Markets & Stocks
Late rally for U.S. techs
July 26, 2001: 4:26 p.m. ET

Optimism that much of the bad news is built in sparks broad rally
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - U.S. technology stocks staged a late-day rally Thursday as investors bet that much of the bad news from leading companies has already been priced in.

"Now that we're getting out of earnings season, there are no more sledgehammers and nothing really bad coming," Michael Balog, managing director of equity trading with Banc of America, told CNNfn's Street Sweep. "In general, people are going to look forward and anticipate something better in the third and fourth quarter."

The gains came despite a revenue warning and job cut announcement by computer and printer maker Hewlett-Packard which kept the major indexes in negative territory for much of the session.

"You say to yourself that the second and third quarter are going to be the bottom when it comes to earnings comparisons," said John Forelli, senior vice president and portfolio manager with Independence Investment LLC. "If you're an optimist, maybe now is the time to start buying."

By late afternoon, the tech-heavy Nasdaq composite index erased a 21-point loss and the Dow industrials recouped its 121-point drop.

The Nasdaq composite index gained 38.46 points to 2,022.78. The Dow Jones industrial average advanced 50.09 points to 10,455.76, and the S&P 500 rose 12.42 points to 1,202.91.

Analysts remain wary that these gains are sustainable barring any fundamental catalyst.

"There's bad news out there but people are still anticipating a recovery," said Forelli. "There's certainly no fundamental news that caused it."

But investors may be in for more churning. After the closing bell, fiber-optic component maker JDS Uniphase (JDSU: up $0.68 to $9.47, Research, Estimates) warned that first-quarter sales will be below forecasts, and said it will eliminate 16,000 jobs. At the same time, the company reported a fourth-quarter loss of 36 cents per share on sales of $601 million.

Market breadth was positive on light volume. "There's clearly no urgency to get back into the marketplace at this juncture," said Art Hogan, chief market analyst with Jefferies & Co.

Nasdaq winners beat losers 2,118 to 1,512 as 1.75 billion shares changed hands. On the New York Stock Exchange, advancing issues beat declining ones 1,914 to 1,159 as 1.21 billion shares traded.

A glimmer of hope came from the day's trio of economic reports two out of the three showed positive news.

But a drop in orders for durable goods continued to signal problems in the manufacturing sector.

"You certainly want to see anything related to manufacturing start to turn up, but it's not giving any indication of solidification," said Barry Hyman, chief market strategist with Ehrenkrantz King Nussbaum.

Investors will have more to digest about the economy on Friday when the Commerce Department will report the preliminary GDP, the broadest measure of the economy, for the second quarter.

Analysts polled by forecast a drop to 0.2 percent, compared with the previous reading of 1.2 percent for the first quarter.

In other stock markets, Europe's advanced while Asia's slumped. The dollar rose against the euro but faltered versus the yen. Treasury securities edged higher.

Techs buck Hewlett-Packard's decline

Worries about the pace of an earnings recovery, predominantly for technology firms, kept a lid on optimism for most of the trading session.

"It's a very tough environment for technology," Ehrenkrantz's Hyman said. "There's no positive guidance in technology. PC stocks remain under pressure and Hewlett-Packard is a good example of that."

Computer and printer maker Hewlett-Packard (HWP: down $1.68 to $24.00, Research, Estimates), a Dow component, warned that weaker-than-expected sales and profit margins in the current quarter would lead it to cut about 6,000 jobs worldwide.

The company also said revenue would fall 14-to-16 percent during the quarter ending July 31, compared with the year-earlier period.

But telecom service provider WorldCom (WCOM: up $1.17 to $14.52, Research, Estimates) boosted the Nasdaq after it reported second-quarter earnings that fell short of Wall Street expectations, as low prices and high competition cut into profit.

The company also said it expected revenue growth of 12-to-15 percent for 2001 with earnings between $1.05 and $1.10 for the full year.

Explaining WorldCom's advance, Jefferies' Hogan said, "Their guidance was pretty terrific. Even with Hewlett-Packard down, the rest of technology was holding its head up.

Other techs staging an advance included IBM (IBM: up $1.11 to $106.00, Research, Estimates) and Sun Microsystems (SUNW: up $0.56 to $16.09, Research, Estimates).

Digesting warnings and quarterly results

While many leading companies already have posted quarterly financial results, there still were plenty to sift through. Good news was scarce.

Celera Genomics (CRA: up $1.65 to $30.80, Research, Estimates), best known for mapping the human genome, reported a wider loss for its fiscal fourth quarter Thursday as higher spending on sales and marketing offset increased subscriptions to its gene database.

Late Wednesday, Compaq Computer (CPQ: up $0.38 to $14.50, Research, Estimates) warned that its third-quarter financial results will be below recent expectations after it reported a second-quarter profit that matched forecasts.

Also after the closing bell Wednesday, fiber-optic cable maker Corning (GLW: up $1.79 to $15.56, Research, Estimates) said that its second- quarter profit fell below year-earlier levels but still came in well ahead of Wall Street estimates. But its earnings excluding one-time items were well below the prior year and the maker of fiber-optic components had a big net loss. It also forecast more weakness in the telecom industry.

Halliburton (HAL: up $1.25 to $35.50, Research, Estimates), the world's No. 1 oilfield services company, said its second-quarter earnings from continuing operations more than doubled as oil and gas companies stepped up their drilling activity in response to strong energy prices during the quarter.

Media conglomerate Viacom (VIA.B: up $3.74 to $49.99, Research, Estimates) reported an unexpected narrow second-quarter profit, and company president Mel Karmazin told a conference call that the advertising market has bottomed and is starting to improve.

In other corporate news, Exxon Mobil (XOM: up $0.59 to $42.72, Research, Estimates) announced Wednesday that Chairman and CEO Lee Raymond has agreed to defer his retirement beyond the normal date of August 2003.

On the economic front, analysts are encouraged that signs of stabilization may be emerging.

"We don't have a predominance of negative news, day-to-day, in terms of economic events," said Hyman.

The Labor Department said its employment cost index, which measures workers' wages and salaries and is closely watched for signs of inflation, rose 0.9 percent in the second quarter after increasing 1.1 percent in the first quarter. Separately, jobless claims and orders for durable goods fell. graphic

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