- The Washington Times - Thursday, May 9, 2002

NEW YORK (AP) Unexpectedly strong profits at Cisco Systems delighted investors starved for good news yesterday, sending the Dow Jones Industrial Average up more than 300 points and the Nasdaq Composite Index higher by more than 120.
It was Wall Street's biggest rally since the rebound that followed the post-September 11 sell-off. But analysts cautioned against reading too much into the advance, attributing it more to bargain-hunting on recent selling than any improvement in sentiment or business. They also noted that the market has developed a habit of rallying unsustainably.
"Investors have been waiting for a reason to buy. The catalyst today was Cisco," said Jack Francis, managing director at UBS Warburg. "But this is just a snapback rally. Nothing fundamental has changed in corporate America, and I don't think this is a turnaround."
The Dow closed up 305.28, or 3.1 percent, at 10,141.83. It was the biggest point and percentage gain since Sept. 24, when the average advanced 368.05 and 4.5 percent.
Broader stock indicators fared even better. The Nasdaq soared 122.47, or 7.8 percent, to 1,696.27, its eighth-largest percentage gain ever and biggest point gain since April 18, 2001, when the index advanced 156.22.
The Standard & Poor's 500 Index was up 39.36, or 3.8 percent, at 1,088.85, its biggest point increase since April 18, 2001, when the index rose 46.35, and biggest percentage gain since it rose 3.9 percent on Sept. 24.
The rally was triggered by Cisco, which climbed $3.19, or 24.4 percent, to $16.27 after reporting higher-than-expected third-quarter profits late Tuesday. The network-equipment maker and technology-industry bellwether stopped short of predicting a recovery, though saying instead that it expected little growth in the coming quarter. Still, that didn't curb Wall Street's buying.
Cisco rival Juniper Networks rose $1.19, or 14.1 percent, to $9.62, while software company Microsoft jumped $5.50, or 11 percent, to $54.97, helped by a surge in European sales of its Xbox video-game systems.
Financial stocks were also strong on reports that Merrill Lynch and the New York state attorney general were working on a settlement in the investigation of purported conflicts of interest at the nation's largest brokerage firm. Merrill climbed $3.31 to $43.95, an 8 percent increase, while Lehman Brothers advanced $4.10 to $64.50.
The enthusiasm had limits, however. Dynegy tumbled $1.11, or 9.1 percent, to $11.15 after the energy trader said the Securities and Exchange Commission intends to upgrade its probe of a natural-gas contract into a formal investigation.
Consumer-products companies, which are considered safer, albeit lower-return investments, were also weaker as investors shifted into technology and other more aggressive sectors. Philip Morris fell 56 cents to $55.06.
The trading was among the most positive Wall Street has seen in weeks, but most analysts said it was likely only bargain-hunting on the market's recent losses, rather than the beginning of a recovery.
Even with yesterday's gains, the Nasdaq roughly was where it was a week ago and is off 13 percent for 2002. The Dow is just 1.3 percent above where it started the year, while the S&P; has lost 5.2 percent.
Stocks have been moving lower in recent weeks on mediocre earnings reports from companies that have said it's too soon to predict a business turnaround. Even though economic data has steadily improved, investors have refused to buy until they feel more confident that company profits will catch up.
As a result, Wall Street has fallen into a pattern of mounting occasional, but ultimately unsustainable, rallies. Analysts say investors, fed up with the market's volatility, are inclined to use the advances to collect profits rather than invest on expectations higher market levels are ahead. Earlier this week, the Nasdaq and S&P; 500 had fallen back to levels last seen in October, while the Dow strained to reach 10,000.
"People are concerned that the economic recovery is not leading to greater corporate profitability," said Stephen Massocca, president of Pacific Growth Equities. "I think investors are still extremely pessimistic."
Mr. Francis, the UBS Warburg director, believes yesterday's rally will likely falter, too.
"There might be another day of gains that we get out of this, but it will eventually run out of steam," he said.
Advancing issues led decliners 3-to-2 on the New York Stock Exchange. Consolidated volume came to 1.81 billion shares, compared with 1.65 billion shares Tuesday.
The Russell 2000 index climbed 10.77, or 2.2 percent, to 509.75.
Overseas, Japan's Nikkei stock average rose 1.8 percent. In Europe, Germany's DAX index rose 3.2 percent, Britain's FTSE 100 climbed 1.7 percent, and France's CAC-40 gained 2.5 percent.


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