- The Washington Times - Friday, April 6, 2001

Stock investors thirsty for good news seized on reports of growing profits at Dell and Alcoa yesterday and sent the Dow Jones Industrial Average up 403 points to its second-largest gain.
The beleaguered Nasdaq Composite Index, which is down two-thirds from a year ago, also surged by 9 percent or 146 points to 1,785 its third-largest percentage gain. Even with its dramatic advance, however, the blue-chip Dow barely made up a 392 point loss on Monday and Tuesday of this week, ending at 9,918.
The word that Dell, a leading computer manufacturer, would meet its profit and revenue forecast for the first quarter was the first good news for such a technology bellwether in months. And Alcoa's report that it exceeded profit estimates was a tonic to investors who have endured month upon month of seemingly nothing but bad earnings news.
"Dell came in and made people feel better," said Bob Rhodes of Trusco Capital Management Inc. "That's what the market was looking for any sign of hope that the world wasn't ending."
Nearly every technology stock, big and small, got a boost from Dell's good fortune, with IBM, Microsoft, Micron, Intel, Cisco and Yahoo all posting major gains. Some investors hoped yesterday's advance marked a turning point for the market, which sank into bear territory in 2001 and has not posted a sustained rally for a year.
"The rebound in the equity market can carry higher," said Allen Sinai, president of Primark Decision Economics.
But he said the market remains vulnerable to more bad news on earnings and the economy that could come out in coming days and weeks.
"Too many possibilities for negative news still exist to think that the U.S. equity market has turned the corner and is out of the woods," he said.
This morning, for example, a report on unemployment from the Labor Department could show a deterioration in the job market, undermining the economy's main source of strength: consumer spending. Economists expect the unemployment rate to tick up to 4.3 percent from 4.2 percent.
"The fundamentals surrounding the consumer look pretty negative," said Mr. Sinai, "ranging from much weaker jobs growth and slower growth in real income to a negative impact from the wealth effect" caused by the downdraft in the stock market.
Many consumers are sitting on losses in their stock portfolios, even after yesterday's powerful rally. All the major stock indexes remain down for the year.
Indeed, many small and large investors alike have used recent brief upticks in the market to cash in their stocks and cut losses, making a sustained rally all the more difficult. February saw the first net outflow from stock mutual funds since August 1998, when the Asian crisis was wracking the market.
One thing the market has going for it, said Mr. Sinai, is the Federal Reserve's campaign to lower interest rates. Historically, stocks have always rallied in response to lower rates.
But whether the current rally lasts depends on both the economy and earnings showing lasting gains as well, he said.
What's hurting the market is not so much the economic downturn as a recession in profits that has been under way for the past year, said Ed Yardeni, chief market strategist at Deutsche Bank Securities.
Businesses have been pinched by rising costs for energy and labor, but have been largely unable to pass those costs on to consumers. So, instead, they cut into profits.
"The bear market in earnings is disturbing," Mr. Yardeni said, and will continue to undermine both the market and the economy. He expects first-quarter results reported by companies this month and next to be "worse than advertised," and the second quarter to witness more such gloom.
One reason for pessimism: "Businesses in the world's sixth-largest economy California are about to get their profits squeezed by a sharp increase in electric utility rates," he said.
Also, "April can be an action-packed month," he said. "Lots of hard-working Americans will gag when they see their brokerage statements at the start of the month with March results. This could trigger a wave of selling."
Short-lived or not, yesterday's gains were broad-based, with three stocks rising for every one that fell on the New York Stock Exchange. The Wilshire 5000 Total Market Index, the broadest stock gauge, advanced 464 points or 4.6 percent to 10,532. That means the total market value of stocks rose more than $500 billion.
John C. Bogle, founder of the Vanguard Group of mutual funds, said he expects yearly average gains in the market to be more subdued this decade.
The bursting of the speculative bubble in stocks last year marked a historic turning point for the market, he said.
"We have departed a two-decade-long golden era for equity investors," he said, "and are entering an era in which 'the party's over.' "

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