TheStreet.com's WEEKEND BULLETIN
August 28, 1999
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Market Data as of Close, 8/27/99:
o Dow Jones Industrial Average: 11,090.17 down 108.28, -0.97%
o Nasdaq Composite Index: 2,758.90 down 15.72, -0.57%
o S&P 500: 1,348.27 down 13.74, -1.01%
o TSC Internet: 573.99 down 2.46, -0.43%
o Russell 2000: 432.45 down 3.57, -0.82%
o 30-Year Treasury: 102 02/32 down 1 03/32, yield 5.961%
For the week:
o Dow Jones Industrial Average: down 0.1%
o Nasdaq Composite Index: up 4.2%
o S&P 500: up 0.9%
o TSC Internet: up 4.5%
o Russell 2000: down 0.4%
Companies in Today's Bulletin:
Phelps Dodge (PD:NYSE)
Cyprus Amax Minerals (CYM:NYSE)
In Today's Bulletin:
o The Coming Week: Fed Watch Far From Over
o Wrong! Dispatches from the Front: Clorox Clarification Sought
o Evening Update: Phelps Dodge Launches Hostile Bid for Asarco, Cyprus Amax
o Bond Focus: Bonds Dive-Bomb in Waning Minutes to a Full-Point Selloff
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Also on TheStreet.com:
Stock Mart: Priority Healthcare
As the smoke clears after a competitor's press release, Priority comes out shining.
Options Buzz: Options War Goes Coastal With Softee Skirmish
The Pacific and Amex get into the listings fray.
Brokerages/Wall Street: Pru's New Net Team Rolls With bamboo.com Offering
A new banking team chalks up its first success as bamboo.com's stock price soars.
Asia/Pacific: Trading Up: Japan's Midtier Brokerages Catch the Urge to Merge
Potential acquisition targets, however, may not be great investments.
The Coming Week: Fed Watch Far From Over
8/27/99 7:00 PM ET
Break out the Trapper Keepers. The market is going back to school.
Federal Open Market Committee's
decision this week to raise interest rates by 25 basis points and maintain its neutral bias surprised virtually no one. It also did little to quell fears that the year's second rate hike won't be its last. As loathsome as the notion may sound to those tired of this summer's waiting game, the coming week promises to look a lot like the previous ones: The market is back on Fed watch.
We've seen this movie before. On June 30, when interest rates rose 25 basis points, many interpreted a shift in the Fed's policy directive to a neutral from a tightening bias as a signal that the dirty business was past. Then the July employment report came out smoking, and talk shifted from whether the Fed would raise rates at all to whether a 50-basis-point move was in the offing.
The lesson is pretty clear. If next week's data come out too hot, the Fed will tighten further. If not, it won't. Simple as that.
"Who knows whether the Fed's going to raise rates?" moaned Peter Boockvar, equity strategist at
Miller Tabak Hirsch
. "No one's smart enough to know the data."
That may be. But there's a sizable contingent that believes that Y2K liquidity issues will stay Fed chief
hand. The tension between that camp and those more inclined to follow the economic data will likely define the rough contours of next week's action.
As for the numbers themselves, next week will usher in the first August data, including the
Chicago Purchasing Managers' Index
on Tuesday and the
National Association of Purchasing Managers
index on Wednesday. The week culminates on Friday with last month's bugbear, the employment report.
"All the numbers in between now and next Friday will be talked about in the context of the employment situation, which is so important to Greenspan and such a key driver in the bond market," said Gail Dudack, equity market strategist at
Warburg Dillon Read
"If the numbers are benign, the bonds will rally," said Boockvar. That would be good news for the bond-watching stock market. If the long bond yield can stabilize below 6%, Dudack said, stocks should react positively.
Despite the last two days of light-volume selling, the market still seems to be on strong technical footing. "We're just seeing normal profit-taking from the rally earlier this week," said Dick Dickson, technical analyst at
Scott & Stringfellow
. "If we get it cleared up next week, we'll be in a good position going forward."
"Liquidity is clearly positive," Dickson elaborated. "Momentum is clearly positive. Don't step in front of a speeding bus."
