updated 7/8/2004 7:21:55 AM ET 2004-07-08T11:21:55

Wall Street reversed a three-day slide Wednesday as investors returned to the market in search of bargains, shrugging off high-tech profit warnings and an analyst downgrade of Internet stocks.

Major Market Indices

The advance had little conviction behind it, however, as volume remained light and the major indexes lost more than half of their earlier gains. Investors were generally making few big moves as they awaited second-quarter earnings, including results from Yahoo! Inc. and Alcoa Inc. that were released after the close.

But analysts said investors were making some bets on hopes for strong second-quarter results overall. A slight drop in oil prices also cheered the market.

“This is a little bit of a relief rally, certainly some bargain hunting,” said Peter Cardillo, chief strategist and senior vice president at S.W. Bach & Co. “This is a very nervous market, and it needs to hear better news from corporate America, telling it that the earnings growth is still in place. We’re not hearing that from the technology sector.”

At the close, the Dow Jones industrial average was up 20.95 points, or 0.2 percent, at 10,240.29, while the broader Standard & Poor’s 500-stock index was up 2.12 points, or 0.2 percent, at 1,118.33. The tech-dominated Nasdaq composite index rose 2.65 points, or 0.1 percent, to 1,966.08.

All three major indexes had been down for the three previous sessions as investors worried that the economy was slowing. But despite the current negativity and warnings, some analysts believed a strong second quarter earnings season was still a given, in part due to the lower comparisons from a year ago, when companies were just starting to see their bottom lines recover from recession.

“I think the second quarter will see some blow-out type numbers,” said Kevin Caron, market strategist at Ryan, Beck & Co. “I think that’ll moderate somewhat in the second half of the year and into 2005, but the economy and earnings as a whole remains healthy.”

Corporate software makers PeopleSoft Inc. and JDA Software Group Inc. both warned that their quarterly earnings would fall below analyst expectations. PeopleSoft rose 31 cents to $17.13, while JDA Software skidded 83 cents to $11.02.

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Even software giant Microsoft Corp. isn’t immune to the crunch, though its share price held up well. Microsoft gained 8 cents to $28.10 after chief executive Steve Ballmer, in a memo to employees, said the company would trim $1 billion in expenses by reducing prescription drug benefits and stock discounts for its workers.

Prudential Securities downgraded the entire Internet sector to “neutral” from “favorable,” citing the possibility of a summer slowdown. Prudential singled out eBay Inc., cutting its rating on the online auctioneer to “neutral weight” from “overweight.” EBay lost $2.97 to $86.87.

Yahoo! fell $4.02 to $29.20 in after-hours trading after reporting earnings that were in line with analysts’ expectations, with net income rising 121.3 percent from a year ago. Yahoo! was down 62 cents at $32.60 for the regular session.

Alcoa Inc. also reported its earnings after the session, missing Wall Street estimates by a penny despite nearly doubling its profits from a year ago. Alcoa closed up 79 cents at $32.77 in the regular session, but fell to $31.80 in after-hours trading.

In other news, consulting firm Accenture Ltd. matched Wall Street estimates with a 59 percent surge in quarterly profits. Accenture gained a penny to $27.25.

Nasdaq market maker Knight Trading Group Inc. was down 49 cents at $8.74 after it said it would take a $79 million charge in the second quarter to settle a federal investigation into its trading practices. The company’s second-quarter earnings will also come in below estimates due to stock volatility and low trading volume.

Advancing issues outnumbered decliners by more than 4 to 3 on the New York Stock Exchange, where volume came to 1.32 billion shares, compared with 1.33 billion on Tuesday.

Overseas, Japan’s Nikkei stock average fell 0.8 percent. In Europe, Britain’s FTSE 100 closed down 0.3 percent, France’s CAC-40 was flat for the session and Germany’s DAX index lost 0.4 percent.

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