U.S.

Investors Go Bargain Hunting

By CBSNews.com staff CBSNews.com staff

December 13, 2000 / 8:51 AM EST / CBS

Stocks took an upturn on Wall Street Thursday after bargain-hunting investors shrugged off another spate of profit warnings and fears that the economy is slowing down too much, reports CBS News Business Correspondent Anthony Mason.

According to closing numbers from CBS MarketWatch, the Dow Jones industrial average rose 168.36 to 10,487.29, the Standard & Poor's gained 10.12 to 1,274.86, and the Nasdaq edged up 7.34 to 2,340.12.

"We've got a sense that a lot of the bad news has been priced into the marketplace. We are very oversold," said Arthur Hogan, chief market analyst for Jefferies & Co. "This is a bargain hunters' market.

Investors were optimistic that the newest sign of an economic slowdown would prompt the Federal Reserve to reduce interest rates before it meets again at the end of January, analysts said. Such a decision would help boost disappointing corporate profits sooner rather than later.

The government revised its annual growth rate from 2.4 percent to 2.2 percent in the summer, saying the gross domestic product was even weaker than previously believed as the trade deficit deteriorated further.

Until the Federal Reserve lowers rates, investors are expected to continue to dump companies whose profit outlooks are weak.

Investors, who are weary of trading on fears about earnings and the economy, want a sustainable rally but can't commit to setting one off yet, analysts said.

"Emotionally, investors are ready to do that. Whether there is a catalyst for them to do that is another issue," said Alan Ackerman, executive vice president of Fahnestock & Co. "All eyes are on the Fed."

Traders say the mood of the market is highly fragile. At the beginning of this year, when the economy was still booming, it looked like nothing could stop stocks from going up.

"Now we have the reverse emotional psychology where it looks like they'll never stop going down," said Ted Weisberg of Seaport Securities. "But the one thing about going down, they can't go lower than zero. And we're a lot closer to zero than we were 12 months ago."

Earnings warnings early Thursday from Lucent Technologies and Xerox sent those shares downward but had little effect on the overall market, analysts said.

Lucent lost $1-5/16 to trade at $14-3/16. Before the market opened, Lucent warned of poor first-quarter profits and announced a restructuring plan that will lead to cuts in excess of $1 billion

Complete Coverage

More on economic worries from CBSNews.com:

Click here to read CBS News Anchor Dan Rather's interview with Treasury Department official Lawrence Summers.

Click here to read CBS News Correspondent Richard Schlesinger's report on how consumers' worries are in turn worrying shopkeepers.

Or here to read about the fallout over President-elect Bush's pessimistic outlook on the economy.

Xerox, which said it likely will have a softer-than-expected fourth-quarter performance, was off $1-3/16 to $4-13/16.

"We are used to those companies warning," said Hogan, the analyst for Jefferies. "Lucent is four (quarters) for four. I don't think the market had that major of a reaction to it."

In an interview with CBS News Anchor Dan Rather, Treasury Secretary Lawrence Summers said "the American economy is in good shape." He pointed to growth predictions to counter talk of an economic downturn, especially the suggestion of a possible recession by the in-coming Bush Administration.

"The consensus forecast continues to be for moderate growth in the 3 percent range over the next four quarters," Summers said. "I think it's a mistake to lose sight of some very strong fundamentals."

Stocks have been trending downward since around Labor Day, as investors have sold off stocks — mainly in the high-tech sector — based on fears that an economic slowdown, high interest rates and decreased consumer confidence would further soften profits. Meanwhile, company after company has warned of bleak earnings prospects.

Investors briefly rallied earlier in the week on the hopes that the Fed would cut interest rates when it met Tuesday. But stocks tumbled when the Fed declined to lower rates, despite acknowledging the economy is slowing down too quickly and too much.

"The stock market is slowing down after 5 straight years. People on Wall Street say, 'Do something, Alan,'" said Prudential's Larry Wachtel of Fed Chairman Alan Greenspan. "But Alan says, 'Wait a minute. You know I talked about irrational exuberance in 1996 and guys laughed at me. I'm not doing anything for you right now.'"