Investors play it safe
as momentum builds

Blue chips take the early lead
on Wall Street as the stock market
begins to move higher

---

By Amy Baldwin
Associated Press

NEW YORK >> The scenario of Wall Street's comeback wasn't supposed to unfold like this: blue chips surging ahead while tech stocks trail behind.

The popular wisdom was that technology would lead the market higher as it did in rallies of the past, but it looks like investors are building the market's recovery more with solid, reliable companies like General Motors, Merck and Wal-Mart than with companies like Cisco Systems and Sun Microsystems.

"It's not very often that you get the Dow leading," remarked Gary Kaltbaum, market technician for Investors' Edge Partners in Orlando, Fla.

But positive economic news sent the Dow Jones industrial average up 1.9 percent in February, while the tech-focused Nasdaq composite index fell 10.5 percent, its worst monthly decline since September, when it sank 17 percent. It wasn't until yesterday, when stocks surged across the board on positive economic news, that investors showed much enthusiasm for tech.

"Investors are beating a path to the safer havens," said Alan Ackerman, executive vice president of Fahnestock & Co. "We are still in a stock selective market."

The Dow ended the week up 400.71, or 4.0 percent, after alternating between triple-digit losses and advances the previous week. Thanks to yesterday's big boost, the Nasdaq rose 78.21, or 4.5 percent, while the S&P advanced 41.84, or 3.8 percent.

The blue chips' lead was supported by growing signs that business is turning around:

>> Yesterday, the Institute for Supply Management reported that manufacturing activity rose in February, the first increase in 18 months. And the Commerce Department announced that consumer spending, which accounts for two-thirds of the economy, rose 0.4 percent in January after being flat in December.

>> The Commerce Department reported Thursday that the economy as measured by the gross domestic product rose at an annual rate of 1.4 percent in the fourth quarter, exceeding analysts' expectations for a 0.9 percent increase.

>> On Wednesday, Federal Reserve Chairman Alan Greenspan told Congress the recession is almost over, although the economy won't come roaring back.

>> GM on Monday raised its first-quarter and 2002 earnings projections and said it is increasing production, citing better-than-expected U.S. sales.

Much of the Dow's success comes from having a greater concentration in traditional, cyclical stocks, such as GM and major manufacturers like 3M and Caterpillar, whose performance tends to mirror the economy, said Brian Belski, fundamental market strategist for US Bancorp Piper Jaffray.

These businesses are pulling out of the recession more quickly than the tech sector, which is still waiting for companies to resume spending on hardware and software equipment.

Investors are also attracted to companies whose business models are simpler than those of tech firms, Belski said.

"People are gravitating to companies they can understand," Belski said.

"There is this attitude of 'Let's get back to bare-bones investing, and understand the companies we are looking at or investing in.' "

Usually when investors focus on safer, steadier Old Economy companies, analysts are concerned about the market's health. Market analyst want to see investors go for riskier, growth-oriented tech stocks.

But analysts aren't worried.

"This is rational exuberance, instead of irrational exuberance," said Larry Wachtel, market analyst at Prudential Securities, playing on Greenspan's famous assessment of the last bull market during which he said investors displayed "irrational exuberance."

Aside from investors' focus on the safer blue chips, there are other signs they are cautious in their buying. Trading volume has generally been light, which means many traders were sitting on the sidelines, not participating in the buying.

And, despite optimistic reports on business, the Dow failed to hold onto some gains.

Blue chips' advance has also been hard fought, coming despite fizzled rallies and big swings in both directions. Of the 19 trading days in February, nine of them saw the Dow rise or fall by triple digits.

Of course, with a 262-point gain yesterday, the Dow has started March in a very positive manner. What happens in the coming sessions will be key to whether Wall Street's recovery is indeed at hand, and whether tech will recapture its traditional role as the market leader.

Yesterday's buying spree also helped the overall market post big weekly gains.

For the week, the Dow rose 400.71, or 4.0 percent, to 10,368.86, its best standing since Aug. 27, when it stood at 10,382.35. The Dow surged 262.73 yesterday, its biggest one-day point win since rising 368.05 on Sept. 24.

The Nasdaq ended the week up 78.21, or 4.5 percent, after advancing 71.25 yesterday, its largest daily point gain since Dec. 5, when it rose 83.74. The Nasdaq closed at 1,802.74.

The Standard & Poor's 500 index had a weekly increase of 41.84, or 3.8 percent, after rising 25.05 yesterday to 1,131.78.

For the week, the Russell 2000 index, the barometer of smaller company stocks, rose 13.27, or 2.9 percent. The Russell yesterday advanced 8.98 to close at 478.34.

The Wilshire Associates Equity Index, which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues, ended the week at $10.560 trillion, up $380.72 billion from the previous week. A year ago the index was $11.374 trillion.