Monday September 24 8:50 AM ET
By Denise Duclaux
NEW YORK (Reuters) - Wall Street is gearing up for a rally at Monday's opening as investors venture back into the market for undervalued stocks after a stunning sell-off triggered by terror attacks less than two weeks ago.
``We can't go down every day; you simply reach an inflection point where you snap back,'' said Larry Wachtel, a market analyst at Prudential Securities, as pre-market trading hinted at gains of as much as 3 percent at the open. ``Even in the worst crisis, there is always a snap-back. The question is how sustainable it is. The burden of proof is on the bulls.''
Frightened investors dumped shares and shattered records last week, the first full week of trading since the Sept. 11 assaults. The blue-chip Dow Jones industrial average (^DJI - news) skidded 1,370 points, chalking up its biggest weekly loss since the Great Depression in the 1930s.
``You're starting to get some really good values,'' said Dirk van Dijk, a portfolio manager for C.H. Dean & Associates. ''We're trying to position ourselves now for what will be a lot better a year from now.''
Wall Street pros blamed much of the selling on raw emotion after the attacks left more than 6,400 dead or missing just three blocks from the New York Stock Exchange. Strategists pointed to an oversold market as investors ignored calls for a patriotic rally and tossed major stock gauges about 15 percent lower.
Wall Street appeared to regain some confidence in the early going on Monday. The Dow Jones industrial average is poised to open about 1.82 percent higher based on the indicative Dow (^DJII - news), trading of the Dow 30 on Germany's Deutsche Boerse U.S. market segment. The Nasdaq 100 pre-market indicator rose 3.4 percent. December futures for the Standard & Poor's 500 index added 27 points to 1,000.
Goldman Sach's chief investment strategist Abby Joseph Cohen on Monday raised her recommended equity weighting to 75 percent from 70 percent and cut her bond weighting to 22 percent from 27 percent. Stocks are more attractive than before in part because they are undervalued, Cohen wrote in a note to clients.
Although U.S. stocks looked set for a firm open on Monday, the market still faces many hurdles. The attacks on the World Trade Center and the Pentagon have triggered a U.S. war on terrorism and growing fears of a recession.
President Bush last week told the nation in a televised speech to prepare for a lengthy war on terrorism. The United States over the weekend sent a second wave of warplanes, ships and troops to within striking distance of Afghanistan, which is believed to be harboring Osama bin Laden, suspected by the United States of masterminding the deadly attacks.
Afghanistan's Taliban leadership said it has been unable to contact the man it has been sheltering for years, to suggest bin Laden leave the country. The Taliban announced it was mobilizing for war, readying an additional 300,000 troops for an expected ``jihad'' or holy war against the U.S.
The prospect of a protracted war is aggravating worries over the nation's economic outlook. A Reuters poll of leading Wall Street firms on Friday concluded that the U.S. economy has slipped into a recession and growth will not resume until the first half of 2002.
The deteriorating economic outlook will spur the Federal Reserve to slash interest rates by year-end to the lowest levels in almost four decades, the survey of primary dealers of U.S. government securities predicted. The central bank has already slashed interest rates eight times this year, including a surprise cut following the attacks on the nation.
In corporate news, Federated Department Stores Inc. (NYSE:FD - news), parent of Macy's and Bloomingdale's, on Monday before the open said sales are running 20 percent below forecasts since the Sept. 11 attacks and said sales at stores open at least a year will be down by 15 to 20 percent for the month.
Instinet Group Inc. (Nasdaq:INET - news), which runs the world's No. 1 alternative stock trading network, on Monday before the open said its quarterly profits would be sharply lower than expected as trading volume was hurt by the shutdown of U.S. stock markets after the Sept. 11 attacks.
Communications holding company SBC Communications Inc. (NYSE:SBC - news), which owns a 42 percent stake in Internet service provider Prodigy Communications Corp. (Nasdaq:PRGY - news), said after market hours on Friday it is making a tender offer for all outstanding Prodigy shares at $5.45 per share.
Conoco Inc. (NYSE:COCB - news) (NYSE:COCA - news), the fourth-largest U.S. oil company, warned on Friday after the close that higher exploration costs coupled with lower natural gas and crude oil prices would hurt its third-quarter earnings.
VeriSign Inc. (Nasdaq:VRSN - news) said on Monday before the open it plans to acquire Illuminet Holdings Inc. (Nasdaq:ILUM - news), a provider of network connectivity and services to telecommunications carriers, in an all-stock deal valued at $1.2 billion.
European shares bounced from three-year lows on Monday as investors crossed their fingers for a Wall Street recovery and picked up battered blue chips. The FTSE Eurotop 300 (^FTEU3 - news) climbed 3.45 percent and the DJ Euro Stoxx 50 (^STOXX50E - news) rallied 4.58 percent.
The mood in Asian markets was cautious, but bargain-basement stocks found favor. Hong Kong's benchmark Hang Seng (^HSI - news) stock index ended nearly 4 percent higher. The Tokyo stock market was closed on Monday for the Autumnal Equinox Day holiday.
The Dow fell 140.40 points, or 1.68 percent, to close at 8,235.81 on Friday, after initially dropping more than 3 percent. The broader Standard & Poor's 500 Index (^SPX - news) sank 18.74 points, or 1.9 percent, to 965.80. The technology-laced Nasdaq Composite Index (^IXIC - news) tumbled 47.74 points, or 3.25 percent, to 1,423.19.
The Dow was down 14.26 percent for the week, second only to a 15.5 percent drop in the summer of 1933, according to the research firm MarketHistory.com. The Nasdaq crumbled by 16 percent and the S&P 500 fell 11.6 percent this week.
For the year, the Nasdaq is down 42.4 percent, the Dow down 23.7 percent and the S&P off 26,95 percent.