Nasdaq Storms to Fifth-Biggest Point Gain as Rotation Rotates Again

The chip sector rocks and rolls, helping to fuel a big tech rally.
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SAN FRANCISCO -- Yesterday, stocks rallied across the board after the Federal Reserve raised interest rates. Today, technology stocks commanded the lion's share of buying interest while investors rushed back into recently battered highfliers. Even Micron Technology (MU) - Get Report soared despite posting disappointing earnings as chip names led the upswing. Meanwhile, blue-chips lagged.

In other words, things were back to what has come to be viewed as "normal" on Wall Street. (For one day, at least).

After trading above 4900, the

Nasdaq Composite Index

leapt 153.02, or 3.3%, to 4864.70, its fifth-biggest point gain in history.

The Comp's ascent was fostered by strength in bellwether "old tech" names such as

Intel

(INTC) - Get Report

and

Cisco

(CSCO) - Get Report

, plus Internet stalwarts such as

Yahoo!

(YHOO)

and

eBay

(EBAY) - Get Report

.

The

Nasdaq 100

rose 3.3% while

TheStreet.com Internet Sector

index gained 39.48, or 3.2%, to 1270.27.

Spurred largely by tech bellwethers, the

S&P 500

rose 6.77, or 0.5%, to 1500.64, notching its second consecutive record close.

Arthur Hogan, chief market analyst at

Jefferies

, said investors were "enthusiastic" about the Nasdaq's ability to close above key support at 4500 yesterday, as well as the positive comments about demand by Micron in its conference call Tuesday night.

Indeed, chipmakers were standouts within technology despite Micron's earnings shortfall

last night. Micron rose 17% after several brokerage firms came out in support of the chipmaker.

Rambus

(RMBS) - Get Report

, meanwhile, soared 31.4% after

Morgan Stanley Dean Witter

upped its price target to $500. Industry titan Intel rose 3.6% and

Motorola

(MOT)

leapt 3.2%. The

Philadelphia Stock Exchange Semiconductor Index

roared up 9.2%. (For more on the move in chip stocks, see below.)

In addition to traditional tech leaders, the Comp got a boost from momentum favorites in tech and biotech, including

Vignette

(VIGN)

,

GlobeSpan

(GSPN)

and

Inhale Therapeutics Systems

(INHL)

.

Like many, Hogan observed the "gap" between Old and New Economy stocks had become too wide heading into last week and that there was a "momentum shift out of intellectual property and into physical property" stocks.

Given the "gargantuan moves" by many momentum favorites there was "a lot of money to be taken off the table," he said. But "I wouldn't bet against tech, telecom and biotech. I think at the end of the year, you'll see the speculative stocks did better than the bread-and-butter, brick-and-mortar" types.

Missing out on the advance was

PSINet

(PSIX)

, which fell 15% after agreeing to acquire

Metamor Worldwide

(MMWW)

, which leapt 105%.

The

Dow Jones Industrial Average

, meanwhile, fell 40.64, or 0.4%, to 10,866.70 after trading as low as 10,789.13.

Overcoming the positing influence of Intel and

Hewlett-Packard

(HWP)

was weakness in

3M

(MMM) - Get Report

,

Honeywell

(HON) - Get Report

and

ExxonMobil

(XOM) - Get Report

.

In addition to tech favorites, the S&P got a boost from oil service stocks such as

Schlumberger

(SLB) - Get Report

and brokerage names such as

Charles Schwab

(SCH)

. The

Philadelphia Stock Exchange Oil Service Index

rose 6.1% while the

American Stock Exchange Broker/Dealer Index

climbed 2.2%.

The

Russell 2000

rose 18.39, or 3.3%, to 571.18 thanks largely to rebounding biotech names. The

American Stock Exchange Biotech Index

rose 10%.

In

New York Stock Exchange

trading, 1.08 billion shares were exchanged while advancers led declining stocks 1,635 to 1,315. In

Nasdaq Stock Market

action 1.75 billion shares traded while gainers led 2,513 to 1,699. New 52-week highs bested new lows 69 to 36 on the Big Board and by 81 to 74 in over-the-counter trading.

Gambling vs. Investing

The S&P's reaching another record high cheered some Wall Street pros, but many were chagrined at the re-emergence of tech's dominance.

"Yesterday, it almost appeared as if we were returning some normalcy and balance between the old and new

economies," said Ned Riley, chief investment strategist at

State Street Global Advisors

. "Today's leadership split again reinforces the notion that the short-term investor/trader is starting to dominate again. The kind of volatility we're seeing in stocks like Rambus brings home the point that a lot of that speculation is still extremely strong within the Nasdaq."

Gains by the likes of Rambus and Vignette, along with recently battered names such as

MicroStrategy

(MSTR) - Get Report

and

Protein Design Labs

(PDLI) - Get Report

, suggest there's a "gambling instinct vs. an investing instinct," Riley said.

Some market watchers suggested investors were cautious ahead of the Fed's meeting yesterday and were thus emboldened today after the central bank did nothing shocking (like hiking rates by 50 basis points).

Riley agreed -- in theory -- but the Fed's refusal to address the margin requirement issue is the main reason why the "mania is still prevailing in the Nasdaq," he said. "If

the mania continues, it will work to the detriment of some Old Economy stocks that have had this small window of opportunity."

Among other indices, the

Dow Jones Transportation Average

fell 16.16, or 0.6%, to 2651.65; the

Dow Jones Utility Average

slid 2.65, or 0.9%, to 287.01; and the

American Stock Exchange Composite Index

gained 26.41, or 2.6%, to 1030.24.

SOX Rides Tide of New Old News

The Philadelphia Stock Exchange Semiconductor Index -- the SOX -- soared today on good if not new news coming out of an

SemInvest 2000

an investment conference in New York focusing on chip equipment stocks run by trade association

Semiconductor Equipment and Materials International

.

The chip industry follows three- to five-year cycles. An upcycle ends when manufacturers build too many plants and flood the market with too many chips, and prices collapse. We're far from that point, said Gunnar Miller, chip equipment analyst at

Goldman Sachs

. That's not news to many, but the SemInvest conference seems to have attracted investors new to chip stocks, and they may be hearing this for the first time. Ironically, he said, there has been more information in the past months at other recent investment conferences, since now many of the companies are in quiet periods because earnings announcements are due out soon.

Still, at the conference, investors new to semiconductors may be noticing for the first time that price-to-earnings valuations for many of the chip-equipment names are low compared with the valuations of leading companies in other sectors.

Applied Materials

(AMAT) - Get Report

trades at 81 times trailing 12-month earnings, while many networking and Internet companies trade at hundreds if not thousands of times trailing earnings, if they have any earnings at all. (Goldman was an underwriter for Applied Materials in 1997.)

Between March 10 and March 21, the SOX had dropped 10%, its most dramatic drop since it first began its rally in October 1998. Investors, spurred by the talk at the conference, apparently decided to correct some of that perceived overselling in a hurry.

Shekhar Wadekar, a chip analyst at

Dain Rauscher Wessels

, said we will probably see more volatility in the chip market. Now that we are nearing the middle of the upcycle some investors are beginning to question when the tide will turn, and these are the stock sellers who create short-term declines in share prices. But at the same time, there are plenty of investors just waiting for prices to dip so they can buy. He said it's not too late to do so, as long as an investor is willing to hold onto the chip stocks for several years.

--

Marcy Burstiner

For coverage of today's top stocks in the news, see the Company Report, published separately

.