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Stocks began the week with another round of solid gains for the major U.S. indexes. Monday's gains were paced by strength in technology and retail issues. The Nasdaq composite index reached its highest closing level since mid-June 2002.
The Dow Jones industrial average advanced 122 points, or 1.42%, to 8,726.73. The broader Standard & Poor's 500-stock index was up 11.7 points, or 1.25%, to 945.11. The tech-heavy Nasdaq composite index closed 1.4% higher, rising 21.25 points, to close at 1,541.40.
"We continue to see a tug of war between the bulls and the bears, and those who are undecided, in the camp of the bewildered," says Alan Ackerman, market strategist at Fahnestock in New York. "That constituency accounts for many investors who don't know whether the economic recovery will be sustained over the next few months, but who recognize that the mood momentum and money flow in the market has prompted a better tone to each of the major indexes."
Tech heavyweights Cisco Systems (CSCO
), Dell Computer (DELL
" channel="pi"/>), and Sun Microsystems (SUNW
) helped to lead the rally on day that began with news of the decline of the U.S. dollar to a four-year low against the euro.
Lehman Brothers upgraded its investment rating on networking-equipment giant Cisco to overweight from equal-weight. Cisco gained 4.4% on the session. Earnings news from Dell Computer (DELL
" channel="pi"/>) on Thursday will keep the tech sector on its toes. Wall Street analysts expect a 35% increase in first-quarter profit, and midday, the PC maker rose 2.8% Monday.
Network computing company Sun Microsystems (SUNW
) also benefited from Wall Street's more positive outlook on the sector, as its stock climbed 7.2%.
In the telecom sector, SBC Communications (SBC
) moved up 4.0%. The Baby Bell received a favorable ruling from the Illinois state assembly on May 9, allowing it to raise the wholesale rate it charges companies to lease its services. Standard & Poor's, however, still sees co. being hurt by wireless, cable competition, and rates the stock as one to avoid.
In biotech, Xoma Ltd. (XOMA
), was down 14.2% following news that the drug maker and its collaborator Genentech said they will withdraw from Phase II trials of Raptiva, a rheumatoid arthritis treatment, following disappointing results.
Hartford Financial Services (HIG
) rose 6.6%, after the company announced that it plans to take a $1.7 billion after-tax, first-quarter charge to cover a $2.6 billion boost to its asbestos reserves, says S&P's MarketScope. Hartford also plans to eliminate 1,500 jobs, and to raise $1.85 billion in additional capital.
The week ahead is posed to be an important test of investors' recent optimism, as earnings come in from major retailers. Wal-Mart (WMT
) reports on Tuesday, but said on Monday morning that same-store sales for May should rise between 1% and 3%, slightly lower than the level anticipated by Standard & Poor's. S&P changed its recommendation to accumulate, or four stars, down from buy, late last week.
Retailers J.C. Penney (JCP
), and Abercrombie & Fitch (ANF
) will also report on Tuesday. Penney gained 4.4% in Monday's session, while Abercrombie rose 2.6%.
Meanwhile, warehouse-club operator Costco Wholesale (COST
) gained 2.6% after a positive mention in Barron's.
AOL Time Warner (AOL
) recovered from an earlier loss to trade higher by 2.5% after The Wall Street Journal reported on Monday that AOL and Bertelsmann AG are said to be discussing a merger of their music businesses, though a deal is not certain.
There's plenty of economic news to digest later this week, beginning with the trade balance on Tuesday. Retail sales for the month of April come on Wednesday, as does the producer price index. The weekly jobless rate will be updated on Thursday, with some analysts expecting the current market rally to stall if the unemployment figures don't improve. Industrial production and capacity utilization is also out on Thursday, followed by the April consumer price index, housing starts, and University of Michigan consumer sentiment on Friday.
Treasury issues across the maturity spectrum ended higher in price on Monday. The 10-year note surged at the start of trading on follow-through buying from last week's FOMC-inspired gains to touch a new all time high. Profit-taking pulled the contract from its best levels as stocks added strongly to their current uptrend. By the close, the entire Treasury curve was in the green still sporting healthy gains for the session.
The Treasury kept the 4-week bill auction steady at $6.0 billion following last week's 5.0 billion cut in size, says economic research outfit MMS International. Tomorrow's action will pay down the federal debt by $10.0 billion.
The weak dollar trend is likely to continue this week. "A raft of U.S. data is unlikely to boost hopes of a full speed recovery, needed to encourage enough foreign investment back into the U.S. to plug the current account gap and offset a ballooning fiscal deficit too," says MMS International.
European markets ended mixed. Germany's DAX index was down 14.14 points lower, a loss of 0.49% at 2,942.45, led by losses in Siemens, SAP, DaimlerChrysler, and Volkswagen. In France, the CAC 40 index declined 5.26 points, or 0.18%, to 2,962.63.
London's FTSE 100 bucked the downtrend, staging a late turnaround to close higher by 0.45% at 3987.4. Large-cap contributors to the advance in the FTSE included BP-Amoco, GlaxoSmithKline, AstraZeneca and Unilever.
Asian markets enjoyed further gains Monday after Friday's rally. Japan's Nikkei 225 average closed at 8,221.10, or 0.85% higher on Monday, its best level to its highest point in a month. The Nikkei had closed 1.5% higher on Friday.
In Hong Kong, the Hang Seng index closed up 71.4 points, or 0.79% at 9155.60.