice from the Food and Drug Administration that Synthroid has a history of problems and could be pulled from the market. 
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