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Nasdaq jumps 3%
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January 10, 2001: 4:53 p.m. ET
Bargain hunters shrug off Cisco; financials lead late Dow gain
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - The Nasdaq composite index surged for the second straight session Wednesday as investors poured money into some beaten-down issues even as a downgrade by CIBC World Markets of bellwether Cisco Systems weighed on sentiment.
It was a choppy session in the tech-heavy index, swinging between a 3 percent gain and a 2 percent loss. But analysts said that many technology stocks were starting to look attractive to investors.
The Nasdaq jumped 82.88, or more than 3 percent, to close at 2,524.18. The index briefly stepped back into negative territory around midday after Cisco Chief Executive John Chambers signaled to analysts at an investor conference Wednesday that Cisco's fiscal second-quarter has been more challenging than expected.
The Nasdaq is up 2 percent from the start of the year but is still 50 percent down from its March 10 high of 5,048.
 "There seems to be some pent-up demand for stocks that wants to be unleashed," said Charles Payne, head analyst with Wall Street Strategies. "The percentage gains that can be made here are phenomenal, and no one wants to miss them. It's not so much a knock against the blue chips but the techs represent so much potential down here."
But even the Dow Jones industrial average snapped a losing streak, rising for the first time in four sessions, led by strength in tech and financial issues. The blue chips spent most of the session under selling pressure before bargain hunting came in during the last 30 minutes of trading.
Analysts said renewed confidence in the Federal Reserve's monetary policy was driving confidence toward the interest-rate sensitive financial stocks.
"The short-term outlook is no better than it was a month ago, but at least the Fed is acting aggressively, which makes the longer-term outlook better," John Forelli, senior vice president at Independence Investment Associates wrote, in a note to clients.
 The Dow rose 31.72 to close at 10,604.27 and is up 1.6 percent from the start of the year while the S&P 500 gained 12.47 to close at 1,313.27.
Market breadth was positive. On the New York Stock Exchange, advancers beat decliners 1,871 to 1,053 as more than 1.28 billion shares changed hands. Winners beat losers on the Nasdaq 2,557 to 1,256 as more than 2.44 billion shares were traded.
In other markets, Treasury securities were lower. The dollar rose against the euro but fell versus the yen.
Cisco downgrade shrugged off
Tech stocks, which led the way down in the early going, led the way back up. The rebound came after a downgrade of networking leader Cisco Systems initially sent investors scurrying.
Among the advancing leaders, Microsoft (MSFT: Research, Estimates) rose $1.06 to $52.88, Dell Computer (DELL: Research, Estimates) gained $1.56 to $21.31, and WorldCom (WCOM: Research, Estimates) advanced $1.44 to $21.25.
The downgrade of Cisco apparently unnerved investors and led them to believe that other tech stocks won't be able to sustain strong revenue growth if such a sector leader gets slapped.
And investors still were cautious about earnings and waiting to see how Yahoo!'s (YHOO: Research, Estimates) come in. The Internet portal reports results after the market closes -- it is expected by analysts surveyed by First Call to post a profit of 13 cents a share, up from year-earlier earnings of 10 cents a share.
Yahoo! shares gained 38 cents to $30.50.
Also reporting after the closing bell will be wireless provider Motorola (MOT: Research, Estimates). The company is expected to report earnings of 15 cents a share, down from the 26 cents a share earned a year earlier. Motorola shares rose 50 cents to $21.19.
Explaining the churning, Bill Meehan, chief market analyst with Cantor Fitzgerald, said, "We have an earnings season looming that is probably discounted by the market but it leads many people to have a hair trigger. You see the market go down a little bit and it starts really leaping down and then it starts to ratchet back up."
Cisco Systems (CSCO: Research, Estimates) fell 88 cents to $36.25 after CIBC World Markets analyst Steve Kamman cut its rating to "hold" from "buy."
Kamman told CNNfn's Market Call that part of his reason for downgrading Cisco stemmed from concerns about future growth prospects. (218K WAV) (218K AIFF)
Cisco came back from its earlier lows and analysts said the action was painting a positive picture for investors and the possibility of sparking a sustainable rally.
"Initially it was just shocking that this stock would be downgraded," said Wall Street's Payne. "But it looks like we're really starting to get this 'buy on dips' crowd and that's good for the market."
And that sentiment brought buyers into the market to seek select bargains.
"I think that's evidence that a good deal of any weak earnings is priced into the market because the expectations have been lowered by analysts and further lowered by realistic expectations of the Street," Cantor Fitzgerald's Meehan said.
Financials boost Dow
While money rotating out of industrial issues kept the Dow in negative territory for most of the session, late interest in financial stocks gave the blue chips their second gain for the year.
Analysts said investors were showing growing confidence that the Fed will step in and temper the economy if warranted.
"I think there was a lot of pressure on banking stocks because of what will happen with the Fed," said Seth Martin, equities analyst with IDEAglobal.com. "My sense is that there is a little more optimism and there's more of a chance we could get some mid-term intervention from the Fed."
The sentiment gave financial stocks and the Dow a boost.
Chase J.P. Morgan (JPM: Research, Estimates) gained $2.25 to $50.94 while Citigroup (C: Research, Estimates) rose $1.75 to $53.94.
Just last week, the Fed cut its rates by a half percentage point and signaled it would cut rates further in a bid to give the economy a lift. Lower rates tend to spur spending by businesses and consumers, boosting economic growth and fattening corporate profits.
Among other blue chips, 3M (MMM: Research, Estimates) led the decline, falling $1.13 to $112.31, followed by General Motors (GM: Research, Estimates), losing $1.44 to $52.75.
AOL, Time Warner deal nearing close
The Federal Communications Commission is closer to giving the green light to America Online's (AOL: Research, Estimates) acquisition of CNNfn parent company Time Warner (TWX: Research, Estimates), CNNfn has learned.
 A source close to the deal, now valued at $99 billion based on AOL's Tuesday closing price of $42.85 a share, says the FCC may be nearing a vote and approval of the deal. The AOL-Time Warner deal, announced a year ago on Jan. 10, 2000, originally was valued at about $164 billion, but has fallen with the price of AOL stock.
AOL shares gained $2.04 to $44.89 while Time Warner shares rose $2.60 to $67. 
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