The image of that speeding bus (we've all seen that movie, too) will likely get a lot of play next week in the wake of Alan Greenspan's speech today before a
Kansas City Fed
symposium in Jackson Hole, Wyo. Postulating a link between the protracted rise in stock valuations and consumer spending, Greenspan said the Fed's "analytic tools are going to have to increasingly focus on changes in asset values and resulting balance sheet variations."
The notion of the Fed paying closer attention to the stock market, coupled with the market's technical strength, has some worried. It's got Hugh Johnson, chief investment officer at
, more than a little spooked by the prospect of another rally in the coming week. "By my math, the market is overvalued," Johnson explained. "And when you move to a rising inflation and interest-rate environment, P/E ratios should come down. It would be healthy if
the Dow would come down to the 10,500 or 11,000 level. Otherwise we run into the risk that the market will be characterized as speculative by the Fed.
"If we stay on a roll, it could invite the Fed to ... I still don't believe it'll do it on speculation alone, but it could be a factor," he said. Still, Johnson isn't bearish by any means: "I wouldn't start raising cash yet."
Neither would Dickson. "I'm bearish by nature," the strategist said. "I'd like to be bearish. I'm worried about valuations, how high this market's gotten. But I can't work up a good bear case now. I guess I'm being dragged kicking and screaming over to the bull camp."
He'll probably find a reluctant Johnson there as well.
Wrong! Dispatches from the Front: Clorox Clarification Sought
James J. Cramer
8/27/99 2:33 PM ET
What the heck is going on in
? All day
has been blabbing that
might buy Clorox. Talk about a joke!
owns a giant junk of this company, and a takeover seems highly unlikely. (I am neither long or short this.) Yet there has been persistent call-buying -- and I mean persistent -- to the point where it's rocking the stock big time.
To me, this looks like some sort of engineered squeeze, or an inadvertent one where someone's caught the wrong way after a bogus takeover story got floated about a conference call after the close. (It was strictly a fundamental affair.)
Many times the calls can lead the common. This time the calls seem to be in control of the common. Seems plenty suspicious to me, with some people getting hurt badly.
How about anybody else? Complaints anyone? Email
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at
Evening Update: Phelps Dodge Launches Hostile Bid for Asarco, Cyprus Amax
8/27/99 7:48 PM ET
announced plans to forge a hostile takeover bid for
Cyprus Amax Minerals
worth $2.5 billion in stock. Asarco and Cyprus declined Phelps' previous offers, attempting to proceed with their own pending merger. Phelps said it would solicit proxies from shareholders in an effort to disband the duo and has also filed legal proceedings against the Asarco and Cyprus, alleging they breached fiduciary duties.
In other postclose news (earnings estimates from
; earnings reported on a diluted basis unless otherwise specified):
Earnings/revenue reports and previews
Whole Foods Market
said a blow from its main distributor
United Natural Foods
won't leave much of a bruise on its fourth-quarter report. The supermarket operator said it anticipates the impact to scrape a penny off of earnings. Analysts expect the company to earn 41 cents a share, up from the year-ago 40 cents. In two regions, Whole Foods stores saw sales effected by to "higher than normal out of stock conditions."
said it expects third-quarter earnings to disappoint Wall Street analysts, citing higher initial costs to redirect the company's focus and the effects of previous price cuts. The insurance holding company also said it might have trouble posting a GAAP underwriting profit for the period. Third-quarter estimates call for $1.46 a share.
Mergers, acquisitions and joint ventures
Thomas & Betts
AFC Cable Systems
has iced their planned merger and will accept a rival bid, if Thomas & Betts doesn't up its offer. Thomas & Betts said it informed AFC Cable that it does not plan to offer a competitive bid and will walk away from their former deal under the transaction's agreement. The union, based on Friday's closing prices, was worth about $35.54 a share, or $462 million.
Offerings and stock actions
American International Group
said it will initiate a 10-million share repurchasing program. The company said it currently has an estimated 1.5 billion shares outstanding.
announced a plans to buy back up to $50 million of its common stock. The company said that its employee benefit trust would purchase the stock.
