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Powerful rally on Wall St. Positive news from Microsoft awakens the bulls, sparking broad-based buying By Staff Writer Catherine Tymkiw July 12, 2001: 4:26 p.m. ET NEW YORK (CNNfn) - The major U.S. stock indexes rallied Thursday, as investors seized on a slew of good corporate news as a reason to pour money into the markets.

Software maker Microsoft set the stage by issuing positive guidance about its upcoming quarterly results. The buyers came rushing out of the starting gate and never looked back.

For the Nasdaq composite index, it was the first triple-digit gain since late May.

"It's (the rally) very impressive. The right ingredients were in the mix to stage a rally," said Peter Coolidge, senior trader with Brean Murray & Co. "The market was looking for direction and it took its cue from Microsoft, which is a bellwether."

The good news sparked hope that this would be the start of more strong reports as companies begin posting quarterly financial results. For one day, at least, investors were rewarded.

"(Microsoft) is a positive but the proof is in the pudding – the proof is in the follow-through," Bryan Piskorowski, market commentator with Prudential Securities, told CNNfn's The Money Gang. "We're going to play it day by day but it's a step in the right direction."

The Nasdaq composite index jumped 103.71 points, or more than 5 percent, to 2,075.75. The Dow Jones industrial average rose 237.97 points to 10,478.99, while the S&P 500 gained 27.95 to 1208.13.

But analysts remained wary about the market's ability to sustain the gains. Thursday was only the third positive day for the tech-heavy Nasdaq this month (July).

"There was a lot of positive news today but we can't have just one good day," said Stephen Carl, principal and head of equity trading with Williams Capital Group. "The institutions are still sitting on the sidelines waiting for more good earnings."

"The market was down so far so fast recently that I don't think it takes much to get a bounce here," said Brett Gallagher, head of U.S. equities with Julius Baer. "Investors were just determined today to be optimistic."

More stocks rose than fell in steady volume. Nasdaq winners topped losers 2,135 to 1,322 as 1.86 billion shares traded. Advancing issues on the New York Stock Exchange topped declining ones 1,959 to 1,163 as 1.38 billion shares traded.

In other stock markets, Europe's and Asia's rose. Treasury securities edged higher. The dollar rose against the euro but was down versus the yen.

Microsoft sets the tone

Positive news from Motorola and Yahoo! built on the Microsoft momentum.

"I think it's the pattern from pre-announcements to earnings – these are two companies (Motorola, Yahoo!) that have beaten lowered expectations, beating pre-announcements," said Barry Hyman, chief investment officer with Ehrenkrantz King Nussbaum. "When you expand that to the Microsoft story, it makes it even more powerful today."

The companies provided the first signs that the remainder of 2001 may show steady improvement over the first half of the year, long-term gains are not yet evident.

Microsoft (MSFT: up $5.10 to $71.60, Research, Estimates) sparked life into the markets after saying it will meet operating earnings expectations for the fiscal fourth quarter just ended on greater-than-expected revenue.

The software maker also said, in a sign that it may be ready to settle its antitrust case with the government, that it will give PC manufacturers more flexibility in configuring desktop versions of its Windows operating system.

Cisco Systems (CSCO: up $1.16 to $17.86, Research, Estimates), Oracle (ORCL: up $1.66 to $19.66, Research, Estimates), and Intel (INTC: up $2.04 to $30.10, Research, Estimates) all rose along with Microsoft.

Late Wednesday, No. 2 handset maker Motorola posted an 11-cents-a-share loss for the second quarter, a penny a share narrower than the consensus of analysts surveyed by First Call.

The company also said sales were weaker than expected and 19 percent below those of a year earlier. In comments Thursday, the company said that it expects to report a third-quarter loss of "several cents a share" after pro forma adjustments, and a profit after adjustments for the fourth quarter.

However, shares of Motorola (MOT: up $2.48 to $18.15, Research, Estimates) shrugged off the mixed results Thursday, surging more than 13 percent.

