Stock prices rebounded Thursday, led by computer-technology issues and small-company stocks. For only the second time in 15 sessions, there were more winners than losers on the New York Stock Exchange.
Once again, market observers hesitated to call an end to the recent market weakness, but the consensus was that the worst is over at least until more information can be learned about the outlook for corporate profits.
“The numbers are telling me we’re through the worst of it,” said Gregory Nie, technical market analyst at Everen Securities in Chicago. “The necessary conditions are falling into place for this to be a `V’ pattern, but it’s still too early to say the sellers are finished.”
The Dow Jones industrial average gained 30.90 points, to 8577.68, on heavy New York Stock Exchange volume of 760 million shares. The broader Standard & Poor’s 500-stock index added 8.20 to 1089.63, as advancing issues outnumbered losers by about 4-3 among NYSE-listed issues.
Wal-Mart Stores led the Dow industrials higher, after the company posted a strong gain–16.3 percent–in July sales from the year-earlier month. Wal-Mart rose $3, to $64.
Sears Roebuck, another retailer among the 30 Dow industrial stocks, slipped 6 cents, to $47.94, after posting a 1.7 percent sales gain.
The Nasdaq composite index jumped 41.31, or 2.3 percent, to 1829.51, its best one-day advance since March. Analysts cited bargain-hunting among such big-name computer-technology stocks as Intel, Microsoft, Dell Computer and Cisco Systems.
Advancing stocks outnumbered losers about 26-17 among Nasdaq-listed stocks.
The Russell 2000 index of smaller companies, which has plunged 15.3 percent in the recent market slide and 20.2 percent since its record high on April 22, added 7.93, or 2.0 percent, to 406.62.
Thursday’s move in the Russell 2000 suggested that the recent market sell-off has not spooked investors into completely avoiding riskier stocks. Small stocks have performed far worse than big stocks for much of this year. Despite Thursday’s rally, the Russell 2000 index is down 7 percent so far this year.
Nie believes the market may stage an aftershock sell-off soon to bring the closing Dow Jones industrial average to 8400. That figure would represent what he called an “official” 10 percent correction from the record closing high of 9337.97 on July 17.
Nonetheless, the percentage of stocks trading above their 10-week moving averages is the lowest since December 1994, which Nie believes indicates a severe “oversold” condition in the market.
“Momentum is still on the downside, but at the same time the spring is coiling for a snap-back,” Nie said. “The snap-back will come out of the starting block very strong.”
Among computer-technology stocks, Compaq Computer, the most-active NYSE stock Thursday, continued trading higher in after-hours electronic trading. The stock gained $3.37 in the regular session to $35.12 and was quoted at $36 late in the day. Goldman Sachs added the stock to its “priority list” late Thursday.
Investors appeared to be cherry-picking stocks that have survived the market slide of the last three weeks in better shape than market indexes. For example, both Intel and Compaq Computer lost 8.1 percent from an intraday peak a week ago to an intraday low on Tuesday. By comparison, the Standard & Poor’s 500 index shed 11.1 percent in the recent slump.
Stocks of health-maintenance organizations were among the day’s worst performers. United Healthcare and Humana, which plan to merge, plunged after United issued disappointing quarterly results. United lost $15, to $37.87, and Humana dropped $6.62, to $19.12, in active NYSE trading.
Locally, Chicago-based Sara Lee dropped $2 to $50.06 after its latest quarterly earnings failed to meet Wall Street estimates.
Treasury securities once again ended mixed, with more buying at the short end of the maturity spectrum.
Bargain hunting: There’s no doubt the stock market has been shaken and is vulnerable to bad news. But Richard Furmanski of Chicago-based Concord Investment says there’s a substantial source of buyers to lift prices: corporations shopping for mergers and acquisitions.
Merger-and-acquisition activity has been a principal underpinning of the stock market for several years, as companies deployed their inflated stock prices as currencies to buy competitors and others.
Acquisitions are one way to boost revenue in a low-inflation environment, Furmanski notes. In addition, merged companies often achieve improved productivity and greater profit margins by eliminating redundant operations and otherwise trimming costs, he said.
Although stock prices have eroded, the essential drivers of the merger and acquisition boom have not changed.
“Corporations are going to step in and become big buyers of stock,” he said. With the average stock on the NYSE now worth 30 percent less than its 52-week high, deals will be done for cash, he expects. Also, companies that have maintained their stock prices relatively well will continue to transact stock-for-stock deals.
“If I were an investment banker, I would rest up, because they are going to be busy,” Furmanski said.
Local news: Avondale Financial, Chicago, holding company for Avondale Federal Savings Bank, plans to repurchase 5 percent of its stock in the next six months.
– J.P. Morgan assigned a “market perform” rating to Chicago-based building products firm USG.
