Wall Street: Wednesday close
THE Nasdaq composite index flirted with 2000 for the first time in nearly two years and the Dow Jones Industrial Average approached 10,000 as investors eagerly picked up stocks but then grew cautious following a strong productivity report.
The hi-tech dominated Nasdaq reached 2000 and the Dow came within 58 points of 10,000 in the early afternoon before both indexes retreated and closed mixed. Analysts said investors were optimistic but choosing to take their time in sending stocks significantly higher.
'People are really starting to believe in the sustainability of the economic recovery,' said Richard J Nash, chief market strategist at Victory Capital Management. 'The productivity numbers were just spectacular,' and should bring 'another good surge in corporate profits. The economic data is so encouraging, people still want to get involved in the market.'
The Nasdaq rose to 2000.92 before falling back to 1960.25, down 19.82, or 1%. The index, which suffered the worst losses during the bear market of the past few years, had not traded above 2000 since 15 January, 2002.
The Dow, meanwhile, closed up 19.78, or 0.2%, at 9873.42. Earlier in the day, the blue-chip average rose as much as 88 points to reach 9942.01. The last time the Dow traded above 10,000 was 31 May, 2002. The Standard & Poor's 500 index fell 1.89, or 0.2%, to 1064.73.
The Nasdaq's return to 2,000 was a significant step in the stock market's recovery from the heavy losses that followed the dotcom bust, recession and corporate ethics scandals of recent years. But the index still remains well below its record close of 5048.62, reached on 10 March, 2000.
Wednesday's gains followed a Labour Department report that US productivity shot up at a 9.4% annual rate in the third quarter. It was the best reading in 20 years and better than economists' forecasts as well as the 8.1% rate initially estimated by the department a month ago.
A report on US service sector growth was weaker than expected, however. The Institute for Supply Management said its index of business activity in the non-manufacturing sector stood at 60.1 in November, compared to 64.7 in October. It was the slowest rate of growth since May. It also fell below analysts' estimates of 64.5.
Stocks have risen in recent days, partly on investor optimism for a stronger economy. December also is typically strong for stocks as investors put year-end bonuses and dividends to work, although some analysts wonder if shares have risen much too far, too fast.
Russ Koesterich, US equity strategist at State Street in Boston, said crossing the Nasdaq 2000 and Dow 10,000 barriers represents a psychological breakthrough for investors. That might explain why the Nasdaq retreated once it reached the milestone.
Still, he said investors were upbeat and that in terms of valuations, the 1075 level for the S&P would be particularly significant.
'Investors are looking for reasons to buy and they're looking to buy risk,' such as tech shares, Koesterich said. 'We have the potential to close higher since December is normally a strong month. But in the latter part of the first quarter of 2004, the market might need to take a breather.'
Oracle rose 50 cents to $12.90, and PeopleSoft gained 41 cents to $21.49, after UBS raised both of the company's stock ratings to 'neutral' from 'buy'.
Merck advanced $1.50 to $43.63 after the pharmaceuticals company said it expected 2004 earnings to increase about 7% from this year.
General Motors rose $2.26 to $45.54 after a Goldman Sachs analyst said the car maker might raise its 2004 earnings outlook.
Falling stocks included Sepracor, which fell $1.32 to $24.50 after the company discontinued development of its allergy drug Soltara.
Declining issues outnumbered risers 5 to 4 on the New York Stock Exchange. Volume was moderate. The Russell 2000 index, a barometer of smaller company stocks, fell 8.41, or 1.5%, to 545.19.
