Stock prices shot higher on Wall Street yesterday after Dell Computer and Alcoa gave Wall Street its first really good earnings news in months. The Dow Jones index surged to its second biggest points gain, while the Nasdaq composite index recovered close to 150 points to reverse its slide.
The Dow closed up 402.63 points, or 4.23 per cent, at 9,918.05. The Nasdaq recorded an 8.93 per cent rise, its third-biggest percentage increase, climbing 146.33 points to 1,785.13.
Analysts were slow to read too much into the rally.
"We have a technical bounce on short covering and a sense that the recent selling was overdone. But we need to see these gains hold and see some follow-through. It's all dependent on improvements in the economy," said Mr Jay Suskind, director of trading at Ryan Beck & Co.
However, new claims for state unemployment insurance jumped last week to their highest level since 1998 and a highly regarded University of California, Los Angeles (UCLA) survey reported that there was a 90 per cent chance that the US economy would slip into recession this year.
After a seemingly endless toll of profit warnings and layoff announcements, Dell gave the markets a lift with its statement late on Wednesday that it was staying with its healthy earnings forecasts. The top producer of desktop and laptop computers, which employs more than 5,500 people at its Irish operations in Limerick, Bray and Dublin, said it would not lower its targets for the fiscal first-quarter, which ends May 4th, and still expects to earn about $8 billion (€8.9 billion), or $0.17 a share.
Aluminum producer Alcoa, one of the 30 Dow stocks, added to the upward momentum when it announced yesterday that it earned $0.46 a share in the first quarter, two cents higher than analysts expected. Alcoa advanced $1.22 to $36.77, boosting other old-economy stocks.
Dell's good news helped other tech issues move higher, including Intel, which supplies Dell with computer chips. Intel, Dell, Compaq and Oracle all saw their shares stage a recovery.
Dell's statement gave European markets a boost, with technology shares rising sharply. Wall Street's strong opening gave European technology shares further encouragement in the afternoon.
London's Techmark 100 index of technology shares jumped 4 per cent, while Frankfurt's Nemax 50 index was up almost 7 per cent. The broader-based Nemax all-share index closed 4.6 per cent higher.
But analysts cautioned that the sudden bout of buying did not mark a dramatic turning point in a prolonged slide that has dragged most markets more than 20 per cent below last year's highs.
The markets could become more volatile today when the US government releases the unemployment rate for March. Analysts expect it to rise from 4.2 per cent to 4.3 per cent and to show that job growth during the month weakened. The Labour Department announced yesterday that new claims for state unemployment insurance jumped last week by 18,000 to a seasonally adjusted 383,000, the highest level since 1998.
A quarterly survey of the US economy by UCLA forecast a 90 per cent chance of recession this year, with only a weak recovery by year's end.
"While we adjust to a new lifestyle, we can expect sluggish growth and probably a couple of negative quarters," economist Mr Edward Leamer wrote in the report. "If history is a guide, the worst part of the adjustment will be over in 2001, and a recovery complete in 2002."
In December, when most other forecasters were predicting continued growth, the UCLA survey put at 60 per cent the likelihood of a recession in 2001 - i.e. two consecutive quarters of contracting gross domestic product (GDP).
Citing fewer working hours in plants and a flood of grim corporate profit reports from US companies, the survey said a recession was almost certain. Last year, GDP in the US was 5 per cent.