Internet portal operator Yahoo! reported a second-quarter profit of 1 cent a share, better than the breakeven quarter expected by analysts but well below the 12 cents earned a year earlier.

Sales were more than expected in the second quarter, but the company's third-quarter revenue forecast is less than previously projected – although earnings for the quarter and all of 2001 are on target to meet expectations.

Yahoo! (YHOO: up $1.23 to $18.26, Research, Estimates) rose throughout the day, spurring gains in fellow media and Internet stocks eBay (EBAY: up $6.74 to $66.92, Research, Estimates) and AOL Time Warner (AOL: up $1.55 to $50.05, Research, Estimates), the parent company of CNNfn.

After the bell, the big name to report results will be Advanced Micro Devices (AMD: up $1.58 to $22.70, Research, Estimates), the No. 2 maker of semiconductors. It warned last week that its earnings will come in at around 4 cents a share, well below the previous forecasts and the year-earlier period.

Also due after the bell are networking equipment maker Juniper Networks (JNPR: up $3.94 to $28.47, Research, Estimates) and chipmaker Rambus (RMBS: up $1.28 to $10.88, Research, Estimates). Will the rally sustain?

It wasn't just technology stocks attracting buyers. A slew of non-tech companies also posted strong results, giving investors more sectors to play with.

General Electric (GE: up $2.39 to $47.00, Research, Estimates) posted an improved second-quarter profit that met Wall Street expectations for the period and said CEO Jack Welch plans to retire in September.

Sears Roebuck (S: up $2.88 to $44.50, Research, Estimates) forecast better-than-expected earnings despite flat sales, while Wal-Mart Stores (WMT: up $3.00 to $51.85, Research, Estimates) and J.C. Penney (JCP: up $2.01 to $26.64, Research, Estimates) both posted sales gains in June.

Retail sales for June will be reported Friday. A Briefing.com poll said analysts expected the number to rise to 0.3 percent from 0.1 percent.

Excluding auto sales, the poll said analysts expected a drop to 0.1 percent

from the previous 0.3 percent.

First Union (FTU: up $0.95 to $34.11, Research, Estimates), one of the nation's largest banks, beat second-quarter earnings forecasts but saw profit fall from the year-earlier period.

However, not everything was on the rise.

"I'm concerned that the drug stocks are off today. People are selling the drugs and buying the techs," Linda Jay, New York Stock Exchange floor specialist with LaBranche & Co., told CNNfn's Market Call. "If there was new money coming in, everything would be up, but that's just not happening yet."

Shares of Merck (MRK: down $1.36 to $61.00, Research, Estimates), Pfizer (PFE: down $1.25 to $37.60, Research, Estimates) and Bristol-Myers Squibb (BMY: down $0.99 to $52.38, Research, Estimates) all lost ground.

Jobless claims shrugged off

Analysts and investors seemed to shrug off new economic data that pointed to further weakness in the job market.

Weekly jobless claims rose to 445,000 for the week ended July 7 from 403,000 the week before. Economists had expected the number of claims to decline to 390,000.

"The increase in jobless claims was not surprising to me," State Street's Riley said. "We're still wondering where all these (previously announced) layoffs are showing up if they're not showing up in the jobless claims."

Still, Julius Baer's Gallagher said the economy will make its way to the forefront as soon as the bulk of corporate quarterly results are out of the way. And the landscape still looks rocky.

"In our view, we're going to have another down leg here because of the consumer," Gallagher said. "If you keep laying people off, that doesn't bode well for future consumer purchases. We have a negative savings rate and we no longer have the gains from the portfolios which were increasing wealth."

Friday, investors will get a look at the producer price index (PPI) forJune, a measure of prices at the wholesale level.

Analysts polled by Briefing.com expect the number to slip to a negative 0.1 percent from the previous 0.1 percent. Excluding often-volatile food and energy prices, the "core" producer price index is also expected to slip to 0.1 percent from 0.2 percent.

-- Anonymous, July 12, 2001