Closing Market Report

Star-Bulletin news services

Thursday, May 17, 2001

Stocks keep climbing

The Dow rises 33 and the Nasdaq
gains 27 after a positive report
on the economic outlook

By Amy Baldwin
Associated Press

NEW YORK >> Investors maintained their enthusiasm over lower interest rates today, extending the big rally that allowed the Dow industrials to close above 11,000 for the first time since September.

A positive economic report helped the stock market extend the large advance it made yesterday, when investors bought up shares in response to the Federal Reserve's decision Tuesday to lower interest rates by 0.5 percentage point.

The Dow Jones industrial average closed up 32.66 at 11,248.58. The Dow's moderate gain followed the 342-point climb it made yesterday when the blue-chip average closed above 11,000 for the first time since Sept. 14. The broader market also finished higher. The Nasdaq composite index advanced 27.24 to 2,193.68 and the Standard & Poor's 500 index moved up 3.50 to 1,288.49.

Advancers beat decliners 3 to 2 on the New York Stock Exchange, with 1,892 up, 1,211 down and 204 unchanged. Volume was 1.34 billion shares vs. 1.35 billion yesterday. The NYSE composite index rose 2.52 to 655.25, the American Stock Exchange composite index gained 3.43 to 957.52 and the Russell 2000 index, which measures the performance of smaller companies stocks, rose 7.55 to 504.76. The Treasury's 10-year rose 7/32 to 96 29/32; its yield fell 3 basis points to 5.41 percent. The 30-year bond jumped 1 1/8 to 94 14/32; its yield fell 8 basis points to 5.77 percent.

With five interest rate cuts so far this year, investors and market analysts are increasingly hopeful that the economy and earnings will turn around in the second half of 2001.

"The good news is the consumer, and ultimately business investors, are going to be in the mood to spend and invest money," said Kevin Caron, associate strategist at Gruntal & Co.

A key economic report out today increased optimism that the economy is starting to recover. The Conference Board's Index of Leading Indicators, an important gauge of future economic activity, rose 0.1 percent in April, gaining after two consecutive monthly declines.

Among today's gainers were companies that posted better-than-expected earnings. Kmart advanced 45 cents to $10.58 after announcing it lost 2 cents a share in the first quarter, 5 cents less Wall Street expected.

Hewlett-Packard, which beat earnings forecasts yesterday by 3 cents a share, rose sharply, up $4.16 at $30.90.

Investors also bid up some major industrial shares - which stand to benefit as the economy strengthens - like Boeing, up $2.04 at $68.79.

Another sign of investors' resurgent optimism could be seen in what issues they sold today, including stocks in so-called defensive sectors like consumer products. Procter & Gamble fell $1.14 to $67.15.

After the market closed, Dell Computer said fiscal first-quarter earnings slipped because it didn't cut expenses fast enough to make up for steep PC price reductions. Net income fell to $462 million, or 17 cents a share, from $466 million, or 17 cents, a year earlier. Sales in the period ended May 4 rose 10 percent to $8.03 billion from $7.28 billion.

To lure wary customers and grab sales from competitors like Compaq Computer, Dell has slashed PC prices, putting pressure on earnings. To compensate, the company has said it will eliminate as many as 5,700 jobs this year to reduce costs. Dell matched analysts' proit forecasts of 17 cents a share. Dell shares rose 50 cents to $25.88 in regular trading.

Meanwhile, analysts are confident the market will be able to hang onto much of its gains because the economy and earnings appear to be through the worst - a departure from the rate-cut rallies earlier this year that faded as worries about the future set back in.

"Once the market gets to this point when it starts to smell recovery, you can indeed have very good rallies," said Caron, the strategist for Gruntal.

However, analysts also said that the market is bound to take equally sizable tumbles as companies continue to report disappointing earnings well into the third quarter. "The market is headed higher in a very volatile way with strong upswings like (yesteray) and strong downswings that are going to scare the pants off some people. But this is all typical in the early stages of a market advance," said Al Mirman, strategist for V Finance in Sarasota, Fla.

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