Terrorism threats trump war concerns, while the desire to believe the tech sector is on the mend trumps all. That was the message of Tuesday's session, during which blue-chip proxies surrendered much of their early gains while the tech-laden
posted solid gains.
Early on, major averages were able to overcome news that Iraq's parliament has rejected the United Nations resolution regarding disarmament. The early action suggested that
Monday's selloff hadlittle to do with Iraq. However, a midafternoon report that Arab television network
has aired an audiotape purportedly of Osama bin Laden (although not authenticated) praising recent attacks in Bali, Yemen and Moscow, underscored traders' understandable nervousness about future terrorist attacks here.
Dow Jones Industrial Average
rose 0.3% to 8386, but well below its session high of 8504.67. Similarly, the
gained 0.8% to 882.95 vs. its earlier best of 894.30 while the Comp rallied 2.3% to 1347.57, albeit down from its intraday peak of 1367.97.
The price of the benchmark 10-year Treasury slid 3/32 to 101 8/32, its yield creeping up to 3.85%.
Technically speaking, the S&P's inability to hold ground above resistance at 890 will be disconcerting to short-term traders, as
contributor Jeff Cooper
observed. The Dow's inability to hold above 8400 is similarly disconcerting, although not as closely followed by most traders.
On the fundamental macro front, demand for U.S. shares was aided by comments from
vice chairman Roger Ferguson, who said: "The pieces are in place to engender a gradual strengthening in economic activity in coming quarters."
Conversely, European Central Bank President Wim Duisenberg said, "It is difficult to define precisely the timing of the economic upswing in the euro area and also globally."
The dichotomy of those statements helped the dollar index rise 0.03 to 104.60, but the greenback's gains were mitigated by concerns about potential war with Iraq and terrorism. Such considerations did help gold rise $3.10 to $324.70 per ounce although the Philadelphia Stock Exchange Gold & Silver Index slid 0.1%, due largely to a 4.7% decline in
, which fell 4.7% after warning that earnings for the year would be at the low end of forecasts.
Tech Alive With Sounds of Hope
The Comp's outperformance was due to a smattering of good news from various tech firms. These included strong earnings from European mobile giant
, which rose 14.2%; the reiteration of fourth-quarter guidance by
, which gained 4.4%; and some cautiously upbeat comments by executives at
, up 4.3%, and
, which rose 6.1%.
rose 19.9% on newsthat
will acquire its TVlens unit for $850 million, while
climbed 4.5% after executivessaid the firm may use idle cash to repurchase stock orpay a dividend.
The gains in technology were broad, evincing the overwhelmingly positive nature of the news or, for skeptics, traders' inability to give up the tech ghost no matter how many times they're spooked by the sector. Several observers noted Cisco CEO John Chambers wasn't nearly as optimistic in last week's conference call as he was during Tuesday's appearance at a UBS Warburg conference.
Regardless of the criticism, the Philadelphia Stock Exchange Semiconductor Index rose 4%, the Nasdaq Telecom Index gained 3.6%, and the Merrill Lynch High-Tech 100 rose 3.7%. Additionally, advancing stocks bested decliners by better than 5 to 3 in Nasdaq trading vs. 19 to 12 in Big Board activity. About 1.3 billion shares traded on both exchanges.
"The big question for equity investors is whether to stay long beta
volatile names or not," observed Jay Pelosky, global strategist at Morgan Stanley. "We think there is more to go in the equity rally and further outperformance by beta," judging by the relationship between beta and the CBOE Market Volatility Index.
The VIX dipped 2% to 35.39 Tuesday and Pelosky believes there is a "reasonable prospect of future declines" in the VIX as investors become more comfortable with the rally's prospects. By extension that will lead to continued demand for beta, which many people associate with tech shares.
In addition to technology, broad market averages were aided by strength in financials as well as retailers, the latter following strong earnings and optimistic guidance from
, which rose 13.2%. The S&P Retail Index gained 5.2%.
The biggest drag on the Dow, beyond geopolitical concerns, was
, which tumbled 13.8% after issuing a profit warning.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task.