After racking up its fourth largest gain of the year yesterday, the Dow Jones Industrial Average continued to surge today, taking technology stocks along for the ride.
Although most analysts speculate that the U.S. markets will not see any major declines, the equities market still will not see a sustained upward trajectory.
"I think there is still some fidgeting out there," said Lawrence Silver, an analyst at Raymond James. "We might be more in a plateau trading range for a while than in a straight rally."
Silver speculated that the Dow will rise and fall in the 8,300- to 9,000-point range for a while, because investors lack "total confidence to push the market to new highs at this point."
Still, the Dow rose 1.63 percent today, a gain of 139.8 points to 8,714.65, while the technology-heavy Nasdaq climbed just above 2 percent, or 37.08 points, to reach 1,855.12. The gains come a day after the Dow soared by 1.78 percent, rising 150 points and marking the fourth largest gain both in terms of percentage and points.
Apple Computer continued to rise on the news that sales of its iMac were surpassing expectations, hitting a new 52-week high for the second day in a row before retreating somewhat to close at 42.5625, a gain of 1.49 percent from yesterday's close (See related story).
Other tech stocks also got a boost from the overall surge in U.S. markets today.
Many analysts are calling today's market advances a "relief rally" following President Clinton's televised confession that he had a relationship with a former intern that was "not appropriate," and his subsequent apology for having misled the nation about his actions.
"This is a relief rally because of the political implications that there won't necessarily be an impeachment hearing," said William Kurtz, head of equity trading research at H.G. Wellington & Company. But he added that the Asian economy is likely to continue to have an impact on U.S. markets.
Arun Kumar, senior U.S. equities strategist at Lehman Brothers, offered three reasons for the recent correction in the Dow, in which it fell by 10 percent:
First, he cited Japan's stalled progress in banking reform, pointing to the country's attempt to stimulate its economy, which ultimately impacted the yen-dollar currency exchange rate and slowed the rate at which the rest of Asia could recover.
"The second problem is the impact of [the Asian crisis] on the profits of U.S. corporations, which are expecting to take a hit," said Kumar.
The third problem, he said, was the White House sex scandal. "Looks like the third problem has been sorted out in one way, shape, or form and has given the market some amount of breathing room," he said. "The uncertainty is not over, but it has been reduced."
The news that the Federal Reserve will hold short-term interest rates unchanged also is an important indicator that could prevent any further slides in U.S. markets, analysts said.
After a three-hour, 45-minute closed door meeting today, the Federal Open Market Committee announced that it would leave unchanged the federal funds rate, a benchmark interest rate that banks charge each other for overnight loans. It has remained at 5.5 percent since March 1997.
Analysts said that, if the Asian crisis continues, the rates may have to be cut sometime next year. Currently, labor shortages that have forced wage increases and a renewed fear of a overheated economy, leading to higher inflation, have been offset by a cooling of the economy resulting from the Asian crisis.
"Unemployment is doing well and inflation is in check," said Silver. "We have gotten the bad news out of our system."
In addition, the markets seem to have absorbed Russia's move to devalue the ruble.
"There is some relief, and people are making the assessment that stock prices had fallen too much, too quickly," said Kumar. "Nothing in the fundamentals has changed, but after prices fell 10 percent, people are basically stepping back into the market."
Looking forward, Silver says that the back-to-school season and the approaching holiday shopping season are likely to boost the markets even further.
"I can see the market going down 50 to 100 points," said Silver. "But do I see it falling another 5 to 10 percent? I doubt it."