ARM Financial Group
said CEO Martin Ruby resigned. The company's treasurer, Peter Resnik told
that Ruby's departure was a "mutually agreed-upon decision." Ruby's resignation comes after ARM posted a disappointing second-quarter loss of $173.9 million. ARM has employed
Morgan Stanley Dean Witter
to find a buyer for the company.
Bond Focus: Bonds Dive-Bomb in Waning Minutes to a Full-Point Selloff
David A. Gaffen
8/27/99 4:32 PM ET
The Treasury market soared earlier this week, but after today, it's going to want to take its broken wings and learn to fly again. Selling in the morning that was variously attributed to technical factors, the
New York Post
, and fear of
turned into a full-fledged technical breakdown in the afternoon, but the lack of volume today indicates that this move doesn't represent a turn in the market's attitude.
"Basically, the market is down because there are approximately three people in it -- one in New York, one in Chicago and me in Grand Rapids," said Mitch Stapley, chief fixed-income officer at
in the aforementioned Grand Rapids, Mich. "I think you're dealing with a thin summer market, and
the selloff is nothing to lose sleep over."
Lately the 30-year Treasury bond was down 1 1/32 to trade at 102 3/32. The yield rose 8 basis points to close at 5.97%. Traders attributed the late, rapid selloff to a technical breakdown -- the September bond futures contract fell below 115 25/32, which traders identified as a support level (vaguely defined as a place where buyers are expected to buy the market). Buyers didn't show up, so the market sold furiously in the last gasp of the futures session. The contract,
traded on the
Chicago Board of Trade
, closed at 115 20/32. The cash bond market tends to trade in tandem with the futures.
However, an interesting, and constructive occurrence for the market today was the lack of volume. During this prolonged bear market that has enveloped most of the year, the rallies were marked by low activity, while more people seemed to be participating in the down days.
But volume during Wednesday's 1-point rally exceeded $60 billion, compared with today's $40 billion in trading, which is 30% less than on the average third-quarter Friday, according to tracker
. Whether this two-week rally gives out at the end of next week or not, it does indicate that the greater market's conviction has, for a short time, turned positive once again.
The thin trade took everything that could have been an event and turned it into a nonevent. The
New York Post
article this morning suggesting -- no, stating clearly -- that the
has more rate hikes in its pocket. Some in the market said this was putting some pressure on the market, but the
isn't known as a key Fed-watcher. (Maybe it's because this sledgehammer of an article deals solely in black-and-white.
The Washington Post's
Fed-watcher John Berry also wrote a piece today detailing how confused the Fed was in its handling of the June rate hike. Its muddled verbosity dovetails with the Fed's gray, opaque style a little more neatly than does the
New York Post
article is really B.S., so we really don't care," said one trader at a primary dealer today.
Speaking of the Fed, Mr. Big Bad Fed Chairman also didn't
shock the market today, despite a clean admission that stock prices are indeed taken into account when the Fed folks contemplate monetary policy. Greenspan didn't specifically link this revised attitude to either of the two recent rate increases were the result of inflated asset prices -- but said the continued rise in equities in the last five years certainly affected spending habits.
"We no longer have the luxury to look primarily to the flow of goods and services, as conventionally estimated, when evaluating the macroeconomic environment in which monetary policy must function," the chairman said at a conference in Jackson Hole, Wyo.
"The market really expected Greenspan to say something, but he repeated what he has been saying," said Roseanne Briggen, market strategist at
. "He reiterated that he was nervous about asset values."
Today's only major economic release was the monthly personal income and consumption figures, which again let everyone know that the average American is saving less, spending more. However, this report was rather subdued -- personal income rose 0.2% in July, while consumption rose 0.4%. This compares with June's 0.7% increase in personal income and the 0.3% rise in consumption. (
consensus estimates for the July report were 0.5% in both categories).
Analysts expect a few days of meandering early next week ahead of two important economic releases: Wednesday's
National Association of Purchasing Management
survey of manufacturing sentiment for August, and the two-ton behemoth, the August
, released Friday.
"Generally speaking, the market is thinking the
employment number will come in on the soft side," the trader added. The
forecast is for 206,000 in new nonfarm payrolls.
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