Stock markets fluctuating as investors seek direction

Tuesday, March 23, 2004 | 11:08 a.m.

SUN WIRE REPORTS

NEW YORK -- Investors heartened by good earnings news sent stocks higher as they sought bargains today, one day after the Dow Jones industrial average nearly fell below the 10,000 mark.

With the Dow having fallen 5 percent since March 8, investors were looking for stocks that are now undervalued. However, the concerns that sent the market falling -- slow job growth, high-priced stocks and the threat of terrorism -- remained, and trading was light as many investors waited for better news ahead before moving into the market.

"People have been forced to digest a lot of bad news very early, and there's some feeling that they took too many chips off the table too quickly," said Jack Caffrey, equities strategist at J.P. Morgan Private Bank. "With the preponderance of the volume yesterday being on the downside and some better news from earnings, we may have the ingredients for a short-term rally."

In late morning trading, the Dow rose 46.59, or 0.5 percent, to 10,111.34 after dropping 121.85 the previous session.

Broader stock indicators were also higher. The Standard & Poor's 500 index was up 4.05, or 0.4 percent, at 1,099.45, and the Nasdaq composite index gained 9.83, or 0.5 percent, to 1,919.73.

On Monday, weak job growth and fears of terrorist attacks unnerved investors and sent stocks to their lowest levels this year despite reports of strong sales from Wal-Mart, the world's largest retailer.

Wall Street opinion appears to be unusually divided.

Many professional investors and strategists say the recent sell-off has gone too far, arguing that the U.S. economy and corporate profits are growing rapidly and that low interest rates make stocks even more attractive, compared with other investments. They predict a snapback as fears of terrorism fade and companies report strong first-quarter profit.

But a sizable group of skeptics contends that high energy prices, big budget and trade deficits, and weak job growth have put the economy and the stock market in a precarious position. Despite the recent decline, stocks remain overvalued and could fall 10 percent more, they say.

For now, the bears have the upper hand. With Monday's decline, all three major American market indexes -- the Dow Jones industrial average, the Standard & Poor's 500, and the Nasdaq composite -- have fallen more than 5 percent from their recent highs.

Ethan Harris, the chief U.S. economist for Lehman Brothers, said investors are concerned that job growth is almost nonexistent even though the recession ended more than two years ago and the economy has been growing strongly since last summer.

"The stock market selloff, if you look back in history, really started with the weak employment report for February," Harris said. "It did raise the question of whether this recovery has staying power or not."

Meanwhile, Israel's killing on Sunday of Sheik Ahmed Yassim, founder of the militant Palestinian group Hamas, has investors worried that the risk of terrorist attacks is rising.