Latin American Woes Should Plague Open

The S&P futures currently indicate a significant drop at the opening bell.
Author:
Publish date:

Though they struggled yesterday, stocks did not really get hit by any heavy selling, and that was something of a surprise.

Argentina's

Merval

dropped 8.7% on worries that the country will not be able to pay back its debt after all, and other Latin American markets got whacked as a result. The Treasury market rallied on the news, as investors looked for somewhere safe to put their money. Yet U.S. stocks held up as if nothing had happened. This morning, however, looks different.

"It looks like they're going to catch them up here," said Bill Meehan, market analyst at

Cantor Fitzgerald

.

In other times, the news from Argentina might not have much of an effect on stocks, but in today's case, said Meehan, both the

Nasdaq Composite

and

S&P 500

are pretty overbought. Moreover, the

VIX

, which measures implied volatility in the options market, has been at low levels not seen since last year, suggesting a great deal of complacency in the market. "Investors might want to start thinking of buying a little insurance while it's cheap," said Meehan, referring to the practice of buying puts to protect gains, "because its not likely to get much cheaper."

But, the strategist added, "I don't think that we're going to see a significant downside move in the near term," plugging support on the S&P near the 1370 level.

At 9 a.m. EDT, the S&P 500 futures were down 6.9. They closed yesterday near fair value, so that indicates a pretty big drop on the open. The 30-year Treasury was up 1/32 to 90 18/32, putting the yield at 5.91%.

There are some concerns that with the 30-year reversing course and its yield looking unlikely to go to far above 6%, asset allocators will now sell stocks for bonds. Still, traders think that despite the frequent talk of how bonds are cheap relative to stocks, that trade won't happen.

"I'd be surprised to see a big allocation out of stocks," said Jim Benning, stock trader at

BT Brokerage

. "The stock market has been strong for so long now. It's nice to make your 6% on the bond and everything, but nobody got rich clipping coupons."

Tokyo stocks took back some of yesterday's gains. There was an apparent return to last week's theme of investors comfortable with the gains the market has made so far this year, but not ready to put new money to work on top of those gains. The

Nikkei

dropped 93.09 to 18,181.09.

Hong Kong's

Hang Seng

remains bogged down near the 14,000 level. The index slipped 80.91 to 13,980.93 today, as investors worried over the drop in U.S. stock futures.

With a lower open on Wall Street beckoning, European bourses were all down. In Frankfurt, the

Xetra Dax

was off 75.12, or 1.3%, to 5576.9, weighed down by banks. Paris'

CAC

was off 68.69, or 1.5%, to 4593.59. In London, the

FTSE

was down 90.1, or 1.1%, to 6475.3, hurt by sinking banks and telecoms.

Tuesday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

Mergers, acquisitions and joint ventures

Air Products and Chemicals

(APD) - Get Report

and

L'Air Liquide

of France are jointly acquiring

BOC Group

, a British industrial gases company, for a total of about $11.2 billion in cash. Air Products is an international supplier of industrial gases and related equipment and selected chemicals based in eastern Pennsylvania's Lehigh Valley.

CDnow

(CDNW)

is merging with

Columbia House

, the club-based direct marketer of music and videos, which is owned equally by

Sony

(SNE) - Get Report

and

Time Warner

(TWX)

. The new public company resulting from the get-together will be owned 37% each by Sony and Time Warner. CDnow's existing shareholders will own the remaining 26%.

Separately, CDnow said it expects its loss per share, excluding amortization of goodwill and other intangibles and one-time charges, to be narrower than the

First Call

six-analyst consensus estimate of a loss of 83 cents a share.

DoubleClick

(DCLK)

is buying

NetGravity

(NETG)

in a stock swap valued at $530 million.

Excite@Home

(ATHM) - Get Report

is acquiring

iMall

(IMAL)

. Excite@Home said it will issue about 8.3 million shares of its stock, totaling about $425 million, and it will also assume iMall's outstanding options and warrants.

Sunstone Hotel Investors

(SSI) - Get Report

is being acquired by

SHP Acquisition

, an affiliate of

Westbrook Partners

, and certain members of Sunstone's senior management for $10.35 a share in cash.

Earnings/revenue reports and previews

(Earnings estimates are from First Call.)

Amgen

(AMGN) - Get Report

reported earnings after the close of 50 cents a share, topping the 23-analyst estimate of 46 cents and up from the year-ago 41 cents. But the

bigger news for Amgen was that the company is pushing up its rheumatoid arthritis drug,

Il-1ra

.

AmSouth Bancorporation

(ASO)

posted second-quarter earnings of 42 cents a share, 2 cents ahead of the 15-analyst estimate and up from the year-ago 36 cents.

Associates First Capital

(AFS)

reported second-quarter earnings of 49 cents a share, in line with the 22-analyst estimate and up from the year-ago 42 cents.

Enron

(ENE)

reported second-quarter earnings of 54 cents a share, beating the 17-analyst estimate of 50 cents a share and up from the year-ago 42 cents. Enron also set a 2-for-1 stock split.

Hertz

(HRZ)

posted second-quarter earnings of 81 cents a share, beating the nine-analyst outlook of 78 cents and up from the year-ago 69 cents.

Intel

(INTC) - Get Report

is expected to report earnings after the close. The 31-analyst estimate calls for the chip giant to earn 53 cents a share.

Merrill Lynch

(MER)

posted second-quarter earnings of $1.57 a share, beating the 12-analyst estimate of $1.46 and up from the year-ago $1.31.

Meanwhile, Merrill said yesterday Herbert Allison, its president and COO -- and the anticipated successor to Chairman and CEO David Komansky -- is retiring from the company. Vice Chairmen Stephen Hammerman and John "Launny" Steffens will assume Allison's duties while a replacement is found.

PaineWebber

(PWJ)

reported second-quarter earnings of $1.02 a share, beating the 11-analyst view and up from the year-ago 82 cents.

Phelps Dodge

(PD) - Get Report

, the copper-producing giant, posted second-quarter earnings of 2 cents a share, before nonrecurring, aftertax charges, beating the 10-analyst consensus estimate of a loss of 1 cent, but down dramatically from the year-ago 69 cents.

Miscellany

Online retailer

Amazon.com

(AMZN) - Get Report

today launched two new stores:

Amazon.com Electronics

and

Amazon.com Toys & Games

.