Markets Fueled by Consumer Spending Data

N E W  Y O R K, July 31, 2001 -- Blue chips rallied today, pushed higher by new data showing U.S. consumers spentmore last month than expected — good news for investorssearching for bits of strength in the wheezing economy.

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The Dow Jones industrial average rose 121.09 points,or 1.16 percent, to 10,522.81, according to the latest data,while the Nasdaq composite index rose 9.29 points, or0.46 percent, to 2,027.13. The benchmark Standard & Poor's 500index added 6.7 points, or 0.56 percent, to 1,211.22.

For July, the Dow edged up 0.2 percent, the Nasdaqcomposite fell 6.5 percent, and the S&P 500 lost 1.1 percent.Year to date, the Dow is off 2.45 percent, the Nasdaq is downnearly 18 percent and the S&P 500 is off 8.3 percent.

"Investors are focusing more on the consumption number,"said Al Kugel, senior investment strategist at Stein Roe &Farnham, part of the $70 billion Liberty Funds Group.

"What it says is that in spite of all the [economic]problems, all the layoff announcements and all the talk ofrecession, consumers are still buying at a pretty good clip,"Kugel added.

Focus on Consumers

Wall Street, eager for signs of economic strength after adismal second-quarter reporting season, zeroed in on theCommerce Department's report that said U.S. consumer spendingrose 0.4 percent last month to a $7.069 trillion annual rate.

"The numbers indicated that the consumer is still carryingthe economy," said Alan Ackerman, market strategist atFahnestock & Co. "As we started to near the end of the earningsperiod, and some positive economic data surfaced, the marketshowed that it was not too pooped to pop."

Investors largely dismissed a second set of data showingU.S. consumer confidence slipped in July after a rush ofcorporate layoffs.

The rise in consumer spending was led by demand for durablegoods, including items like autos and refrigerators. Thereading, issued ahead of the market's open, beat economists'expectations of a 0.3 percent rise.

With tax rebate checks from Uncle Sam expected to fattenconsumers' wallets soon, analysts said consumption numbers may,in fact, rise even more next month. Consumer spending fuelstwo-third of the U.S. economy.

Among Tuesday's other upbeat data were two reports showinga rise in retail sales. Retail stocks moved higher, with theS&P Retail Index up 1.01 percent. Among the Dow stocks, HomeDepot Inc., the leading home improvement retailer, added $1 to$50.55

Cisco Helps

Cisco Systems Inc. rose 72 cents to $19.61,boosting the Nasdaq. Salomon Smith Barney said the Internetgear giant, due to issue quarterly results next week on Aug. 7,is likely to offer a relatively upbeat outlook.

Other marquee high-tech names joined the rally. Cisco rivalJuniper Networks Inc. added $1.16 at $26.40. Topcomputer chip maker Intel Corp. advanced 88 cents to$29.92, and software giant Microsoft Corp. tacked on a$1.05 gain to $66.85 — lifting both the Nasdaq and the Dow.

Motorola Inc. shed 25 cents to $18.78, rankingas the second most-active stock on the New York Stock ExchangeTuesday. The wireless technology giant forecast a narrowingthird-quarter loss and a profitable fourth quarter, butdeclined to forecast next year's results, given the market'sunpredictability.

Mercury Computer Systems Inc. lost 34 percent. Thesupplier of digital signal and image processing systemsreported higher earnings, but warned of short-term earningsweakness amid a downturn in the domestic defense industryspending. Shares dropped $16.74 to $32.01.

Verizon Communications slipped $1.19 to $54.83. TheNo. 1 U.S. local telephone company said quarterly profits,before unusual items, rose amid strong sales of data services,but it cut its growth outlook for the full year due to the weakeconomy and soft demand for basic telephone services.

Transocean Sedco Forex Inc. fell $3.55 to $32.88after the world's biggest offshore oil and gas drillingcontractor warned it expects full-year earnings for 2001 and2002 to fall short of Street estimates.

Monday’s Trading

Stocks fell in dull trade during Monday's regular sessionas three of Wall Street's top strategists cut their year-endprofit estimates for America's biggest companies, underscoringinvestors' worries over sagging corporate earnings in asluggish economy.

Investors are waiting for signs that the Federal Reserve'ssix interest-rate cuts this year are adding momentum to thenation's sluggish economy. The central bank meets on Aug. 21,when it is widely expected to cut rates for the seventh timethis year in a bid to revitalize the world's largest economy.

A very cautious approach to the U.S. equity market makes alot of sense until there are unambiguous signs of a realearnings recovery, J.P. Morgan Chase & Co.'s chief portfoliostrategist Doug Cliggott told clients in a note on Monday.

Cliggott, the only major pundit to forecast last year'sbroad market decline, cut his 2001 year-end target for theStandard & Poor's 500 Index to 1,100 from 1,200 — 8.6percent below current levels. UBS Warburg's Ed Kerschner andCredit Suisse First Boston's Tom Galvin also trimmed their 2001outlook for the S&P 500.

On Monday, the tech-laden Nasdaq Composite Index ,lost 11.23 points, or 0.55 percent, to 2,017.84 and theblue-chip Dow Jones industrial average fell 14.95points, or 0.14 percent, to 10,401.72. The broad Standard &Poor's 500 Index fell 1.30 points, or 0.11 percent, to1,204.52.

The Associated Press and Reuters contributed to this report-->