NEW YORK (CBS.MW) -- The Dow industrials led the stock market in a widespread move higher on optimism that the economy is on the mend. Techs trekked higher following upbeat news from Sprint, which drew enthusiastic cheers from the telecom sector.
"Data points continue to signal recovery. For the first time in a while it seems that companies have the wind at their back rather than in their face," remarked David Powers, senior technology strategist at Edward Jones.
The Nasdaq saw its fourth straight session of gains while the broad S&P 500 finished at a 2-month high.
Buying interest was pervasive as investors gave a broad swath of groups the thumbs up: biotech, airline, retail, drug, financial and energy.
Airline issues were fast approaching pre-Sept. 11 levels. The group's main index , in fact, closed just 8.5 percent shy of its Sept. 10 closing level after tumbling up to 46 percent in late September. See airline stocks story.
The Dow Jones Industrial Average ran up 140.88 points, or 1.4 percent, to 10,574.29. J.P. Morgan, Boeing, Alcoa, General Electric and Home Depot tallied the most significant gains and only Hewlett-Packard, Coca-Cola and Procter & Gamble closed lower.
The Nasdaq Composite rose 24.11 points, or 1.3 percent, to 1,890.40 and the Nasdaq 100 Index racked up a gain of 21 points, or 1.4 percent, to 1,519.95.
In the tech sector, chip and storage stocks closed lower, with the latter stung by a grim warning from McData. But telecom and wireless shares flew on the wings of a profit reaffirmation from Sprint.
"This is certainly a big move for telecoms," remarked Scott Curtis, head of U.S. equity trading at Credit Lyonnais. "But the tech sector is still sitting on a huge amount of overcapacity."
Powers believes many investors will be willing to ignore lofty stock valuations as long as they see an economic recovery in front of them.
But there are still plenty of hurdles to overcome, such as the pre-announcement season and midquarter updates from key companies, Powers cautioned. In addition, spring marks the start of the seasonally weak period for the tech sector.
The Standard & Poor's 500 Index climbed 1.5 percent while the Russell 2000 Index of small-capitalization stocks gained 1.5 percent.
The latest piece of economic news revealed that factories continued to work off unwanted merchandise even as orders picked up. January factory orders, in fact, rose 1.6 percent while inventories fell 0.6 percent. The numbers were in line with economists' expectations.
The Fed's Beige Book report on economic conditions carried a more upbeat tone but also pointed to mixed conditions in some regions and showed that the labor market remains slack.
"The Fed's Beige Book acknowledged some of the improvement evident in recent economic data, but the tone of the survey could not yet be described as a ringing endorsement of the recovery story. This should not come as a surprise -- the Beige Book is not a forward-looking report," observed Ian Shepherdson, chief U.S. economy at High Frequency Economics.
Volume came in at 1.52 billion on the NYSE and at 1.91 billion on the Nasdaq Stock Market. Market breadth was decidedly rosy, with winners breezing past losers by 23 to 9 on the NYSE and by 23 to 13 on the Nasdaq.
Read After Hours for trading after the official closing bell.
Merrill goes neutral on U.S. equities
Merrill Lynch's chief global investment strategist David Bowers lowered his exposure to U.S. and U.K. equity markets while upping his exposure to Japan and global emerging markets in the first portfolio change since April 2001.
Bowers acknowledges that these recommended country shifts raise both the cyclicality and overall risk of a portfolio. He made similar changes to global sectors by increasing exposure to basic industries and downgrading utilities in a move that emphasizes his cyclical leaning.
"The U.S. equity market has been our favorite for the past ten months. It now moves down in our rankings from first to third as we shift from an overweight to a more neutral stance," Bowers told clients.
Concerns about U.S. equities have increased due to valuation, a possible de-rating of U.S. financials relative to the rest of the world and diminished investor demand for consumer staples, the Merrill strategist said.
"With the global recovery gathering momentum, we believe that now is the time to take a positive stance on the more cyclical equity markets around the world. We have increased our exposure in emerging markets from a neutral to overweight," he said.
Bowers believes that as the world economic cycle picks up, fund managers underweight Japan will have to change their tilt. He added that he "still finds it hard to get excited about European equities" as the "defensive qualities of [that] market look less desirable against the backdrop of global recovery."
McData slams storage shares; Sprint propels telecom
McData (NasdaqNM: MCDT - news) tumbled 26.9 percent after warning late Tuesday that it would not meet Wall Street's financial targets for the first quarter, citing cautious spending on technology products by larger customers. McData closed down a bruising 12 percent Tuesday after the company announced a lawsuit of competitor Brocade Communications for patent infringement. Brocade (NasdaqNM: BRCD - news) slid 4.4 percent.
Storage titan EMC (NYSE: EMC - news) , meanwhile, shed 2.2 percent after J.P. Morgan cut first-quarter earnings and revenue estimates for the company. J.P. Morgan also lowered its targets on McData and Inrange Technologies (NasdaqNM: INRG - news) , indicating that McData's negative pre-announcement highlights that high-end storage spending has been difficult to forecast for the first quarter. Inrange slipped 5.1 percent. Among other stocks in the space, Network Appliance slid 8 percent, Emulex 8.7 percent and QLogic 3.1 percent.
