Techs, Cyclicals Look Set to Climb

Investors have had a sanguine reaction to the first-quarter GDP figures released this morning, leaving the market with few worries.

Author:: Justin Lahart
Publish date:: Apr 30, 1999 9:24 AM EDT

A word of caution: When we last saw your broker, he was, if not quite three sheets to the wind, definitely luffing by the time he showed up at the

Knight/Trimark

(NITE)

party at

Tavern on the Green

-- one of several shindigs different brokerages held last night to kick off the

Securities Traders Association

confab here in New York. Folks, you might want to have your broker repeat your orders back to you more than once. Slowly.

Beyond that, with stocks overseas performing well and New York set to follow suit, there isn't that much to worry about this morning. Investors have even been able to show a sanguine reaction to first-quarter

gross domestic product

growth coming in at a strong 4.5% -- well above the 3.3% economists expected.

Technology stocks are getting a good bid ahead of the open, looking to reverse three days of declines. But with

(MMM) - Get Report

beating earnings estimates early, cyclicals may not fair badly either.

"There's a lot of momentum behind this cyclical rally," said one block trader. "Everyone is trying to short these things. At the end of the day, everyone expects

the rally to crater. It's not happening. This thing has more legs than anyone is giving it credit for."

And for those of you wondering if our block-trading friend joined his retail brethren sculling brew last night, he has this to say: "In the listed world, we don't have time for mindless frivolity -- just churning orders and writing tickets."

At 9 a.m. EDT, the

S&P 500

futures were up 10.1, better than 8 above fair value and indicating a nice bump at the open. The 30-year Treasury bond was down 8/32 to 95 22/32, lifting the yield to 5.55%.

Though there are glimmers of hope, it would be wrong to say the Japanese economy is back on course. Tokyo traders were reminded of that today with the release of March employment figures. The unemployment rate climbed to 4.8% -- and remember that most economists reckon that if Japanese employment data were tallied in the same way as they are in the U.S., unemployment numbers would be significantly higher.

With volume low for

Golden Week

holidays and Prime Minister

Obuchi's

meeting with President

Clinton

coming up on Monday, there was already a lot of caution in the market. The

Nikkei

dropped 240.71, or 1.4%, to 16,701.53.

Hong Kong stocks gained ground on speculation -- well founded, as it turned out -- that the

Hong Kong Bank Association

would cut interbank rates after the close. The

Hang Seng

gained gained 153.50, or 1.2%, to 13,333.20. The HKBA cut its benchmark rate to 3.5% from 3.75%.

European stocks were solid. In Frankfurt, the

Dax

was up 50.7 to 5384.49. In Paris, the

CAC

was up 38.78 to 4410.31. And in London, the

FTSE

was up 50.8 to 6548.4.

Friday's Wake-Up Watchlist

Brian Louis

Staff Reporter

Spain's

Repsol

(REP)

has offered to buy the rest of

YPF

(YPF) - Get Report

, Argentina's largest oil company, for $13.4 billion. In January, Repsol bought a 14.99% stake in YPF for $2 billion.

MediaOne Group

(UMG)

has entered into confidentiality agreements with both

America Online

(AOL)

and

Microsoft

(MSFT) - Get Report

, paving the way for MediaOne to separately discuss new merger deals with each of them,

The Wall Street Journal

reported. The

Journal

, citing people familiar with the matter, reported that both agreements were entered into with the approval of

Comcast

(CMCSK)

, which is trying to save its $48 billion bid to take over MediaOne.

In other news (earnings estimates from

First Call

Capital One's

(COF) - Get Report

board approved a 3-for-1 stock split.

Computer Associates

(CA) - Get Report

yesterday forecast its fiscal fourth-quarter earnings will be 83 cents a share, 2 cents ahead of the 25-analyst consensus.

North America's largest farm equipment maker,

Deere

(DE) - Get Report

, yesterday warned it sees second-quarter sales volume falling 20% below year-ago levels and full-year sales falling 18% to 20%.

Delta Air Lines

(DAL) - Get Report

and

Aer Lingus

, Ireland's state-owned airline, have ended their codeshare relationship. Yesterday, Aer Lingus' board recommended to the Irish government that Aer Lingus join the

Oneworld

alliance, which includes

British Airways

and

AMR's

(AMR)

American Airlines

Lehman Brothers

downgraded

Exxon

(XON) - Get Report

to neutral from buy.

3M reported first-quarter earnings of 95 cents a share, 4 cents ahead of the nine-analyst estimate, but down from the year-ago 98 cents. 3M's first-quarter earnings totaled $384 million down from the year-ago $400 million. Currency effects sliced earnings for the quarter by 2 cents a share, 3M said. Results were positively affected by an improvement in sales in the Asia Pacific region, solid productivity gains and growth in several of its U.S. businesses, and negatively impacted by the poor Brazilian economic situation and the strength of the dollar, the company said.

PaineWebber

upgraded

Nationwide Financial Services

(NFS)

to buy from attractive.

RJR Reynolds

(RN)

announced yesterday it has discovered a method to cut certain tobacco compounds some scientists believe cause cancer.

The St. Paul Cos.

(SPC)

posted operating earnings of 62 cents a share, a penny shy of the 14-analyst estimate and down from the year-ago 64 cents.

PaineWebber downgraded

State Street

(STT) - Get Report

to attractive from buy.

Donaldson Lufkin & Jenrette

downgraded

USX-Marathon

(MRO) - Get Report

to market perform from buy.

This week's Inside Wall Street column in

Business Week

reports that Joseph Battipaglia, chairman of investment policy at

Gruntal

, says if investors think foreign economies are on their way back, particularly in Asia and Latin America, large transport stocks will be the best bets among cyclical stocks. As economies improve, U.S. transport companies will get an increase in passenger and goods traffic, Battipaglia says, according to the column. He thinks

Airborne Freight

(ABF)

Northwest Airlines

(NWAC)

and

Union Pacific

(UNP) - Get Report

will be among the winners, the column says.

Bowne

(BNE)

, the world's largest financial printer, has turned into a "fascinating and undervalued stock," worth twice its current price of $17, says money manager David Rocker of

Rocker Partners

, according to the column. Rocker says Bowne, is pondering ways to enhance shareholder value, including taking public all or part of its new businesses, the column says.

Dennis McAlpine, an analyst at

Ryan Beck

, says

Fairfield Communities

(FFD)

is an attractive buyout candidate, the column says.