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From this morning's NY Times:
December 23, 2000 Single-Page Format

Nasdaq Soars to End Brutal Week, but
Weakness Remains

By JONATHAN FUERBRINGER

The Nasdaq composite index jumped 7.6 percent yesterday as bargain-hunting investors snapped up technology stocks that
had dropped sharply in recent weeks.

It was the Nasdaq's fifth-best daily percentage gain ever. But because of the hard hit that technology stocks took earlier in the week, including a 7.1 percent loss Wednesday, the Nasdaq was still down 5.1 percent for the week.

Cisco Systems, which plunged 12.6 percent on Wednesday after it was downgraded by Merrill Lynch, rose for a second day, climbing $2.63, to $41.50. Qualcomm, which had fallen 11.3 percent since Monday, rose $9.19, to $85. Microsoft, which had dropped 28.5 percent in the last week and a half, jumped $3, to $46.44. And I.B.M., which was off 14.1 percent in the last week and a half, jumped $7.44, to $89.

Among other technology stocks helping lift the three major indexes were Hewlett-Packard, Sun Microsystems and Oracle.

The Dow Jones industrial average rose 148.27 points, or 1.4 percent, to 10,635.56. The technology-heavy Nasdaq surged 176.90 points, to 2,517.02. The Standard & Poor's 500-stock index climbed 31.11 points, or 2.4 percent, to 1,305.97. The gains came in relatively heavy volume for the last trading day before Christmas, with 1.09 billion shares changing hands on the New York Stock Exchange.

I.B.M. rose after a Salomon Smith Barney analyst said speculation that the computer company would miss its sales or profit forecasts was off the mark. But the Ford Motor Company dropped $1.38, to $22.81, after it said Thursday that its fourth-quarter profit would come in about 10 cents below forecasts of 74 cents a share because of slowing economic growth and consumer spending.

Yesterday's rebound, however, cannot be read as a signal that the stock market has finally hit bottom. That still depends on how much more the economy slows and how quickly the Federal Reserve moves to stimulate growth by cutting its short-term interest rate target.

"I don't believe that we have seen the bottom," said Thomas McManus, equity strategist at Banc of America Securities."The news on earnings is still very negative, surprisingly negative for an earnings bear, which I have been for eight months. My numbers are probably too high."

Mr. McManus also said that President-elect George W. Bush's
comments about the possibility of a recession and disagreement from the Clinton White House are not helpful for consumers or stocks. "It is not encouraging to see politicians arguing over the state of the economy," he said.

In addition, investors still have to get through another week or so of fourth-quarter earnings preannouncements in the first part of January. If the negative tone of this month's announcements continues, stocks could be pushed lower.

For the week, the Dow was up 1.9 percent, and the S.& P. 500 index fell 0.5 percent. With just four more trading days to go in the year, the Dow is down 7.5 percent, which would be its worst performance since 1981. The Nasdaq is down 38.2 percent, on the way to its worst performance in its history. And the S.& P. 500-stock index is off 11.1 percent, its worst year since 1977.

While Fed policy makers unexpectedly shifted their bias to cutting interest rates from raising them at their Tuesday meeting, they have not yet cut their benchmark federal funds rate from 6.5 percent. The sell-off in the stock market on Tuesday after the Fed said that it would not change the rate and again on Wednesday indicated that many investors were hungering for a cut.

Given the recent signs of the economy's slowing, more economists and analysts are saying the Fed will cut interest rates when policy makers meet at the end of January.

But Mr. McManus said there was talk in the stock and bond markets now that the Fed would reduce rates before its scheduled session at the end of January, given the rapidity of the economic slowdown. The Fed rarely moves on interest rates between formal policy-making meetings. But it has done so, most recently in the fall of 1998, during the Russian financial crisis.

"I think the market will definitely be extremely disappointed if the Fed does not cut rates by Groundhog Day," Mr. McManus said.

Several government reports yesterday added to the portrait of an economy that has slowed sharply from the 5 percent growth pace of 1999 and the first half of this year. Orders for durable goods rose 2.3 percent in November, after a 6.5 percent drop in October. Although the increase was a little larger than the 1.5 percent expected, it still reflects how wary consumers have become.

The Commerce Department also reported yesterday that consumer
spending rose 0.3 percent in November. But much of the increase went to pay for higher utility bills, which analysts say have been cutting into spending for household and other goods and holiday gifts.

The Commerce Department reported Thursday that economic growth in the third quarter slipped to 2.2 percent at an annual rate, the weakest quarterly growth in four years.

The slowing growth and the prospect of a Fed rate cut before the end of January helped drive Treasury interest rates lower in a trading session shortened by a holiday. The yield on the Treasury's 10-year note rose 732, to 1052132, as the yield, which moves in the opposite direction, slipped to 5 percent, from 5.03 percent on Thursday. That is its lowest yield since February 1999, when longer-term interest rates were rising after reaching 30-year lows in October 1998. The yield on the 30-year bond fell to 5.39 percent, from 5.41 percent on Thursday.

Clearer signs of a slowdown in the United States and the sharp decline in the stock market also helped the euro to rise against the dollar. From the inception of the euro in January 1999 until last month, the currency had fallen as investors preferred to put their money into the United States.

But now the euro has jumped almost 12 percent against the dollar since its record low in October, including an increase yesterday to 92.52 cents from 91.43 cents on Thursday. At this level, the euro is already as high as some forecasters predicted it would rise in 2001.