"Don't just do something. Stand there!"
The market's three-day rally became a four-day surge, but today's trading was the most uninspired of the four. Just 581.2 million shares changed hands on the
New York Stock Exchange
today, the year's lowest volume, as equity players contemplated tomorrow's
Consumer Price Index
release, one of the most important monthly inflation figures. A mild spate of action in the last half-hour of trading pushed the
Dow Jones Industrial Average
above the 11,000 mark, and most of the other major proxies pushed into positive territory for good, too.
Looking forward to tomorrow's inflation nugget gave stocks a prime opportunity (or convenient excuse) to take a breather from last week's three-day rally. Today's internals displayed all the hallmarks of a market backing off after a push higher, even if the changes in the major indices don't show it: less volume than your average
Spinal Tap amp, lousy breadth, lack of movement in any sector.
"We're catching our breath after last week's upside orgy that followed the
Producer Price Index
release," said Al Goldman, market strategist at
(who's not referring to
Eyes Wide Shut
). "The Dow was up 450 points in three-and-a-half days. The advance/decline line is negative by 500 issues, which is no big deal."
New York Stock Exchange
, decliners were ahead of advancers by 1,549 to 1,392. A total of 39 stocks hit new 52-week highs on the NYSE today, while 120 reached new bottoms.
Most of the Dow's push past 11,000 (no word on the
special yet) was on account of two stocks:
. H-P was up 4 5/16 to 110 5/16 in trading prior to its postclose earnings announcement. The company posted earnings of 85 cents a share, compared with the 21-analyst
estimate of 80 cents (see below). H-P pulled back a tiny bit in late composite trading, ending with a gain of 4 1/4 to 110 1/4. IBM rose 4 to 127 3/8.
, expected to report earnings tomorrow, fell 1/16 to 41 7/16. The 30-analyst estimate calls for the company to earn 17 cents a share.
Predictably, the most heavily traded stock was
, which slipped 1 15/16 to 94 15/16 on 15.6 million shares, after a judge ruled against it in the company's preposterous battle against
to trademark generic English phrases such as "you have mail." AT&T was down 3/16 to trade at 49 1/16.
Nasdaq Composite Index
rose 10 7/8, or 11.1%, to 109, while
, after going public 11 days ago, today rode a huge gain of 14 5/8, or 54.4%, to a postoffering high of 40 3/4. The Nasdaq's most active stock was
, with traders feverishly changing 28.7 million shares to push the stock down 3/8 to 84 5/16.
Decliners beat out advancers on the Nasdaq by a count of 1,975 to 1,900 on 784.1 million shares. New highs totaled 98, and 58 stocks hit new lows.
Dow Jones Transpiration Average
was higher by 33.10, or 1%, to 3212.17, while the
Dow Jones Utility Average
dipped 1.81, or 0.6%, to 312.58.
So, What's a Fed Hike or Two?
What's clear out there today is that the stock market isn't so much waiting for the July CPI -- it's waiting for the bond market to
to the CPI. The Treasury bond market is fully expecting the
to hike the fed funds target rate at the Aug. 24 meeting, but the bond market's outlook still displays confidence that inflation will remain low.
(The best determinant of this is the difference in basis points between the two-year note and the 30-year bond: The two-year trades off the expectation of higher rates, while the 30-year trades on inflation expectations. The difference between the two's yield is currently 34 basis points, compared with 61 basis points three months ago. For more on the fixed-income market, see today's late
"The bond market hasn't priced in increased expectations of inflation," said Peter Boockvar, equity strategist at
Miller Tabak Hirsch
. "If the CPI is higher than expected, even though the bond market has priced in hikes, you'd see a selloff" in both markets.
If the bond market gets what it wants -- a 0.3% gain in the CPI -- that's good for stocks. Chiefly responsible for the recent equity correction was rising interest rates. However, after last week's successful completion of the $37 billion quarterly Treasury refunding and 0.1% increase in the PPI, a measure of inflation at the producer level, the bond market turned a bit more optimistic, and looks to continue that with tomorrow's release.
No more was it pondering the possibility that the Fed would jack up interest rates by 50 basis points next Tuesday to 5.5% (the pre-Asian crisis level). It might happen eventually -- but not next week. While many in the market aren't expecting another monster-truck-sized rally to push the 30-year Treasury back down below 5%, bond yields are only going to rise so much as a result of the Fed's yammering when inflation isn't a threat at the consumer level.
If bonds are going to stabilize with the 30-year's yield close to 6%, that's historically still lower than any other year in the 1990s save for last year. That means borrowing costs are still relatively low for businesses (good for stocks) and consumers still benefit from relatively low lending rates, leaving more discretionary income that can be spent (also good for stocks).
"The equity market sweats about an interest-rate driven decline, but the equity market got along quite well with a 5.5% fed funds rate," said
Moody's Investors Service
senior economist John Lonski.