Telecom shares found substantial relief in Sprint's (NYSE: FON - news) announcement that it was on track to meet 2002 financial targets for 2002. Still, SoundView Technology lowered its rating on Sprint PCS to a "buy" from a "strong buy" due to liquidity issues and a competitive pricing environment. Sprint tacked on 8.7 percent while its wireless PCS arm (NYSE: PCS - news) sprinted 20.1 percent. Among other telecom concerns, AT&T ascended 1.1 percent while WorldCom gained 7.3 percent. And Qwest Communications (NYSE: Q - news) put on almost 14 percent even after a downgrade from Salomon Smith Barney to a "neutral" from a "buy." In the wireless group, Nextel Communications rallied 14.6 percent and AT&T Wireless 8.7 percent.
Meanwhile, two merger partners in the spotlight traded mixed. Dow company Hewlett-Packard (NYSE: HWP - news) lost 2 percent while Compaq Computer (NYSE: CPQ - news) jumped 3.8 percent. Advisory firm Institutional Shareholder Services recommended that its clients vote for the proposed $22 billion merger of H-P and Compaq on belief management's upside scenario is achievable. A formal shareholder vote is scheduled for March 19. SG Cowen said support from the ISS provided needed momentum to H-P management's uphill case, though the vote remains extremely tight. Cowen expects the proposed merger to ultimately get the thumbs up from shareholders.
But UBS Warburg analyst Don Young cautioned that the H-P/Compaq deal still faces large hurdles and believes it's more likely it won't go through.
"We continue to oppose the strategic rationale of this merger. While H-P remains attractive from a valuation perspective, we find the future potential revenue mix of a combined H-P/Compaq to be far less attractive. We recommend avoiding both stocks," Young told clients. His preferred PC and enterprise investment ideas remain Microsoft (NasdaqNM: MSFT - news) , IBM (NYSE: IBM - news) and Network Appliance (NasdaqNM: NTAP - news) .
While the broader chip group remained soggy, Intel (NasdaqNM: INTC - news) surrendered earlier losses and edged up 0.8 percent ahead of its midquarter update on Thursday. UBS Warburg expects Intel to "tighten revenue guidance" for the quarter "toward the mid point to slightly above the mid-point" on belief that processor demand is roughly in-line with or slightly better than the normal seasonal trend. Advanced Micro Devices slumped 1.8 percent and Micron Technology 4.2 percent.
Sun Microsystems (NasdaqNM: SUNW - news) will also provide its midquarter update after the close Thursday. Its shares fell 0.7 percent and were the second most actively traded on the Nasdaq.
Amazon.com shares (NasdaqNM: AMZN - news) recovered nicely, gaining 2.3 percent after falling as much as 7.2 percent intraday. The online retailer announced late Tuesday that its Chief Financial Officer Warren Jensen intends to resign later in the year but agreed to stay on until Amazon finds a successor
Broader market moves
Steel stocks had a banner day following news that President Bush imposed tariffs of up to 30 percent on most imported steel for three years. Checking the gains, Dow stock Alcoa (NYSE: AA - news) swelled 2.6 percent, Bethlehem Steel (NYSE: BS - news) 15.5 percent, U.S. Steel (NYSE: X - news) 1.6 percent, Alcan (NYSE: AL - news) 1.9 percent and AK Steel (NYSE: AKS - news) 3 percent. News of the U.S. move to protect domestic steel companies slammed Asian steel makers.
ImClone Systems' (NasdaqNM: IMCL - news) 20.2-percent surge lifted the biotech sector, which was among the biggest gainers in the broader market. ImClone and Bristol-Myers Squibb (NYSE: BMY - news) announced late Tuesday significant changes to their partnership to market anti-cancer drug Erbitux. The new terms appeared to remove the threat that Bristol-Myers would walk away from the deal. Bristol-Myers climbed 3.7 percent. Biotech behemoths Amgen and Biogen rose 2.8 percent and 4.2 percent, respectively. Check biotech stocks story.
Financial stocks ascended, with Deutsche Banc Alex. Brown's upgrade of Dow company J.P. Morgan Chase (NYSE: JPM - news) to a "strong buy" from a "buy" aiding the group. The firm cited attractive valuation, a bottoming risk profile and belief that J.P. Morgan has the most to gain from a strengthening economy as reason for its improved opinion. JPM climbed 4.7 percent while fellow Dow components American Express and Citigroup rose 2.2 percent and 2.1 percent, respectively.
Check Movers & Shakers for the latest individual stock action.
Treasurys whacked
Government bonds got smacked, with long issues taking the biggest lumps.
Mounting expectations that upcoming economic data will signal a sturdy rebound later in the year have caused inflation-obsessed bond market players to steer clear of fixed-income securities in recent sessions.
The 10-year Treasury note was off a hefty 12/32 to yield 5.05 percent while the 30-year government bond erased 25/32 to yield 5.545 percent.
Thursday will see the release of weekly initial claims, the revision to fourth-quarter productivity figures and the January consumer credit report.
In the currency segment, the dollar dropped 1.1 percent to 130.67 yen while the euro added on 0.5 percent to 87.59 cents.
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