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Clinging to hope, investors lift market

 
Published July 18, 2001|Updated Sept. 10, 2005

A handful of positive earnings reports triggered a broad-based rally Tuesday on Wall Street, sending the Dow Jones industrials up more than 130 points as investors grew more confident about companies' prospects in the months ahead.

The weak but better-than-expected results from companies including Caterpillar were greeted by investors as a sign that the economy's slide is indeed over. But the optimism had its limits: Tech bellwether Intel fell in late trading after reporting results that beat estimates but offered a cautious forecast for the third quarter. Likewise, shares of General Motors fell after the automaker reported a 73 percent drop in earnings that nonetheless beat Wall Street predictions.

The Dow closed up 134.27 at 10,606.39, a 1.3 percent gain in brisk trading that accelerated as the afternoon wore on. The Nasdaq Composite Index rose 1.9 percent, rising 38.20 to 2,067.32, while the Standard & Poor's 500 index gained 11.99, or 1 percent, to 1,214.44.

The market's advance coincided with better-than-expected earnings from Caterpillar, which sent the heavy equipmentmaker's stock up $3.18 to $53.55, a 6 percent gain.

"Good earnings stories and positive surprises are few and far between these days," said Robert Streed, portfolio manager of Northern Select Equity Fund. "If a company like Caterpillar shows a decent report, the stock is going to respond well and, in this case, take a couple of other industrial issues up with it."

Investors' enthusiasm extended to other industrial and manufacturing issues, including 3M, which gained $2.81 to $112.86.

Pharmaceuticals also were strong despite earnings slightly below expectations from Johnson & Johnson. J&J rose $1.18 to $54.91.

Tech stocks ended the regular session higher, too, but their gains faded somewhat in the extended session after Intel released its earnings report. The chipmaker's second-quarter earnings beat expectations _ despite a 94 percent drop in profits _ but Intel indicated it was too soon to predict a turnaround.

The chipmaker's stock fell 45 cents to $29.45 in extended trading, giving back some of its 77-cent regular session gain.

Other tech stocks were weaker, too, but it was difficult to tell how much of the selling was attributable to profit-taking after the day's gains and how much was in reaction to Intel.

"People may have just been too bullish going into this," said Robert Harrington, co-head of listed block trading UBS Warburg, who suggested Wall Street's tolerance for mediocrity in technology has diminished.

Wall Street also punished Apple Computer, which beat fiscal third-quarter estimates but indicated business will be difficult for the rest of 2001. The computer company dropped $2.70 to $22.40, an 11 percent loss, in after-hours trading, reversing a regular session gain of $1.14.

The activity reflected Wall Street's intense focus on corporate earnings in an economy where recovery prospects remain uncertain.

At General Motors, the automaker blamed increasing competition from Asian automakers, lower demand, an industrywide incentive war and disappointing sales in Europe for its drop in second-quarter profits.

The world's biggest automaker earned $477-million, or $1.03 a share, in the April-June period compared with earnings of $1.75-billion, or $2.93 a share, a year ago. Excluding one-time adjustments, GM topped forecasts by 12 cents a share. Still, GM shares fell $1.05 to close at $65.99.

Although the Federal Reserve's six interest rate cuts so far this year are expected to eventually stimulate economic growth, Wall Street has become increasingly focused on corporate performance as the best indicator of when the economy will turn around. Technology, which has taken an especially strong beating, is under particularly close scrutiny.

The market is awaiting Fed chairman Alan Greenspan's biannual testimony to Congress today. Investors want to know if more rate cuts are likely and get his assessment of the economy.

Earnings recap

Several companies on Tuesday posted weak but better-than-expected earnings, and that was good news on Wall Street. Among the companies that did better than expected:

General Motors

Caterpillar

Intel

Apple