Elsewhere in North American equities, the
Toronto Stock Exchange 300
gained 39.49, or 0.6%, to 7045.65 and the
Mexican Stock Exchange IPC Index
dropped 68.56, or 1.3%, to 5300.46.
H-P Puts Worries to Rest With Strong Earnings
With a new CEO, Carly Fiorina, and a new spinoff company,
, announced this quarter, money managers were a bit concerned that Hewlett-Packard would forget to execute. It's time for them to stop worrying.
H-P reported net income of $853 million, or 85 cents a share, in its third quarter ended July 31, beating the First Call consensus estimate by a nickel. In the year-earlier period, the company earned $622 million, or 58 cents a share. Revenue was particularly strong, up 11%, to $12.2 billion from $11 billion. This is the first time this fiscal year that H-P delivered double-digit revenue growth, which the Street expected after second-quarter guidance from H-P CFO Robert Wayman.
The big earnings surprise can be attributed to "a blockbuster time for home PC sales," said Larry Sennett, communications manager of H-P's computer group. The company also enjoyed easy year-over-year comparisons, especially the revenue figure. H-P's consumer PC and laserjet sales were particularly strong, the company said in a release.
H-P fans looking for a significant earnings surprise seemed to be well-informed. As noted above, H-P soared 4 1/4 to 110 1/4 Monday.
Also today, Agilent Technologies, H-P's spun-off test and measurement division, filed for an IPO that could net it $100 million.
Monday's Company Report
Earnings estimates from First Call; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.
Hewlett-Packard soared 4 1/4 to 110 1/4 before it reported better than expected third-quarter earnings of 85 cents a share, 5 cents ahead of the 21-analyst estimate and up from the year-ago 58 cents. Today, its subsidiary,
, announced plans for a $100 million IPO. Hewlett-Packard is aiming to divest the semiconductor and optical components manufacturer by the middle of next year by distributing all of its Agilent common shares to Hewlett-Packard common shareholders.
Agilent said in Reuters that the shares could be sold immediately into the public market and its parent is under no obligation to finish the distribution. The
Internal Revenue Service
will consider the spinoff tax free to H-P and its shareholders.
Morgan Stanley Dean Witter
will serve as the deal's lead underwriter.
Mergers, acquisitions and joint ventures
was up 3/8 to 66 7/8 after it announced plans to launch a cash tender offer this week for
at a price of $65 a share. Reynolds Metals' board unanimously decided in a special meeting yesterday that Alcoa's more than $4 billion offer to buy Reynolds was "inadequate for our shareholders." The board also said -- with the assistance of its financial adviser
-- that the company "should explore all alternatives to maximize shareholder value," including selling the company. Shares of Reynolds were off 7/16 to 68 15/16.
was down a teenie to 63 1/2 after it said is buying
, a privately held U.K.-based Internet technology group, for $55 million in stock.
E-commerce and communications provider
was up 14.4% to 3 9/16 on news that it forged a deal with
to sell its
. The company expects the computer to hit shelves in Minneapolis, Tampa, Fla., and Indianapolis by its fourth quarter this year.
leapt 1 13/32, or 21.6%, to a nearly three-year high of 7 29/32 after it agreed to be acquired by
. Harrah's rose 3/4 to 22 5/8. Players' board has approved the deal, and Players has given notice to terminate its existing merger agreement with
. Jackpot hopped 7/16, or 5.8%, to 7 5/16.
Nielsen Media Research
soared 4 1/2, or 13.7%, to 37 5/16 after
, a Dutch publisher, said it was buying the company for $37.75 a share in cash.
was up 3/16 to 9 7/8 after it confirmed that it was still in ongoing talks for a possible "significant transaction" with another company.
, a Swedish temporary employment company, was rumored to be courting Olsten as a possible take over target. Adecco told
that a takeover is planned, but would not confirm if it involved Olsten. ADRs of Adecco dropped 3/4 to 70.
, was up 1/4 to 14 3/8 on news that it will sell off publisher
Supplemental Education Group
Ripplewood Holdings LLC
for $415 million. Profits from the sale will be used to reduce the company's debt. A Primedia spokesperson told
that its long-term and other debt level was roughly $2.1 billion. The magazine publisher, which has
under its label, said it's setting its sights for the future on the Internet and television.
Earnings/revenue reports and previews
advanced 2 to 60 1/8 after it reported a second-quarter loss of 81 cents a share, narrower than both the two-analyst estimate of $1.24 and the year-ago $1.56.
Toys R Us
went up 5/8, or 4.1%, to 15 13/16 after it reported flat second-quarter earnings of 5 cents a share, in line with a 13-analyst estimate. The toy company blamed reorganizing costs for its Internet division,
, for its drop in net income to $12 million from $14 million.
was up 1 1/8, or 12.7%, to 10 after it announced an anticipated second-quarter loss due to its planned departure from eight businesses. The company told
that it expects earnings for the fiscal second quarter to be 3 cents to 5 cents a share, not including the charge. Its board elected Dale W. Hilpert president and CEO, effective today. Hilpert was Venator's president and COO, a post the company said it has no present plans to fill. Venator also said it is getting out of eight noncore specialty businesses that operate nearly 500 stores altogether.
