Uncertain Session Sends Traders Off to Bite Nails Ahead of Data

At the close, all bets were off ahead of the Labor Department's nonfarm payrolls number, as traders saved for what could be a rainy Friday. But after last week's stronger-than-expected Employment Cost Index and GDP implicit price deflator caused a torrential selloff, could tomorrow's data bring in a ray of hope for only a 25-basis-point hike, or just the glassy sea before a roiling tsunami?

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 67.64 -0.6% 10,412.49 -9.4% S&P 500 5.72 -0.4% 1409.38 -4.1% Nasdaq 12.93 -0.4% 3720.24 -8.6% Russell 2000 6.35 +1.2% 501.91 -0.6% TSC Internet 20.35 +2.34% 889.57 -22.9% NOTE CHANGE PRICE YIELD 10-Year Treasury 8/32 100 14/32 6.43%

"It's very quiet right now, but all eyes are on the unemployment number," said Patrick Boyle, director and head financial trader at Credit Suisse First Boston.

Fed Chairman Alan Greenspan was tight lipped this morning as he addressed the Federal Reserve Bank of Chicago. The G-man spoke with caution but did not touch on his plans for the fed funds rate . By keeping the hot topic hush-hush, Greenspan actually bolstered bonds and buffered stocks against the Labor Department's report that first-quarter productivity rose just 2.4%, below the Reuters consensus poll forecast of 3.7%. Unit labor costs came in stronger than expected at 1.8%, topping the 1% outlook and surpassing last quarter's 2.5% decline.

Despite Greenspan's unintentional support, one institutional investor said it's obvious that the market's liquidity is being drained. "If you take a look at the spread between the 1-year LIBOR and the 1-year Treasury, it has been expanding since Jan. 3," said Ed Hemmelgarn, hedge fund manager at Shaker Investments. "That's a sign that liquidity is being taken out of the market."

So with most of the Fed-watched economic data pointing to inflation, can the nonfarm payrolls really make or break it? According to some Wall Street insiders, the damage has already been done. "A good number is probably going to be more favorable than a bad number would be negative," said Jack Ablin, managing director at Colonial Asset Management, who expects a 50-basis-point rate hike at the May 16 Federal Open Market Committee meeting. "I don't think a bad number is going to have market observers looking for more than a 50-basis-point hike, and that news is really already in the market."

The Nasdaq Composite Index rallied to finish the session up 12.93, or 0.4%, to 3720.24. Until two months ago, the tech stocks, which spend most of the session in the red, did not exhibit the interest-rate hike jitters shown by the Old Economy issues. But now, it appears as if the once-hot issues have succumbed to G-span control, as investors look warily before they jump into a pool that may be dried up by a slower economy.

"We're seeing some short-covering on the Nasdaq ahead of tomorrow's number, in case it turns out to be a strong one," said Credit Suisse First Boston's Boyle.

In Nasdaq trading, Sapient (SAPE Quote) was one of the biggest ground gainers, after it was tagged to replace Reynolds Metals (RLM Quote) in the S&P 500. Plug Power (PLUG Quote) was whacked 26.9% after it posted a wider-than expected loss.

The Philadelphia Stock Exchange Semiconductor Index made a comeback in late afternoon, to close the day up 1.6%. Rambus (RMBS Quote)and Texas Instruments (TXN Quote) were the sector standouts.

The Nasdaq Biotechnology Index was up 4.7%, getting a buzz from Medimmune (MEDI Quote) and Affymetrix (AFFX Quote).

Elsewhere, TheStreet.com Internet Sector index ended in positive territory, up 20.35, or 2.3%, to 889.57, with gains from Inktomi(INKT Quote). The software company announced a deal with Nokia (NOK Quote).

The Dow Jones Industrial Average lost 67.64, or 0.6%, to 10,412.49, with its interest-rate-sensitive components being hit the hardest. Retailers Home Depot (HD Quote) and Wal-Mart (WMT Quote), which posted a 10.9% increase in same-store sales were for sale after yesterday's bearish macro call out of Goldman Sachs. The firm cut its rating on several retailers, citing bracing for a possible slow down in consumer spending due to rising interest rates.

The S&P Retail Index fell 2.4%.

Dow financials J.P. Morgan(JPM Quote), Citigroup (C Quote) and GE(GE Quote), which trades like a financial due to its GE Capital arm, all ended the day in the red.

On the New York Stock Exchange McDonald's (MCD Quote) was fried, after it said it expects the euro's drop will cut into earnings by 5 cents a share, compared with an earlier forecast of 2 cents a share. Mark Kalinowski of Salomon Smith Barney lowered his EPS estimates to $1.54 from $1.57 for 2000, and to $1.74 from $1.77 for 2001. Robertson Stephens analyst Andrew Barish lowered his estimates to $1.54 from $1.57 and to $1.74 from $1.76. The fast-food chain finished the day down 1 9/16, or 4.1%, to 35 3/4.

Fueled by stellar first-quarter earnings, which were driven by oil prices, the oil and oil services sectors were still in the money, despite losses from other old economy stocks.

The American Stock Exchange Oil & Gas Index climbed 8.46, or 1.7%, to 495.83, while the Philadelphia Stock Exchange Oil Service Index bounced 4.13, or 3.5%, to 119.6

Market Internals

Breadth was positive on both the Big Board and Nasdaq on very light volume.

New York Stock Exchange: 1,614 advancers, 1,278 decliners, 919.7 million shares. 40 new 52-week highs, 60 new lows.

Nasdaq Stock Market: 2,198 advancers, 1,771 decliners, 1.267 billion shares. 23 new highs, 69 new lows.

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