NEW YORK -- Stocks rose for a third day running on Wednesday after a top Wall Street strategist urged investors to funnel cash into equities following weeks of declines and persistent fears over a soft economy.
Abby Joseph Cohen, Goldman Sachs' chief investment strategist, an influential market analyst who is closely identified with the 1990s bull market, issued the third upbeat recommendation this week. She joined Merrill Lynch's David Bowers and Morgan Stanley Dean Witter's Jay Pelosky in advising clients to buy U.S. stocks.
"You want to believe you have seen the worst, but anybody's predictions are a leap of faith," said Dick Schmaltz, director of investment at J. & W. Seligman Inc., which oversees $34 billion. "On the one side, operating fundamentals continue to deteriorate. On the other side, the market has been correcting now for almost a year."
The Dow Jones industrial average climbed 138.38 points, or 1.31 percent, to 10,729.60, marking the blue-chip index's fourth straight rising session. The broad Standard and Poor's 500 advanced 8.09 points, or 0.65 percent, to 1,261.89, the first time it rose for three straight sessions since mid-January.
The tech-laced Nasdaq Composite Index added 19.49 points, or 0.88 percent, to 2,223.92, but closed well off an early rise of almost 2 percent. It was also Nasdaq's third positive close in a row.
"We saw a breakout of the downtrend yesterday and, more importantly, we saw stocks rally on bad news. That is usually an indication of the market being sold out," said A.C. Moore, chief investment strategist at Dunvegan Associates. "But there is a lot of apprehension and caution in anticipation of the big numbers on Friday."
Indeed, Wall Street will be tuning in to Friday's key jobs numbers, which will go a long way in determining how much the Fed will cut interest rates at its next meeting on March 20. That was keeping some market players on the sidelines for now.
In a note to clients on Wednesday, Cohen raised the equity allocation in Goldman's model portfolio to 70 percent from 65 percent, and reduced the cash position to zero from 5 percent. She left the fixed-income portion alone.
Intel (INTC), the top computer chipmaker, boosted Nasdaq and the Dow as it rose $1-7/16 to $32-15/16 despite saying it does not expect chip demand to recover quickly. Intel was the most active stock on Nasdaq.
Retail heavyweights Home Depot (HD) and Wal-Mart Stores (WMT) helped lift the Dow average. But drug giants Merck & Co. (MRK) and Johnson & Johnson (JNJ) took some shine off the rally as investors shifted out of those stocks into the tech sector.
Merck shares fell $2.71 to $74.40, after the drug maker slashed the price of two AIDS drugs in developing countries as the pharmaceuticals industry comes under mounting pressure to improve access to life-saving medicines in sub-Saharan Africa.
Cohen's call came one day after Intel and JDS Uniphase Corp., the world's No. 1 fiber-optic parts supplier, offered disappointing outlooks. JDS Uniphase (JDSU) fell $1-1/16 to $26-15/16 after lowering its forecasts again, citing a weakening economy and waning demand.
Trading in shares of Internet portal Yahoo (YHOO) was halted for much of the day for news pending. Before the halt, its shares had fallen $1-13/32 to $20-31/32, the lowest since September 1998.
Communications chip maker Broadcom (BRCM) fell $7-5/8 to $40-1/4 after cutting its quarterly earnings and sales outlook, due to a slowdown in customer orders.
Advancers narrowly beat decliners on Nasdaq, where the rally looked wobbly at times. Analysts attributed that to jittery investors locking in profits from the recent run up.
"Given the economic uncertainties, any buoyancy in the market is going to be very tentative and is going to provoke some profit-taking," said Pierre Ellis, managing director of Decision Economics, a consulting firm that advises asset managers. "We don't have a clear-cut economic outlook that suggests earnings will strengthen any time soon."
The U.S. economy grew at a "sluggish to modest" pace at the start of the year, helped by slightly stronger consumer spending as retailers cut prices to clear their shelves, the Federal Reserve said in its latest Beige Book summary of national economic activity on Wednesday.
"What we have is an economic slowdown, with some elements that lead people to believe it might be relatively brief," Ellis said. "If, in fact, that's the case, the markets should be rising now, looking beyond the recession. The trouble is, we don't know if it's going to be brief."
Analysts will focus on Friday's employment data. A stronger-than-expected jobs growth number would disappoint the market while a fairly weak one would be encouraging, as it raises the odds of more rate cuts, even ahead of March 20.
"The employment figures are the only piece of economic data that offers a serious prospect of making the Fed cut rates before the meeting," said Ellis. "If that figure is weak enough, they could do it."
