TheStreet.com's WEEKEND BULLETIN
July 31, 1999
Market Data as of Close, 7/30/99:
o Dow Jones Industrial Average: 10,655.15, down 136.14, or 1.3%
o Nasdaq Composite Index: 2638.49, down 1.52, or 0.1%
o S&P 500: 1328.72, down 12.31, or 0.9%
o TSC Internet: 556.09, down 6.35, or 1.1%
o Russell 2000: 444.77, up 3.19, or 0.7%
o 30-Year Treasury: 88 11/32, down 12/32, or 6.107%
On the Week:
o Dow Jones Industrial Average: down 255.81, or 2.3%
o Nasdaq Composite Index: down 53.91, or 2%
o S&P 500: down 28.22, or 2.1%
o TSC Internet: down 35.26, or 5.6%
o Russell 2000: down 3.61, or 0.8%
Companies in Today's Bulletin:
In Today's Bulletin:
o Stock Mart: Electroglas
o The Invisible Mouth: Bulletin: Income and Spending Growth Don't Cool the Economy
o Evening Update: Jupiter Communications Files for $57.5 Million IPO
o Bond Focus: Treasuries Extend Losses on More Strong Data
Get the word on Internet stocks this weekend, as Merrill Lynch Internet Analyst Henry Blodget appears on TheStreet.com TV show on the Fox News Channel. The show airs Saturday 10 a.m. ET and again on Sunday 1 p.m. ET. For more info and how to find Fox News in your area, please see our TSC on Fox page, at www.thestreet.com/tv.
Also on TheStreet.com:
The Coming Week: Market's Steely Gaze Turns to the Jobs Report
With a rate hike looming at the end of August, traders are expecting confirmation but hoping for relief.
Brokerages/Wall Street: Margin Madness Fosters Dangerous Daytrading
Some daytrading firms will lend clients 10 times their capital 'on margin,' sometimes at exorbitant interest rates.
Brokerages/Wall Street: The End of a Daytrader's Rope: Can Firms Cope?
The Atlanta shooting is making daytrading firms think twice about how to help their clients deal with the vagaries of the market.
Telecom: AT&T Cuts the Power at APC
With the latest announcement from AT&T, American Power Conversion suffered a setback to its broadband dreams.
Stock Mart: Electroglas
Chip-equipment stocks tend to be predictable. For about three years, they rise as chipmakers load up manufacturing plants with new equipment to meet changing technology. Then, demand peaks, and the equipment makers struggle until the next technology change three years later. The trick for investors is to time their investments right.
Expectations that the industry is starting the climb up has already boosted leaders like
to sky-high levels. But the stocks of smaller companies like
, a Santa Clara, Calif.-based maker of wafer probes, machines used to spot defects in semiconductors, have lagged.
"The test equipment industry is seeing a very significant upturn and usually the market for wafer probers is not far behind," says Edward White, an analyst at
who has an outperform rating on the stock.
Electroglas, he says, just shipped an evaluation unit to a major chipmaker, and it will likely ship one to another chipmaker in the third quarter. These are products that sell for $650,000 each. "We are seeing the real early stages of interest," he says. (Lehman Brothers hasn't been an underwriter for Electroglas.)
Electroglas is one of the oldest equipment makers in the chip industry, dating back some four decades to the beginning of semiconductors, says Jeff Hinke, an Electroglas spokesman. For the last 25 years, it exclusively made wafer probers. Three years ago, Chairman and CEO Curt Wozniak joined the company and began to diversify the product line. In 1997, the company acquired a designer of inspection software, and in 1998, it bought a maker of optical machines that allows chipmakers to visually inspect the wafers.
Yang Lie, an analyst with money manager
M.J. Whitman Advisers
, which has held Electroglas since 1997, says the ability to sell both inspection software and hardware is rare. With Electroglas products, chipmakers can get information on chip defects from its testers and feed the data quickly to the start of the chip production line. So companies can spot the problems and fix them quickly. "That's a big, big deal," Lie says. Only two other companies supply wafer probers, she adds, and because market share has been evenly spread among all three players, price competition is low.
Hinke, the company spokesman, says Electroglas introduced two new products designed to sell into the latest chip trends: one for the manufacturing of high-performance microprocessors, and another for new 300 millimeter wafer fabrication plants for which
recently announced huge investments.
