U.S. Stocks Stage Broad Rally

Hopes for more Federal Reserve interest rate cuts and signs of stability overseas nudged more investors off the sidelines and into the U.S. stock market Monday.

The Dow Jones industrial average advanced 114.05 points, or 1.3 percent, to 8,706.15.

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"In terms of the very biggest stocks, as reflected in the Dow and the S&P 500, the market is about where it should be given the recent positive developments," said James Awad, who runs $1 billion as chairman of Awad Asset Management Inc.

Among the pluses for the market, Awad cited congressional approval of the International Monetary Fund funding, the Group of Seven package for Brazil, the positive actions taken by the Japanese to steady their teetering banking system, the Fed's rate cuts, and U.S. corporations' ability to slightly exceed their downwardly revised third-quarter earnings forecasts.

Last week, nervousness over the plight of some emerging-market economies was assuaged by the Group of Seven industrialized nations. The G-7 said it will pony up $90 billion to enable the International Monetary Fund to bail out beleaguered economies.

"The Group of Seven communique released on Friday reminded us the world is starting November looking like a less risky place than it did at the start of October," said Carl B. Weinberg, chief economist at High Frequency Economics Ltd., in a research report.

More important to the rally has been the rocket-like effect of two Federal Reserve interest rate cuts. Many market participants remember the old adage: "Don't fight the Fed." The central bank's Federal Open Market Committee next meets Nov. 17 to discuss a further trim of short-term rates.

"The small- and mid-cap sectors are the ones we've felt would do better, and continue to feel will do better," said Bruce Bittles, market strategist at J.C. Bradford & Co.

"We like the sentiment indicators," Bittles said. "Most people have failed to really get on this new change in momentum since the Fed lowered interest rates for the second time in October. Until the sentiment surveyshow that extreme optimism has returned, I think the market's going up."

Bittles is heartened by the latest data on inflows into mutual funds. "Investors poured $9 billion into funds in September. But the interesting statistic was that the fund managers were net sellers. So they raised $3 billion more."

According to Bittles, the result is that mutual fund managers hold more cash in their portfolios than at any time since April 1997. That's bullish since the cash represents potential firepower to fuel a further advance.

In Monday's market indicators:

  • The Standard & Poor's 500 Index rose 1.2 percent.
  • New York Stock Exchange winners nailed losers by close to 3 to 1. New 52-week highs came to 70, while there were 19 new 52-week lows.
  • On the Big Board floor, turnover eased 3 percent to 756 million shares.
  • The Nasdaq Composite advanced 1.7 percent. Advancing issues led decliners by better than 9 to 5 in the Nasdaq Stock Market, with 71 new highs and 42 new lows. Volume totaled 890 million shares.
  • The Russell 2000 Index of small-capitalization stocks gained 2.3 percent.
  • The 30-year Treasury fell 1 5/32, to yield 5.231 percent.
    Among the stocks in the news:
  • Sofamor Danek Group (SDG) picked up 8 11/16 to 110 5/16. Cardiac device manufacturer Medtronic (MDT) will buy the neurological device maker for $3.4 billion in stock.
  • Electric and natural gas utility CMS Energy (CMS) will purchase Panhandle Eastern Pipe Line Co. from Duke Energy (DUK) for $2.2 billion in cash and assumable debt. CMS stock tacked on 2 1/8 to 46 3/16, while Duke shares tacked on 3/16 to 64 7/8.
  • BMC Software (BMCS) will acquire Boole & Babbage (BOOL) in a $900 million stock swap. Stock of the former eased 2 to 46 1/16, while shares of the latter ascended 3 1/2 to 30 1/8.
  • Baker Hughes (BHI) advanced 7/8 to 22 15/16. The provider of oil & gas drilling equipment reported third-quarter operating profits of 20 cents a share, 2 cents ahead of most Wall Street estimates.
  • Kellogg (K) climbed 3/4 to 33 3/4 after CS First Boston dropped its rating to "sell" from "hold," citing valuation concerns.
  • Citigroup (CCI) shed 7/8 to 46 1/8. President Jamie Dimon, whom many tabbed as the heir apparent of Citigroup Co-Chief Executive Sanford Weill, quit. Warburg Dillon Read chopped its opinion of the stock to "hold" from "strong buy," due to "operational risks" in light of Dimon's departure.
  • Computer networking heavy Cisco Systems gained 1 11/16 to 64 11/16. It reports quarterly earnings Wednesday.
  • A favorable article in Barron's moved many oil & gas stocks. Among sector bellwethers, Schlumberger was ahead 2 3/4 to 55 1/4 and Halliburton 2 9/16 to 38 9/16. In the drilling group, Diamond Offshore rose 1 5/8 to 32 5/16, Transocean Offshore 1 3/16 to 38 1/8, Cliffs Drilling 1 7/8 to 24 3/4, Atwood Oceanics 2 1/8 to 30 1/4, oble Drilling 1 9/16 to 18 3/4, and Rowan 1 3/16 to 15 3/4.
  • In the Internet group, America Online was up 7 1/2 to 134 7/8, CMG Information Services 4 1/16 to 60 15/16, DoubleClick 3 1/4 to 36 1/4, RealNetworks 3 7/16 to 37 1/8, 4 9/16 to 131, and Preview Travel 2 3/16 to 15 3/4.
  • Semiconductor stocks traded modestly higher after Morgan Stanley Dean Witter cut its rating on five chip equipment issues to "neutral" from "outperform." ASM Lithography 1 3/16 to 24 5/16, KLA-Tencor 2 5/16 to 34 9/16, Dupont Photomasks 2 1/4 to 34, Lam Research 3/16 to 14 1/4, and Silicon Valley Group 1 3/16 to 11 5/8.