Red hot rally on Wall St. Glimmers of better times ahead trigger a broad buying spree all day long

August 24, 2001: 4:08 p.m. ET NEW YORK (CNNfn) - U.S. stocks flew higher Friday as investors signaled renewed optimism that the economy and corporate profit woes were gearing for a turnaround.

Buyers flooded the market from the opening bell on after networking leader Cisco Systems observed that business may be stabilizing and after strong economic news fueled enthusiasm.

Friday's buying frenzy spread from technology into more cyclical issues, giving the Dow Jones industrial average a nice boost.

"After the Cisco announcement there was a swarm of activity," said Charles Payne, president of Wall Street Strategies. "Investors came in ready to buy. A lot of if is oversold bouncing, but I see slightly better enthusiasm."

The gains capped a week full of wishy-washy trading after the Federal Reserve's seventh interest rate cut was greeted with a lukewarm reception.

"The markets are adjusting to the view that there's not much to expect from the Fed going forward and that puts even more focus on the other engine of the markets, which is earnings," said Christoph Bianchet, U.S. economist and vice president for Credit Suisse Asset Management. "There you have some signals that the worst might be over."

According to preliminary figures, the Nasdaq composite index gained 73.86 points, or more than 4 percent, to 1,916.83, while the Dow Jones industrial average surged 192.85 points to 10,422. The Standard & Poor's 500 added 22.81 to 1,184.90.

Analysts still said investors should remain cautious until more evidence builds in favor of gains building.

"I think we're seeing a sunny day that we haven't seen in a long time, but the real question is will we see back to back," Maureen McCarthy, head of equity trading with Robertson Stephens, told CNNfn's The Money Gang. "What we've been waiting for is a big tech company come out and say either stability or better visibility and we got that. But we need to see more of that from other companies or over a longer period of time."

It seemed that for one day at least, investors were willing to take a chance that the economy eventually will turn around and, with one week left until the Labor Day holiday, the markets may be finding some solid footing.

"There's a benefit of the doubt that most of these companies have hit bottom and I think there's still an element of investor psychology to spread the wealth," Payne said.

Outside the broad tech advance, a grab bag of stocks attracted buyers, including Boeing (BA: up $1.46 to $53.63, Research, Estimates), Citigroup (C: up $1.51 to $48.30, Research, Estimates) and General Electric .

"People have been looking for reasons to buy," said Alan Kral, vice president and portfolio manager with Trevor Stewart Burton. "There's so much money around and that places the bias in the market on the upside."

Still, until there are more signs that the economy is stabilizing, sustainability still remains suspect.

But economic news that sales of new homes rose 4.9 percent in July to an annualized rate of 950,000 units added to the Cisco-led rally. This was well above expectations of a dip to 918,000 units.

New homes need to be furnished, which helped shares of Dow components Home Depot (HD: up $1.95 to $49.94, Research, Estimates) and diversified manufacturer 3M (MMM: up $2.26 to $110.61, Research, Estimates).

Even home products retailer Williams-Sonoma (WSM: up $3.61 to $32.21, Research, Estimates) carved out a strong advance despite warning that third-quarter results would fall short of expectations.

Payne said the reaction to Williams-Sonoma was a classic example of the turning tide in investor psychology that companies have hit bottom and are in a recovery phase.

Investors shrugged off news that orders for expensive, long-lasting goods fell in the United States in July, according to the Commerce Department, a sign of continuing weakness in the embattled manufacturing sector of the world's largest economy.

Market breadth was positive. On the Nasdaq, advancers topped decliners 2,269 to 1,352 on volume of 1.41 billion shares. On the New York Stock Exchange, advancers beat decliners 1,957 to 1,106 as 1 billion shares changed hands.

In overseas stock markets, Asia's were mixed and Europe's rallied. Treasury securities fell. The dollar was stronger against the euro and the yen.

Here's a look at market action around 3 p.m. ET.

The Cisco effect

It may not be great news, but, coming from a leading company, the news was good enough for money to pour into the beaten down technology sector.

Cisco Systems (CSCO: up $1.49 to $18.25, Research, Estimates) said late Thursday it is reorganizing its business units and that it is on track to meet quarterly earnings estimates.

"Cisco was an important building block," Wall Street's Payne said. "You want to start creeping back into the market, but wisely."

Other techs that rose in sympathy included Applied Micro Circuits (AMCC: up $1.55 to $15.03, Research, Estimates), Juniper Networks (JNPR: up $1.08 to $17.28, Research, Estimates), and IBM (IBM: up $3.99 to $106.99, Research, Estimates).

Semiconductor stocks also plowed higher after Philips Electronics CEO Gerard Kleisterlee told a news conference that he believes semis are trending toward stabilization, if not an upswing.

"The decline of the semiconductor market has bottomed out," Kleisterlee said, speaking at the IFA consumer electronics fair in Berlin.

Kleisterlee's comments injected further life into the chips, led by Applied Materials (AMAT: up $2.76 to $46.89, Research, Estimates), Broadcom (BRCM: up $3.06 to $36.93, Research, Estimates), and Intel (INTC: up $1.41 to $29.08, Research, Estimates).

Adding to the tech gains was news that a U.S. appeals court sent the Microsoft (MSFT: up $2.93 to $62.05, Research, Estimates) antitrust case back to a lower court for further review and hearings on a remedy for anticompetitive practices.

Lucent Technologies (LU: up $0.37 to $7.02, Research, Estimates) could undertake further cost cutting if the beleaguered telecommunications equipment maker wants to meet its growth targets for 2002, according to the Wall Street Journal.

Some analysts said Lucent's news was more significant for the bigger picture than the short-term salve provided by Cisco.

VA Linux Systems (LNUX: down $0.13 to $1.60, Research, Estimates), manufacturer of the Linux computer operating system, posted a wide fiscal fourth-quarter loss after the bell Thursday on revenue that fell more than 68 percent. The company's losses stem from its decision three months ago to exit the hardware business and focus solely on selling software and support services. And ADC Telecommunications Inc. (ADCT: up $0.61 to $4.79, Research, Estimates) reported a third-quarter loss after posting a profit in the year-earlier quarter, and warned that fourth-quarter results will come in at the low end of expectations. The communications equipment manufacturer had previously warned it would lose about 5 cents a share due to the slowdown in demand for telecommunications equipment.

Outside technology, Borders Group (BGP: up $0.03 to $23.31, Research, Estimates), the nation's No. 2 bookseller, broke even in its second quarter as it faced tough sales comparisons to last year's Harry Potter craze.

-- Anonymous, August 24, 2001

Answers

I don't think there is anything positive about today's rally. In fact I think it just shows how many people are invested up to their ears and need *any* kind of reason to keep up the optimism. With layoffs going on more each week, and profits sitting in the tank, and inflation poking its head up, and deficit spending on international trade balances remaining up in the clouds, I don't see any positive reason to increase investment in the stock market right now. So if others are dumping more money into it that just means to me that they are so committed they will use any excuse to stay at the table. Wishful thinking at its best. Humans are great at that.

-- Anonymous, August 24, 2001