To be sure, the company, like the industry, has had a rough time lately. It lost money for six straight quarters until the most recent quarter, when it broke even. The stock also suffered, trading as low as 7 3/4, where it bottomed on Oct. 9.
But since then, it has risen 143%, closing up 1/2 at 18 7/8 Friday. But compare that to the 233% rise that equipment Applied Materials has seen over the same period. And at 18 7/8, Electroglas is still almost half off its all-time high of 35 7/8 that it hit in August 1997. White at Lehman says there's still plenty of room for the stock to rise.
He recently raised his 2000 earnings estimate for Electroglas to 85 cents a share from 75 cents and believes that when the market peaks in 2002, the company will earn $2 a share. The
consensus calls for Electroglas to earn 6 cents a share this quarter and 13 cents a share in the fourth quarter, giving it a loss of 10 cents per share for 1999.
The company reported a book-to-bill ratio of 1.15 for the second quarter, meaning that 1.15 new orders came in for every order shipped out. A book-to-bill of more than one is generally seen as a sign of health for an equipment maker.
"The growth outlook between now and 2002 is quite favorable," White says. "There is so much going on in the semiconductor industry to test advanced chips."
The Invisible Mouth: Bulletin: Income and Spending Growth Don't Cool the Economy
It's A Doggy-Dog World
JACKSON HOLE, Wyo. -- Hey.
posted a 4.9% (annual) increase during the second quarter following a 4.8% increase during the first.
Compare that to a 4% increase last year and a 4.7% increase in 1997.
And now answer me this.
Given that consumption growth is currently accelerating at its fastest pace since April 1997, and given that consumption accounts for roughly 69% of
gross domestic product
, and given that consumption positively boomed during the past two years under income increases littler than the ones prevailing now, and given that the labor market is still tightening so much that the third and fourth quarters are already likely to produce income increases even bigger than the ones we saw during the first half of the year -- given all that, why is it that the popular press and most economic forecasters continue to insist that the economy is seriously cooling? And that it will continue to do so?
Income equals fuel for spending.
And there is gobs and gobs of it out there right now.
Trade Me (or Monday, Monday)
Here's something kind of interesting.
Your narrator tracks the price components of five regional purchasing indices: The
Not one of those price components posted a decrease in July. The Hillary held steady and the other four rose.
That same kind of pattern has emerged twice lately. Once in March, and then again in April.
And the price component of the
rose 7.3 points in the former case and 6.7 points in the latter.
So is it guaranteed that the July NAPM
report to be released Monday will reveal a pop in prices?
Sure seems like a fun little trade, though.
Evening Update: Jupiter Communications Files for $57.5 Million IPO
, an Internet market research firm, filed for a $57.5 million IPO.
Donaldson Lufkin & Jenrette
will be the lead underwriter, with
Deutsche Banc Alex. Brown
Thomas Weisel Partners
also in on the deal. DLJ's
online brokerage will handle Internet distribution.
In other postclose news (earnings estimates from
; earnings reported on a diluted basis unless otherwise specified):
Earnings/revenue reports and previews
Crompton & Knowles
reported second quarter earnings of 55 cents a share, a penny less than the four-analyst estimate and above the year-ago 34 cents.
Hotel and office furniture maker
said it will take a third-quarter after-tax charge of $8.5 million, or 97 cents a share, on costs related to its merger with
, announced in May.
said its third-quarter earnings were 11 cents a share, well above the four-analyst estimate of 5 cents and up from 9 cents a year ago.
reported second-quarter earnings of 4 cents a share, well below the three-analyst estimate of 20 cents and below last year's 28 cents. The company said its earnings fell on a driver pay increase, a decline in revenue per mile, increased fuel prices and a shortage of drivers.
Mergers, acquisitions and joint ventures
said it will spend $200 million to establish a power generation base in Central America. Duke was the successful bidder in today's privatization of El Salvadorian generating companies.
Offerings and stock actions
First Sentinel Bancorp
said it will buy back up to 4.3 million shares, or 10% of its outstanding common shares on the open market.
said it plans a 2-for-1 stock split, effective Aug. 25 for shareholders of record Aug. 11.
said it has approved a 2-for-1 stock split in an attempt to improve trading liquidity and broaden ownership of the company's stock. The company will have about 178 million shares outstanding after the split, effective after the close of business Aug. 17.
