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msnbc.com
updated 7/28/2004 7:37:44 AM ET 2004-07-28T11:37:44

Wall Street barreled out of its recent slump Thursday, soaring in response to a solid consumer confidence reading and a strong earnings outlook from Verizon Communications.

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Verizon’s bullish second-quarter earnings and positive outlook were a much needed boost to a market that has sagged for four weeks on concerns over stalled economic growth and a series of second-half profit warnings.

“In general, the earnings news has been very positive, but there has been a lot of downward pressure on what has been seen as weak guidance,” Eric Noll, director of research at Susquehanna International Group, told CNBC. “But now I think people are starting to realize that earnings have actually been very good, and they have been waiting to hear from some bellwether companies like Verizon.”

Analysts believed the market was oversold and due for a strong rally. Volume on the New York Stock Exchange was moderate, but strong given the light trading that has marked recent weeks.

“Things are bound to bounce a little bit,” said Lisa Hansen, head trader at Transamerica Investment Management, pointing to the sharp declines last week in all three major market gauges. “Any particular stock, you look at it and say, ‘Wow, it’s down a lot. Maybe I’ll add a little bit.’”

Investors were also cheered by a surge in consumer confidence. The Conference Board’s consumer confidence index rose to 106.1 in July, the highest level since June 2002 and up from last month’s revised reading of 102.8.

“It looks to me like the stock market is trying to reverse this downward trend we’ve been in,” said Brian Bush, director of equity research at Stephens Inc. “It would appear that the economy is re-accelerating again in July, and that could lead to better performance on the market.”

At the close, the Dow Jones industrial average was up 123.22 points, or 1.2 percent, closing above the 10,000 mark for the first time since Thursday. It was the Dow’s best one-day gain since June 7.

The broader Standard & Poor’s 500-stock index climbed 10.76 points, or 1 percent, while the technology-rich Nasdaq composite index rallied 30.08 points, or 1.6 percent. Both indices were coming of year-to-date lows set on Monday.

In other economic news, new home sales fell by a less-than-expected 0.8 percent to 1.326 million homes in June. Wall Street had estimated 1.275 million new homes sales for the month.

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This kind of economic data, analysts said, shows that despite the concern over second-half earnings growth, the economic and corporate profits remain on track.

“This kind of volatility that we’ve seen this month is part of the normal workings of the market,” said Rafi Zaman, managing director for U.S. equities at Dupont Capital Management. “The underpinnings of the market are still positive. Earnings growth as we’ve had, around 15 percent this year, is unsustainable. Between 7 and 8 percent is sustainable, and we’re getting there.”

Still, despite analysts’ upbeat assessment, the market remained tentative, and Tuesday’s advance could evaporate in profit-taking if the next big batch of earnings reports on Wednesday and Thursday disappoint the market.

Among the companies reporting Wednesday are Boeing Co., Sony Corp. and Time Warner Inc.; on Thursday, Exxon Mobil Corp., Bristol-Myers Squibb and Gillette Co. are scheduled to release their results.

Companies’ second-quarter results have actually been quite good — it’s their tepid outlooks for the rest of the year that have shaken the market so badly in the past few weeks. That’s why Verizon’s earnings outlook Tuesday — the telecom company said it was on target for the next quarter — gave Wall Street such a big lift.

Verizon surged $1.36 to $37.86 after beating Wall Street expectations by 4 cents per share.

U.S. Steel Corp. also gave a bullish outlook for the rest of the year, and exceeded analyst estimates on its second quarter earnings by 9 cents per share. U.S. Steel was up 15 cents at $34.07.

Defense contractor Lockheed Martin Corp. gained 20 cents to $52.40 on its positive earnings, which beat expectations by a nickel per share. The company said its year-end results would likely come in at the high end of Wall Street’s estimates.

A reshuffling of the board of directors at Martha Stewart Living Omnimedia Inc. sent shares down 7 cents to $10.93. The company named a new chairman and replaced one of its directors as it refocuses on building its brand after founder Stewart’s conviction and prison sentence.

Advancing issues outnumbered decliners by nearly 2 to 1 on the NYSE. Overseas, Japan’s Nikkei stock average tumbled 1.2 percent. In Europe, Britain’s FTSE 100 and France’s CAC-40 both climbed 0.9 percent for the session, while Germany’s DAX index gained 1.6 percent.

Reuters and the Associated Press contributed to this report.

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