128-point rally on Dow
Investors poured money into cyclical issues amid concern about tech growth
NEW YORK (CNNfn) - The Dow Jones industrial average extended a winning streak to five sessions, surging more than 100 points Thursday as uncertainty about the growth prospects for the U.S. technology sector prompted investors to rotate money into "old economy" issues.|
Analysts were not surprised that technology stocks were unable to sustain the week's gains, saying the economic landscape still is too muddled for investors to buy with conviction.
Instead, it was almost expected that some investors would cash in on the week's gains in technology while others would shift their holdings into "safer" blue-chip issues.
"The Dow is holding up as money rotates into 'old economy' stocks because they're considered safe havens," said Peter Coolidge, senior trader with Brean Murray & Co.
The Dow Jones industrial average surged 128.65 to 10,858.25. The blue chip index is now up 65 points from the start of this year.
After ignoring most of the recent bad news coming from tech firms, investors were not so kind to Internet portal Yahoo!, which issued an outlook warning after the closing bell Wednesday. And the news added to the selling pressure on the tech-heavy Nasdaq, signaling more good news is needed for tech stocks before significant gains can be carved out.
"Today, especially on the heels of Yahoo!, it's just more indicative of the funk we find ourselves in," Coolidge said.
The Nasdaq composite index snapped a three-session winning streak, falling 55.19 points, or more than 2 percent, to 2,168.73. The Standard & Poor's 500 index advanced 2.85 to 1,264.74.
Market breadth was mixed. Advancers beat decliners on the New York Stock Exchange 1,684 to 1,393 as more than 1.11 billion shares changed hands. On the Nasdaq, losers topped winners 2,174 to 1,431 as more than 1.73 billion shares were traded.
Meanwhile, the dollar was little changed against the yen but weakened versus the euro. Treasury securities were mixed.
Blue chips shine
As money rotated away from technology, Dow component 3M (MMM: Research, Estimates) led the buying in the blue chips, gaining $4.26 to $117.19. Other consumer stocks also attracted buyers. Johnson & Johnson (JNJ: Research, Estimates) rose $3.07 to $97.87 and Procter & Gamble (PG: Research, Estimates) gained $2.48 to $71.
Explaining the flight to safety, analysts said there was still a lack of confidence in technology, and investors remained gun-shy to buy with conviction.
"Investors still have a lot of rebuilding of confidence before they jump back in with both feet," said Michael Carty, stock market strategist with New Millennium Advisors. "They're (investors) not in a rush to get in -- they've already tried all the buying on dips they intended to do and they want to make sure this is the last dip."
After shrugging off a slew of bad news from several leading companies earlier in the week, Yahoo!'s news came as investors were gearing up to rotate some of their holdings, adding further selling pressure.
"The market has been able to stomach a lot of bad news -- we've seen disasters every day and the market has trended higher," said Art Hogan, chief market analyst with Jefferies & Co. "This is day four, so it's only natural to want to take profits."
Yahoo! (YHOO: Research, Estimates) tumbled $3.25 to $17.69 after executives warned the company would break even in the first quarter, missing Wall Street forecasts of a small profit. They cited the slowing U.S. economy and uncertainty about the company's own position.
Other tech issues also tumbled. IBM (IBM: Research, Estimates) fell $1.08 to $106.47, Oracle (ORCL: Research, Estimates) lost $1.25 to $17.38, and Sun Microsystems (SUNW: Research, Estimates) declined $1.75 to $20.31.
But National Semiconductor (NSM: Research, Estimates) advanced 41 cents to $25.25 after it reported a fiscal third-quarter operating profit of 27 cents a share, beating lowered expectations by 7 cents. The company warned that fourth-quarter earnings would be as low as 3 cents-to-5 cents a share, rather than the 23 cents originally expected.
Eyes turn to economic news
With the Federal Reserve's monetary policy-making meeting less than two weeks away, investors are tuning in to any economic data to try to gauge what the Fed may do with interest rates.
Analysts said the recent data should comfort investors as they add further evidence for the possibility of a rate cut March 20. But analysts also cautioned that more evidence is needed that companies will improve performance before any sustainable rally can be achieved.
Much focus will be placed on Friday morning's jobs report. Briefing.com says the consensus forecast is that it will show 75,000 new jobs in February, down from the job gain of 268,000 in January, with the unemployment rate staying at 4.2 percent.
"To get a real turnaround you need to have a turnaround in earnings," John Davidson, chief investment officer with Circle Trust, told CNNfn's Before Hours. "The jobless claims number today probably keeps (Fed Chairman Alan) Greenspan on task in terms of lowering rates."
New claims for state jobless benefits dipped slightly last week, according to the Labor Department, but claims still hovered at a level that suggested that employers' demand for workers has eased.
New filings for state unemployment insurance totaled 370,000 for the week ended March 3, down from a revised 374,000 in the previous week. The decline left claims at their lowest level since Feb. 17.
Some of the nation's biggest retailers -- including Wal-Mart Stores, Federated Department Stores, Dillard's and May Department Stores -- reported sluggish February sales Thursday. The figures reflected consumer caution about spending as the economy continued to slow during the period.
Individual corporate news was positive enough to attract buyers.
Dutch insurer Aegon NV agreed Thursday to buy the direct marketing services business of U.S. retailer J.C. Penney Co. for about $1.3 billion. The move is part of Penney's ongoing restructuring and gives Aegon a bigger foothold in financial services in the United States. J.C. Penney (JCP: Research, Estimates) shares advanced $1.26 to $18.25.
Bankrupt Trans World Airlines selected a sweetened $742 million deal from AMR Corp.'s (AMR: Research, Estimates) American Airlines as its preferred bid at an auction Wednesday. The final decision still rests with U.S. Bankruptcy Judge Peter Walsh, who will consider several other offers as well during a sale hearing Friday in Wilmington, Del. AMR's shares gained $1.75 to $36.75.