Thursday's rally, which cut across almost all sectors of the market, was triggered by a positive earnings report from one of the old warhorses of the Dow Jones industrial average â€“ Procter & Gamble Co.
"It was about time that investors stepped in and basically said that's enough," said Larry Wachtel, market analyst at Prudential Securities Inc.
Apple's earnings warning raised the possibility that the turnaround would be short-lived. In after-hours trading, Apple's stock lost almost half its value and brought other tech issues lower. It plunged from $53.50 at the close Thursday to $29.19.
The news comes after chip giant Intel Corp. announced last week after the closing bell that its third-quarter revenue wouldn't be up to snuff because of weak demand in Europe. That announcement sent Intel stock plunging the next day, and the chip maker's market value collapsed by $91 billion.
On Thursday, Procter & Gamble told analysts that it would achieve double-digit profit growth next year. Analysts had expected the company to lower its 2001 sales and earnings forecast.
That bit of good news sent P&G shares up $5.13 to $67, and the Dow up 195.7 points to 10,824.06, a 1.8 percent increase. The Dow had been down 6 percent in September.
The Nasdaq composite index did even better, with a 122-point gain, or 3.3 percent, to close at 3,778.32. This index had fallen five straight days and was down 12 percent for the month. And the Standard & Poor's 500 index posted a nice 31.72-point gain, or 2.2 percent, to close at 1,458.29.
The stock market buckled in September under the weight of rising oil prices, a weak euro, and concerns over declining corporate earnings. And while all of those factors are still hanging over the market, things have begun to improve, Prudential's Mr. Wachtel said.
The price of oil has retreated in recent days from about $37 a barrel to just above $30, as a result of President Clinton ordering the release of 30 million barrels from the Strategic Petroleum Reserve. And Saudia Arabia said it would increase production to help lower prices.
The euro has stabilized recently after losing about 27 percent of its value against the dollar over the last 18 months. As for earnings, investors are finally looking beyond the quarterly pre-announcement period, when most of the news is negative, to the actual numbers that will start coming out next month, said Bill Meehan, chief market analyst at Cantor Fitzgerald & Co.
"The market really got oversold in September, and investors were looking for a bounce," he said. "I think it is premature, though, to say that all the damage is done, and the bottom has been reached."
Mr. Wachtel agreed, saying Thursday's rally is just a "blip from an oversold position."
"It probably won't last but a few days, but the market has been going down every day," he said. "We are entitled to a blip."
Investors appeared unfazed by a Commerce Department report Thursday that showed the economy expanded at an annual rate of 5.6 percent between April and June, faster than the 4.8 percent growth in the first three months of 2000. The report also showed inflation was moderating even as the economy surged.
Mr. Meehan also attributed the rally to portfolio managers buying some of the best-performing stocks before the end of the quarter. This so-called window dressing is a common practice of managers trying to dress up their holdings before statements are released to investors, he said.
Also, some of the technology darlings are now attracting investor interest. For example, Cisco Systems Inc. is down 29 percent from its March high, and Nortel Networks Corp. has dropped 28 percent in two months. Cisco rose $2 a share to $59.31, and Nortel gained $3.72 to close at $63.
Even after the profit warnings of the last few weeks, analysts expect the companies in the S&P 500 to report 16.3 percent profit growth in the third quarter, 15.8 percent in the fourth and 19.7 percent for 2000. The average annual profit growth in the past 30 years has been 7 percent.
It's also important to note that the market is just a month away from what historically has been its best performing months â€“ November, December and January.
Advancing issues outnumbered decliners by a more than 2-to-1 margin on the New York Stock Exchange.
Bloomberg News and the Associated Press contributed to this report.