Wall Street staged a sharp comeback Wednesday, partly on optimistic earnings forecasts from Motorola and Procter & Gamble, but analysts attributed much of it to technical factors rather than a turnaround in investor sentiment.
After being down more than 67 points, the Dow Jones industrial average closed up 100.45, at 9617.71. The Nasdaq composite index and the Standard & Poor’s 500 index also closed up after falling earlier in the day. The Nasdaq composite index rose 21.94, to 1519.12, and the S&P 500 advanced 6.66, to 1020.26.
But analysts said the gains were meaningless and attributed them to a practice commonly called short covering. When short covering occurs, investors are forced to buy stock to replace shares that they earlier borrowed and sold on the expectation that the market would fall further.
“People are buying back to get even,” said Bryan Piskorowski, market commentator at Prudential Securities. “This is no brave new world. One day of short covering in June is not the silver bullet for the market.”
A cautious mood dominated the session after a big sell-off Tuesday. New charges of unethical business practices–this time, the arrest of former ImClone Systems Chairman and Chief Executive Samuel Waksal on insider trading charges–added to the market’s uneasiness, as did a string of profit warnings from such companies as Safeway and Monsanto.
“The market’s a mess,” said Charles White, portfolio manager at Avatar Associates.
After trading lower most of the session, ImClone closed up 28 cents, to $7.83. But ImClone’s troubles, particularly the arrest of Waksal, hurt Martha Stewart Living Omnimedia, which fell $2.10, or more than 12 percent, to $15. Stewart, a friend of Waksal’s, reportedly sold her remaining 3,000 ImClone shares shortly before ImClone’s cancer drug was rejected by the Food and Drug Administration in December.
Stewart’s spokesman said she received no inside information on ImClone.
Motorola shares gained $1.25, or more than 8 percent, to $15.66, after it said it will meet or beat its earnings guidance for the second quarter. Dow component Procter & Gamble surged $4, to $93, after it raised its fourth-quarter earnings estimate and Merrill Lynch upgraded its shares to “strong buy” from “buy.”
Other winners included Maytag, which climbed $2.97, or 7 percent, to $45.27, after saying its second-quarter profit will beat analysts’ expectations, and Advanced Micro Devices, which gained 34 cents, to $9.67, after Prudential Securities raised its recommendation on the chipmaker’s shares to “hold” from “sell.”
Poor earnings outlooks drove down other stocks. Safeway dropped $4.42, or 12 percent, to $31.76, after the grocery store company reduced its second-quarter and fiscal year profit forecasts. Agriculture company Monsanto, which also lowered its estimates, fell $1.30, or nearly 5 percent, to $25.55, after being down more than 14 percent earlier in the day.
Siebel Systems skidded $2.48, or 14 percent, to $15.18, after it said its current quarter looks as difficult as the last, which at the time the company described as one of the worst ever.
