Call it "revenge of the industrials." While the bulk of technology shares were given the shaft again, on the

New York Stock Exchange, industrial stocks ranging from AA (

Alcoa

(AA) - Get Report

) to Z (

Venator

(Z) - Get Report

) benefited from a resurgent interest cyclical and industrial stocks.

The renewed eye toward industrial blue-chips sparked a 245-point rally in the

Dow Jones Industrial Average, led by Alcoa, rising 13%, along with strong buying in financial stocks, transports, retail, defensive names like tobacco and recently battered

Eastman Kodak

(EK)

(up 5.2% today).

In contrast,

Cisco

(CSCO) - Get Report

dropped $2.63 to $48.06, the lowest close for the stock since last December, after

Lehman Brothers

reduced its price target to $60 from $65. Networking stocks and fiber-optical names, until recently the market's high-flyers, again met with selling pressure as investors continue to avoid these stocks.

Investors and strategists termed the rebound in the industrial stocks as a desire by investors to buy up stocks that had taken on attractive valuations in the last several weeks, and especially after the Dow dropped to 9975 on October 18. Since then, the Dow has gained 860 points in just eight sessions, including last Wednesday's 60-point drop.

"We're seeing a pop from there," said Matt McDermott, trader at

Cantor Fitzgerald

. "People are concerned about growth from the large-cap technology area, and they're going into the beaten-down sectors."

Today's catalysts were comments from Lehman Brothers' global strategists, which increased their weighting in cyclical stocks at the expense of financial names (which also rallied today), and the analysts at

Deutsche Banc Alex. Brown

, which upgraded the paper stocks.

The Morgan Stanley Cyclical Index gained 5.9% today, and among the day's biggest percentage gainers were, for Pete's sake,

Ryder

(R) - Get Report

, gaining 13%, and

Union Carbide

(UK)

, which rose 13% despite reporting sinking profits due to higher energy costs.

"Industrial cyclicals had been beaten so badly, they stopped going down when they came out with negative news," said Chuck Carlson, co-manager of the

Strong Dow 30 Value Fund

. "There's still an unwillingness of investors to move to cash, and they feel a little safer putting it into these stocks."

Paper stocks enjoyed one of the more impressive rallies of the day.

International Paper

(IP) - Get Report

, which was upgraded by Deutsche, gained $2.75 to $36, an 8.3% gain, and

Bowater

(BOW)

, also upgraded, rose $5.44 to $54.38.

What's interesting about the sharp rally in these names is that it comes at a time when most analysts view the economic picture as changing toward a period of slower, albeit still strong, growth. The market's view has become increasingly pessimistic in the last few weeks, but opinions are likely skewed by the terrible performance in technology stocks throughout the month of October.

Investors continue to frown on technology shares due to the assumption that those high-growth stocks were overvalued. It doesn't necessarily reflect a perception that the economy is headed into recession. The recent performance in the cyclicals illustrates this. If the economy is slowing, however, some investors aren't sure industrial stocks will be able to extend this rally.

"I'm somewhat perplexed," said Allan Meyers, portfolio manager of the

Kent Large Company Growth Fund

in Grand Rapids, Mich. "But maybe the stuff has just gotten whacked. People are just saying, 'Let's buy 'em here.'"

Traditional defensive names are expected to continue to do well. They did well today, for sure. The

Dow Jones Utility Average

, which since March has been the true go-go momentum sector, was up again today, gaining 2.6% to finish at 392.06. The pharmaceutical stocks were marginally higher, and the

S&P Insurance Index

gained 4.8% to finish at a new all-time closing high.

Investors also view some of technology's stalwarts as stocks that can handle the pressure of a slowing environment. Between March and a few week ago,

Microsoft's

(MSFT) - Get Report

stock price had been more than halved, dropping from a high of $114.88 to $50.38. Today the stock was up again, along with familiar names like

Hewlett-Packard

(HWP)

, gaining 5%,

Dell

(DELL) - Get Report

, up 3%, and

Motorola

(MOT)

, which rose 2.9%.

The rise in those stocks, and some of the older technology sectors like PC makers and semiconductor makers while networking stocks collapse illustrates the rotation away from speculative growth stocks into what investors can now safely term "value" technology stocks.

"That's probably not a bad deal," said Meyers, thinking about Microsoft. "People are just buying more quality tech."

Market Internals

Breadth was strong on decent volume on the Big Board; lousy on the Nasdaq, but volume was strong.

New York Stock Exchange: 1,870 advancers, 1,012 decliners, 1.17 billion shares. 98 new 52-week highs, 59 new lows.

Nasdaq Stock Market: 1,764 advancers, 2,229 decliners, 1.7 billion shares. 58 new highs, 157 new lows.

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Most Active Stocks

NYSE Most Actives

  • Nortel Networks (NT) : 46 million shares.
  • AT&T (T) - Get Report: 27 million shares.
  • Lucent (LU) : 20 million shares.

Nasdaq Most Actives

  • Cisco: 109.8 million shares.
  • Microsoft: 54.3 million shares.
  • Intel: 47.9 million shares.

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Sector Watch

There was good cheer to be had from a good lot of market sectors today. Retail stocks gained sharply, rising on strong gains in recently maligned department stores.

Federated Department Stores

(FD)

rose 7.5% and

J.C. Penney

(JCP) - Get Report

rose 5.9%, helping lift the

S&P Retail Index

to a 3.4% gain.

Similarly reclaimed were tobacco stocks. The

S&P Tobacco Index

rose 3.7%, led by Dow component

Philip Morris

(MO) - Get Report

, which rose 3.4% to $37.94, reaching a new 52-week high.

The

American Stock Exchange Airline Index

shot up 7%, while the

Dow Jones Transportation Average

gained 6.2%. The component helping both was

Delta Air Lines

(DAL) - Get Report

, which is reportedly in talks with

British Airways

and

Air France

to join their international alliance. Delta gained 10.3% today.

Southwest Airlines

(LUV) - Get Report

, meanwhile, rose $1.88 to $28.81, reaching a new 52-week high.

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Bonds/Economy

Bonds were barely changed today, ignoring the morning's stronger-than-expected economic data.

The benchmark 10-year

Treasury note is at 100 3/32, down 2/32, to yield 5.736%.

The 30-year

Treasury bond ended down 6/32 to 106 31/32, yielding 5.756%.

Personal income and consumption

(

definition |

chart |

source

) for September were both higher. Personal income rose 1.1%, ahead of forecasts of a 0.4% rise and above the prior month's increase of 0.4%. Personal consumption rose 0.8%, beating forecasts of 0.6% increase.

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International

European markets ended the day slightly higher.

The

FTSE 100

in London ended up 21.9 to 6388.

The

CAC 40

in Paris finished slightly higher, up 27.91 to 6296.84, while the

Xetra Dax

in Frankfurt ended up 1.89 to 6926.57.

After economic data on Friday showed a slowing U.S. economy, the

battered euro was climbing. It was lately at $0.8405.

Big Asian technology and telecommunications shares started the week with a limp, taking the region's

equity markets to a lower close Monday.

In Tokyo, the

Nikkei 225

closed down 117.6 points, or 0.8%, at 14,464.6.

In Tokyo trading, the dollar traded up 0.33 yen to 108.70 yen. The greenback was lately at 108.91.

Hong Kong's

Hang Seng

index fell 102.6, or 0.7%, to 14,799.9, as

China Mobile

(CHL) - Get Report

fell HK$1.75, or 3.3%, to 51.00 ($6.54) and

HSBC

(HBC)

fell HK$0.50, or 0.5%, to 107.00.

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