NEW YORK (CNNfn) - The Nasdaq composite index closed above 5,000 for the first time Thursday as investors poured money into chipmakers, wireless providers and Internet firms.
In the tug-of-war contest going on between old-economy stocks and new-economy stocks -- it was the new-economy issues that carried the day Thursday, allowing investors to forget all about the Dow's 374-point drop on Tuesday.
Thanks to a boost from two key technology components, the blue-chip index rallied to close above the key 10,000 mark. But the gauge -- born in the 19th century and home to many industrial firms, financial companies and drug makers -- is still down 13 percent this year.
In the same period, the Nasdaq is up a stunning 24 percent, reflecting a growing belief on Wall Street that technology stocks will continue to rise even if the Federal Reserve hikes interest rates.
"It's amazing to see intellectual capital turn into profits so quickly." Phil Dow, stock market strategist at Dain Rauscher Wessels, told CNN's Street Sweep.
Quickly, indeed. The Nasdaq, which doubled in little more than a year, first crossed the 4,000 mark just over two months ago.
On Thursday, the Nasdaq rose 149.60 points, or 3 percent, to 5,046.83 -- the fifth biggest point gain in its 29-year history.
The Dow, meanwhile, jumped 154.20 points, or 1.6 percent, to 10,010.73, recovering from a 117-point slide earlier in the session. But the gains are misleading. Hewlett-Packard and Microsoft -both so-called� "new economy" stocks --combined for 77 Dow points.
The S&P 500, meanwhile, rose 34.99 points, or 2.6 percent, to 1,401.69.
The Russell 2000 index of smaller companies, one of the year's best performing market gauges, rose to its 14th record of the year, gaining 11.37 points, or 2 percent, to 606.05.
More stocks rose than fell. Advancing issues on the New York Stock Exchange led decliners 1,691 to 1,273. Trading volume topped 1.2 billion shares. Nasdaq winners beat losers 2,476 to 1,826. More than 1.9 billion shares changed hands.In other markets, Treasury securities rose. The dollar fell against the yen and was little changed vs. the euro.
While the Nasdaq's surge is about the growth prospects of its members, it owes some of its performance to momentum.
"When you break through 5,000 everyone wants to be in the game and everyone want to be in the growing technology space," Brian Finnerty," head of Nasdaq stock trading at C.E. Unterberg Towbin
Art Hogan, senior chief market strategist at Jefferies & Co. agreed.
"Fifty-two percent of the households in America are invested in the U.S. stock market and they want to invest in the things that had 70 percent growth last year," Hogan said. "As long as the money keeps flowing into equity mutual funds and they are targeted toward Nasdaq stocks, we are going to see this go on for a while."
The usual suspects led the gains. Dell �(DELL: Research, Estimates) rose 3-1/5 to 50-7/16, Microsoft �(MSFT: Research, Estimates) jumped 4-7/16 to 100, Cisco Systems �(CSCO: Research, Estimates) climbed 6-15/16 and Intel (INTC: Research, Estimates) gained 3-7/16 to 118-3/8.
A $1,000 investment in Cisco five years ago would be worth $31,000 today.
With investors chasing high-growth companies they believe will grow despite higher interest rates, money has fled blue chips whose profits are seen as more sensitive to tighter credit.
The trend let up slightly Thursday. Still, one third of the Dow's stocks fell, with International Paper �(IP: Research, Estimates) losing 1-9/32 to 34-3/4, Eastman Kodak �(EK: Research, Estimates) shedding 1-1/2 to 54-15/16, and 3M (MMM: Research, Estimates).
Harvey Hirschhorn, executive vice president at Stein Roe Farnham, told CNNfn's market coverage that he sees this Nasdaq/Dow divergence continuing. (531K WAV) (531K AIFF).
"People ask and say why should I pay 30 times (earnings) for something that may grow at only 10 or 15 percent," Jim Glickenhaus, portfolio manager at Glickenhaus & Co., told CNNfn's talking stocks. "The question is: Is it as exciting as something like Texas Instruments that I believe is going to grow at 25 percent or 30 percent for the next 10 years?"
The Dow fell 374 points Tuesday after Procter & Gamble, one of the nation's most dependable blue-chip performers, rattled Wall Street with an earnings warning.
Cautiousness continued Thursday, with Procter & Gamble (PG: Research, Estimates) falling 1/16 to 57-15/16.
"The P&G story is a lot more significant than just its relationship to P&G," said Barry Hyman, chief market strategist at Ehrenkrantz King & Nussbaum.
In economic indicators, the number of Americans filing for first-time jobless claims rose to 280,000 for the week ended Mar. 4 from 275,000 the week before, the Department of Labor said. The figure, though higher, is consistent with the tight labor markets that have existed the past few years.
Separately, wholesale inventories rose 0.7 percent in January, the government said. That's higher than the 0.4 percent gain expected by analysts surveyed by Briefing.com.
The latest batch of strong data may give Federal Reserve inflation fighters one more reason to raise interest rates later this month. The central bank tightened credit four times since June, bringing its main lending rate to 5.75 percent.
Stock investors fret that higher rates will hurt corporate profits by raising borrowing costs.
Fed Chairman Alan Greenspan has warned that rising stock prices are fueling a surge in consumer spending that must be quelled with higher interest rates. But these threats create a problem for the world's most powerful banker. Higher rates have hurt most of the stock market but have not stopped money from pouring into technology stocks.
Consider this: If the Nasdaq doubles again in the next 12 months and the Dow continues to stagnate, the Nasdaq will overtake the blue-chip index in value.
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