Wall St. zooms forward
A late-day rally in blue chips busts market out of tech gloom, but for how long?
February 20, 2002: 5:58 p.m. ET
By Staff Writer Alexandra Twin
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NEW YORK (CNN/Money) - U.S. stocks broke through a little of the hysteria surrounding accounting Wednesday, as initial fears about tech names IBM and Computer Associates were set aside in favor of a big-cap blue-chip brouhaha.
Major markets closed higher. The Dow Jones industrial average rose 196.03 to 9,941.17. The Nasdaq composite index added 24.96 to 1,775.57, while the Standard & Poor's 500 rose 14.64 to 1,097.98.
Of the stocks comprising the Dow Jones industrial average, 27 of the 30 closed higher, including Honeywell, up on news that the diversified manufacturer was reiterating its 2002 earnings target and had found a new CEO.
"Hopefully the rally today [Wednesday] means we're breaking through some of the skepticism about accounting," Robert Morris, director of equity, Lord Abbett & Co., told CNNfn's Street Sweep.
But following two days of sharp declines, analysts are debating whether Wednesday's rally is a temporary technical bounce back or representative of something more substantial such as a bottom having been set. And if so, whether investors can expect a few more days of rallies before another pull back.
"I don't think what we saw today [Wednesday] has any kind of legs in the long term," Peter Kenny, New York Stock Exchange member, told CNNfn. "Although I do think you've seen the worst of the market."
Honeywell said it had poached respected TRW Chairman David M. Cote, while a court ruling loosening restrictions about cable and broadcast ownership appeared to help media and entertainment company Walt Disney (DIS: up $1.47 to $24.33, Research, Estimates).
Other movers of note included 3M (MMM: up $3.11 to $117.10, Research, Estimates), General Motors (GM: up $2.27 to $52.28, Research, Estimates), and United Technologies (UTX: up $1.79 to $70.00, Research, Estimates).
Earlier in the day, a Lehman Brothers downgrade of CNN/Money parent AOL Time Warner, a Credit Suisse First Boston downgrade of network equipment maker Cisco, and reports about inquiries into software maker Computer Associates' accounting practices had hurt the markets.
"The market has done a good job, considering all it's had to take in over the last few days," said Matt Ruane, director of listed trading at Gerard Klauer Mattison. "There's skepticism across the board right now, but no fear, no panic. I like the action today [Wednesday]."
The fourth-quarter reporting season is winding down, but on Thursday, investors will be looking for a few more quarterly results and what hints they may give about corporate profits.
Names due to report include retailer J.C. Penney (JCP: Research, Estimates), business software maker BEA Systems (BEAS: Research, Estimates), hard-hit telecom Nextel (NXTL: Research, Estimates) and optical networking company Ciena (CIEN: Research, Estimates), in the news Monday for its $900 million purchase of sector mate ONI Systems (ONIS: Research, Estimates).
On a longer-term basis, investors will continue to focus on how companies account for their financial transactions and how the ghost of bankrupt energy trading firm Enron continues to impact stocks.
"Long-term these investigations [into accounting] will be positive, as we'll have cleaner accounting and more visibility, but short-term we're going to see a lot of bumps," Ruane said.
Asian stocks closed lower Wednesday, and European bourses were weaker by the close.
Treasurys closed little changed, with the 10-year note yield up to 4.88 percent from 4.87 percent Tuesday. The dollar rose against the euro and the yen. Light crude oil futures fell 72 cents to $20.43 a barrel in New York. Gold futures were lower in Chicago.
Market breadth was positive. On the New York Stock Exchange, advancers beat decliners 3-to-2 as 1.40 billion shares changed hands. On the Nasdaq, winners topped losers by almost 4-to-3 as 1.90 billion shares traded.
Brokers hurt tech leaders
Tech stocks on the Nasdaq rebounded from early losses as some of the weakness in software eased up. Computer hardware was strong, but networking issues and Internet names held back.
Lehman Brothers downgraded CNN/Money parent AOL Time Warner (AOL: down $1.32 to $24.20, Research, Estimates) to "market perform" from "buy," citing concerns about its online services division, while Credit Suisse First Boston cut the price target of computer networking equipment maker Cisco Systems (CSCO: down $0.12 to $16.69, Research, Estimates) to $20 from $24.
Countering the negative news, Banc of America Securities upgraded business software maker Oracle (ORCL: up $0.72 to $15.51, Research, Estimates) to "buy" from "market perform," citing low valuation.
But Computer Associates (CA: down $4.40 to $20.91, Research, Estimates) had a bigger impact on the computer software sector after the company was the subject of two published reports about its accounting.
Melville, N.Y.-based Newsday said federal authorities are investigating potential criminal fraud law violations by Computer Associates. Separately, the New York Times said federal prosecutors in Brooklyn, N.Y., are looking into whether the company deliberately overstated profits to inflate its stock price.
The stories had an impact on CA's rival, Siebel Systems (SEBL: down $1.01 to $30.89, Research, Estimates), among others, punishing the stock.
IBM was down after a published report last week questioned the company's accounting of the sale of a unit to JDS Uniphase (JDSU: down $0.08 to $5.81, Research, Estimates) last year. The company, through an executive's interview in the Wall Street Journal, tried to reassure investors Tuesday by moving to share broader financial information in the future, but to little effect.
Echoing IBM's move, conglomerate General Electric (GE: up $1.17 to $37.57, Research, Estimates) confirmed that it is ready to offer greater details in its financial reports, particularly about its GE Capital financial services unit.
"There's not a lot of confidence right now and a lot of that is still accounting. People are not willing to step up and grab a falling knife," Mark Donahoe, an institutional equity trader with U.S. Bancorp Piper Jaffray, told CNNfn's Halftime Report.
Honeywell's (HON: up $1.85 to $34.50, Research, Estimates) new CEO, David Cote, had a cost-cutting reputation at TRW (TRW: down $2.95 to $38.80, Research, Estimates). The company also reaffirmed its 2002 earnings per share outlook of $2.36.
Deutsche Banc Alex. Brown upgraded Dow component DuPont (DD: up $0.82 to $46.33, Research, Estimates) to "strong buy" from "market perform," saying that a cyclical earnings recovery may be around the corner.
Biotechs were a positive Nasdaq sector, largely on news that the U.S. Food and Drug Administration has approved IDEC Pharmacuticals' cancer-killing drug, Zevalin.
Salomon Smith Barney upgraded shares of IDEC (IDPH: up $6.09 to $62.10, Research, Estimates) to "buy," while a number of other brokerage firms reiterated positive ratings.
Biotech Cephalon (CEPH: up $2.27 to $60.88, Research, Estimates) was also active after it posted improved fourth-quarter profit.
Merrill Lynch upgraded electronics retailer Circuit City (CC: up $2.21 to $24.32, Research, Estimates) to "strong buy" from "buy" in response to a recent slump in the stock on worries about remodeling costs. The firm said these concerns are not warranted as the company's operating earnings will exclude any costs of a major remodeling campaign should that happen.
Employment service operator TMP Worldwide (TMPW: down $3.66 to $28.25, Research, Estimates) said first-quarter and full-year 2002 profit will miss forecasts. The company also reported fourth-quarter results that met estimates.
In positive economic news, the Labor Department said that the consumer price index, the government's main inflation gauge, rose 0.2 percent in January, in line with estimates, after falling 0.1 percent in December. The "core" CPI, which excludes volatile food and energy prices, also rose 0.2 percent. 
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