Nasdaq's Thunderous Rally Lures Few Back to Optimism

The Nasdaq Comp enjoyed its biggest percentage gain ever, but hardly anyone on Wall Street thinks it's free and clear of woe.

Author:: Eileen Kinsella
Publish date:: May 30, 2000 5:41 PM EDT

It appeared as though the extended holiday weekend left stocks refreshed and ready to go to work today. But once again, that troubling little V word had market watchers wondering if most participants are still out on vacation.

The

Nasdaq Composite Index jumped 254.37, or 7.9%, to 3459.48, the tech-laden index's largest percentage gain and second-largest point gain ever. The

Dow Jones Industrial Average also had a good day, rising 227.89, or 2.2%, to 10,527.13, The

S&P 500 sailed up 44.43, or 3.2%, to 1422.45 and the small-cap

Russell 2000 rose 19.33, or 4.2%, to 476.70. Still, as has been the case in the past few weeks of trading, volume was nothing to write home about. (See below.)

"The market is just in an oversold condition. I think you saw the start of this

comeback on Friday," said Ray Hawkins, vice president of block trading at

J.P. Morgan

. "There is some pressure off the sell side; it's not really much of a surprise that you would see it up today." Hawkins said some of the flurry could be due to end-of-the month portfolio adjustments but also mentioned that volume is low as many hang back ahead of the economic data due out later this week.

Investors will pay close attention to that end-of the-week stream of data, including the

Purchasing Managers' Index,

retail sales,

new home sales and the

employment report, for clues to what the

Fed will do next. Today, the

Conference Board

reported that its

Consumer Confidence Index hopped nearly 7 points, to a four-month high of 144.4 after declining for three months. The reading suggests most Americans have not yet felt the pain of the recent series of interest-rate hikes.

Indeed, many market watchers think the Fed is far from finished with its series of rate hikes as it tries to rein in the economy. "The economy is extraordinarily strong. The Fed will keep raising rates as far and as long as it takes to knock the market down," said Charles Blood, director of financial markets strategy at

Brown Brothers Harriman

. Despite the Fed's insistence that it is not targeting the stock market, the economy is being sustained by the market, he said.

Even with the recent dips, stocks have not given back enough, Blood said. "The Nasdaq is only back to where it was last November."

Furthermore, Blood said the firm's longer-term view continues to be "very bearish," saying it expects the S&P 500 to drop 30%, measured from its peak, with probably a further 20% to 25% to go from its current levels. The Dow is seen dropping by similar percentages, while the Nasdaq is seen falling further down than the other proxies, said Blood.

For today at least, stocks managed to shrug off some of that gloom and doom, helped by news of mergers and some optimistic research from investment firms. Hawkins of J.P. Morgan said he expected the upside to continue tomorrow as well, even if it is on scarce volume.

Optimistic comments from new

Lehman Brothers

analyst Dan Niles boosted the PC and semiconductor sectors. Niles, who just joined Lehman from

Robertson Stephens

, predicted that 2000 will be "the best year of revenue and EPS growth for the computer hardware companies since 1996." Of the companies mentioned in the note,

Intel

(INTC) - Get Report

gained 7%,

Micron Technology

(MU) - Get Report

moved up 5.9%,

Dell

(DELL) - Get Report

rose 3.8% and

Compaq

(CPQ)

climbed 1.4%.