NEW YORK (CNNfn) - Worries about the health of the economy resurfaced Thursday, deflating a powerful rally on Wall Street that analysts doubted right from the start.|
Stocks, which surged for much of the session, ended higher – but well off their highs – as investors re-focused on the profit weakness that has hammered shares this year.
Siebel Systems, the software maker, said its profit will fall below forecasts after IBM reported sales that fell short. Allstate posted disappointing results.
Good news from Nokia and Dell Computer initially sparked gains. But analysts who questioned that earlier rally found the late pullback far more credible.
"Every day we come in an hope springs eternal," Michael Balog, trader at Banc of America Securities, told CNNfn's Street Sweep. "The problem is all that's just anecdotal and chatter."
The tide began turning around noon, when a closely watched gauge of regional manufacturing showed surprising weakness. Earlier, economic data on the trade deficit showed falling U.S. demand. Jobless claims fell but remained high last week, the government said.
"The news that's been coming out has been awful," Jon Burnham, CEO of Burnham Securities, told CNNfn's Street Sweep.
After rising more than 63 points, the Nasdaq composite index ended up 30.42 points to 2,046.59, a gain of 1.5 percent.
The Dow Jones industrial average, up as much as 110 points, ended 40.17 points higher at 10,610.00.
A broader index, the S&P 500 rose 7.31 to 1,215.02, narrowing its annual lose to 8 percent on the year.
More stocks rose than fell. Advancing issues on the New York Stock Exchange topped declining ones 1,774 to 1,268 as 1.3 billion shares changed hands. Nasdaq winners beat losers 2,132 to 1,512 as 1.9 billion shares traded. In other markets, Treasury securities edged lower. The dollar rose against the euro and dipped versus the yen.
Bulls vs. bears
The session began with big gains after Nokia, the world's biggest maker of mobile phones, said that demand will pick up next year, and Dell Computer, the No. 1 PC maker, announced it would meet earnings targets for the current quarter.
Nokia's (NOK: up $2.51 to $19.51, Research, Estimates) gains spread to rivals Ericsson (ERICY: up $0.11 to $4.71, Research, Estimates) and Motorola (MOT: up $1.56 to $19.14, Research, Estimates).
But Dell's (DELL: up $1.18 to $28.38, Research, Estimates) news failed to help rivals Gateway (GTW: down $0.88 to $14.59, Research, Estimates) and Apple Computer (AAPL: down $0.83 to $19.96, Research, Estimates), which Wednesday said revenue for the second half of the fiscal year could be below forecasts.
The session's best levels, which sent the Nasdaq 3 percent higher, brought skepticism from analysts burned by short-lived market gains amid a year of declines.
"We received some good guidance today, but I think people are looking for any reason to rally," said Angel Meta, head of equity trading at Legg Mason. "There's enough skepticism in the market that any negative results could turn the tide."
Shares of IBM, which fell ahead of its profit report Wednesday, dipped again. IBM (IBM: down $0.28 to $104.00, Research, Estimates) said profit matched forecasts on sales that fell short.
No. 2 U.S. car and home insurer Allstate (ALL: down $5.20 to $36.00, Research, Estimates) said its second-quarter profit fell a worse-than-expected 47 percent as it paid out nearly $500 million in claims for storm damage.
Software maker Siebel Systems (SEBL: down $4.60 to $33.04, Research, Estimates), which beat Wall Street's lowered forecast for second-quarter earnings, presented a dismal outlook for the rest of 2001. And investors punished chipmaker Applied Micro Circuits (AMCC: down $0.15 to $16.85, Research, Estimates), which lost 5 cents a share, in line with expectations.
The session's pullback, which comes during a seesaw week, brought plenty of questions.
"I talked to a lot of senior guys on the floor," John Pickett, NYSE specialist at LaBranche & Company, told CNNfn's Street Sweep. "And none of them had any real answers."
Still, shares of German software maker SAP (SAP: up $3.70 to $34.85, Research, Estimates) rose after the company's quarterly results topped forecasts.
The tobacco marketer Philip Morris (MO: up $0.34 to $45.82, Research, Estimates) late Wednesday said its second-quarter profit rose to $1.03 a share, matching forecasts.
The week's first initial public offering drew buyers. Shares of Accenture Ltd., the world's biggest consulting firm, began trading and rose as high as $15.29 after being priced at $14.50. Nearly 35 million shares traded, making Accenture (ACN: up $0.67 to $15.17, Research, Estimates) the NYSE's most actively traded stock.
Markets remain in a range
The day's erratic action, coming after selloffs Wednesday and Monday, underscore the market's indecision as investors struggle to handicap when profits will recover. Since May, the S&P 500 has clung to a tight range between 1,180 and 1,309.
"I think we are going no place," Donald Selkin, chief investment strategist at Joseph Gunnar, told CNNfn's Before Hours.
That parallels the path of corporate profits. Earnings fell in the first quarter and are expected to have done so last quarter. Analysts surveyed by First Call don't expect rising profits until the final three months of the year.
Several major profit reports came after the closing bell. In the first, Sun Microsystems (SUNW: up $0.45 to $14.44, Research, Estimates) logged a fiscal fourth-quarter operating profit of 4 cents per share, a sharp decline from 20 cents per share during the year-ago quarter.
Microsoft (MSFT: up $2.00 to $72.57, Research, Estimates) said its profit came in a 44 cents a share. Analysts surveyed by First Call expected the company to have earned 43 cents a share.
eBay (EBAY: down $2.14 to $64.40, Research, Estimates) met forecasts with a profit of 9 cents a share. Nortel Networks (NT: up $0.17 to $7.75, Research, Estimates) posted second-quarter results that met expectations.
Sifting the data
The Philadelphia Federal Reserve's index of economic activity in the region around the nation's fifth-largest city came in much weaker than expected, falling to its lowest level since July. "These data suggest that a manufacturing turnaround has not yet arrived," said Steven Wood, economist at FinancialOxygen.com.
Earlier, the latest read on the job market showed that the number of Americans filing for unemployment insurance fell to 414,000 last week from a revised 449,000 the prior week. Though down, the figure still is well above year-ago levels and reflects tens of thousands of layoffs this year.
Separately, the nation's trade deficit shrank to $28.34 billion in May as imports fell and exports rose, from a revised $31.99 billion in April, the Commerce Department said.
A key gauge meant to predict the U.S. economy's performance rose in June, suggesting that the slowdown may be nearing an end. The Conference Board, a New York-based business research group, said its Index of Leading Indicators rose 0.3 percent in June a 0.4 percent increase in May.
Christoph Bianchet, chief U.S. economist at Credit Suisse Asset Management, sees a mixed picture in the day's data.
While the leading economic indicators support his view of a slowly improving economy later this year, the narrowing deficit underscores slowing U.S. demand for overseas goods. And the job situation remains sluggish.
"It's hard to detect any reversal in the labor market at this point in time," Bianchet said.
In comments Wednesday, Federal Reserve Chairman Alan Greenspan signaled that central bankers may cut interest rates next month for a seventh time this year. But lower borrowing costs have yet to lift the market, which is still down year-to-date. The Nasdaq composite index is down 17 percent this year, while the Dow is 1.6 percent lower in 2001.
"I don't think the bull train is leaving the station," David Briggs, head of equity trading at Federated Investors, said about the day's stock gains. "Why is this the (rally) that's actually going to stay? I'm skeptical."
Briggs is sticking with defensive stocks such as utilities, energy and health care.
"I'm just looking for places to hide and not lose money," he said.
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