Offerings and stock actions
Software products and services provider
has set plans for a 3.7 million-share IPO. According to the SEC filing, the stock could be priced at $10 to $12 a share and will trade on the Nasdaq. Vixel said profits from the offering will be applied to the company's debt.
BancBoston Robertson Stephens
Needham & Co.
, joint underwriters for the deal, will have an over-allotment option on 555,000 more shares to accommodate interested investors.
was up 1/8 to 19 1/8 after Merrill Lynch initiated coverage with near- and long-term accumulate ratings.
edged up 1/16 to 35 after
upgraded the stock to buy from hold.
slumped 2 1/8, or 13.9% to 13 13/16 after
started coverage with an initial market outperform rating.
bounced 2 5/8, or 7.9%, to 35 3/4 after Goldman Sachs initiated coverage at market outperform.
popped up 4 9/16, or 5.5%, to 88 after lead underwriter
Credit Suisse First Boston
initiated coverage with a buy rating and set a price objective of 85 to 95.
dropped 4 7/8 to 162 1/8 after
Morgan Stanley Dean Witter
initiated coverage of with a neutral rating, while Goldman Sachs stamped the stock as a market outperform.
fell 1 1/8 to 78 9/16 despite
Warburg Dillon Read
tech analyst Gregory Mishou raising its priced target to 93, along with upping its 1999 earnings estimate to $2.25 a share from $2.21.
slashed its rating on
to a neutral from a buy in the wake of the company's Chapter 11 filing on Friday. Shares remained halted at 3 1/16.
, Iridium's largest backer, was off 1 1/4 to 91 3/4 after Warburg Dillon Read maintained its buy rating, noting that Iridium's bankruptcy filing could prove positive for the electronic equipment manufacturer.
Donaldson Lufkin & Jenrette
Mandalay Resort Group
a boost to a buy from a market perform. Mandalay powered up 1 5/16, or 6.6%, to 21 3/16.
was up 3/16 to 35 13/16 after CSFB, the IPO's lead underwriter, initiated coverage of the stock with a buy rating.
was up 1 11/16, or 5.9%, to 29 15/16 on news that Warburg Dillon Read raised the stock's rating from to buy from hold.
was up 11/16 to 26 11/16 after
Banc of America Securities
dropped the stock to market perform from buy.
was up 1/16 to 16 5/8 after Merrill Lynch gave the stock initial short- and long-term buy ratings.
American Home Products
was off 1/16 to 40 13/16 after it got the stamp of approval from U.S drug regulators for its short-term insomnia drug, Sonata. The treatment will compete with
joint venture drug,
AT&T was off 1/16 to 40 13/16 after a federal court said the telecommunication services provider could use catchphrases like "you have mail" and "IM," which were coined by
. The Internet services company attempted to etch out competition by filing suit against AT&T last December.
improved 1/8 to 39 11/16 on news that it will shut down operations at two aerospace plants, leaving roughly 275 out of work. The shut downs are part of the company's plan to scale down its Sensors and Integrated Systems Group after forging last month's merger with
slipped 1/2 to 77 after announcing a two separate minivan recalls. The company said that it recalling 743,000 minivans to replace the lock nut and gasket on the fuel pump to prevent potential underbody fires. DaimlerChrysler is also recalling 1991-1993 model minivans to correct possible windshield wiper problems.
was off 1/4 to 38 1/2 on news that it set a streamlining plan and will take a one-time pretax restructuring charge of $85 million, or 33 cents a share, in the third quarter. The company plans to cut 1,400 jobs, about 15% of the bank's workforce, over the next 18 months.
was down 1/2 to 23 1/8 despite saying the
Securities and Exchange Commission
and the New York Stock Exchange plan to examine insiders selling stock prior to its July 6 profit warning. According to a 10-Q filing, the SEC will "formally investigate" the company's financial statements and accounting policies and will conduct an "informal inquiry" into insider trading activity.
The market apparently liked Waste Management's announcement today that Rodney Proto, COO and president, has stepped aside, and John Drury, chairman and CEO, who is undergoing medical treatment, is also being replaced. Drury will remain on the board. Waste Management's board elected Ralph V. Whitworth chairman and Robert S. Miller president and CEO earlier this month.
The company also announced a new strategic plan, which includes disposing of "nonstrategic and underperforming assets." Also, Waste Management anticipates earnings, as adjusted, to be in the range of 90 cents to $1 a share for the six-month period ending Dec. 31. The First Call estimate calls for earnings of $1.14 for the period.
In other corporate management news,
was unchanged at 7 1/2 after it announced Martin Fahey as its CEO.