The White House is expected to nominate bank executive Carol Parry for one of two openings on the
Board of Governors. Until recently Parry was executive vice president for community reinvestment at
. The nomination is expected before the end of next week.
A federal appeals court upheld a $2 billion annual federal program to subsidize Internet connections for schools and libraries. The court backed the
Federal Communications Commission's
decision to allow the subsidies to be used to pay directly for Internet access. Major telephone carriers had argued the money could only be spent on telecommunications services.
Bond Focus: Treasuries Extend Losses on More Strong Data
On very light summer-Friday volume, the Treasury market extended its losses. It was a question of minor but stronger-than-expected economic data hitting a sparsely populated market where buyers were in particularly short supply.
The benchmark 30-year Treasury bond ended the day 14/32 lower at 88 11/32, lifting its yield 4 basis points to 6.11%, its worst close since June 26. Shorter-maturity note yields rose by roughly similar amounts. The two-year Treasury note, for example, saw its yield rise from 5.60% to 5.63%.
So the Treasury market is in pretty bad shape as it heads into next week, which brings two extremely important economic reports -- the
Purchasing Managers' Index
on Monday and the
on Friday, both for July. Traders are looking to those reports to resolve the question of whether the
will hike interest rates again at its next meeting, Aug. 24.
The market's deterioration over the last week and a half has coincided with a shift in sentiment, from the view that an August hike is unlikely to the view that the odds favor it. Based on comments by Fed Chairman
this week and last in his
testimony, many market-watchers feel it will take downright weak economic reports to stay the Fed's hand next month.
The market got pushed a bit further in that direction today by the
new home sales
report for June and the
Chicago Purchasing Managers' Index
New home sales, while still well below their November peak of 985,000, rose 3.1% to a seasonally adjusted annual pace of 929,000, from 901,000 in May. Economists surveyed by
had predicted a slowdown to 892,000, on average.
Coming on the heels of Monday's announcement that
existing home sales
rose 10.6% in June to a all-time high pace of 5.53 million, "it's showing us that demand for housing is running at an unsustainable pace,"
Dresdner Kleinwort Benson
market economist Claude Persico said. "One rate hike is not going to do it," he added, referring to the Fed's June 30 hike in the fed funds rate target to 5% from 4.75%.
Meanwhile, the Chicago PMI, a measure of manufacturing sentiment in the Midwest that sometimes predicts the course of the national PMI released a day or two later, advanced to 60.5 from 60. A small advance, but the consensus estimate called for a pullback to 58.8. As of today, the consensus estimate for the national PMI calls for a pullback to 55.7 from 57. For both indices, readings over 50 signify manufacturing sector growth.
Both reports also have a sub-index that measures prices paid by manufacturers, and the Chicago report's rose from 57.2 to 59.8. But Persico says the good behavior of consumer prices to date is keeping the primary focus on numbers with something to say about possible future inflation.
"Prices are important, but the Fed is focused on domestic demand right now," he said. "The demand indicators are going to tell whether the Fed moves policy. The inflation indicators are going to tell how many times they move it, and by what magnitude."
But if the fundamental influences on trading were negative, the Treasury market was also very easy to move today, with many players apparently taking the day off. Volume was more than 20% below average for a Friday in the past month from 8 a.m. to noon EDT, the heart of the session, according to tracker
"There's nobody to absorb any kind of supply either way," said Gib Clark, manager of government bond trading at
Zions First National Bank
in Jersey City, N.J. It's a summer-Friday condition, Clark said, "mixed in with the fact that the market has gone into an overall negative mode."
Why so glum? "There's no more talk of no more tightening," Clark said. "On TV, everybody's saying there's two more
rate hikes coming."
In addition, it's that time of the quarter for the Treasury market -- quarterly refunding time. The auction of new long-dated bonds and notes is set for Aug. 10-12, and next week the Treasury will announce how much it will sell of new five-, 10- and 30-year notes and bonds.
By itself, the approach of the refunding doesn't move prices lower. That's especially true since the federal budget deficit turned into a surplus last year, putting the Treasury market on a long-term course of declining supply. Also, with yields so much higher now than the last time the Treasury sold long-dated paper, there's no reason to believe investors won't be interested in them, Persico said.
But it certainly gives the dealers who are going to bid on the new bonds and notes an incentive not to support prices in the meantime. "If we start getting weak before the auction for whatever reason, there's nothing to compel anyone to buy and stop the downtick," Clark said.
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
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