Call it a rude awakening.
Until yesterday, there was a sense in the stock market that the interest-rate picture might not really be so bad. So long as economic reports came in pretty well, the
Federal Open Market Committee
wouldn't raise rates at its Aug. 24 meeting. More good data on the inflation front and general caution on Y2K might keep the Fed from going again in October. Smooth sailing.
No more. This morning's strong wage-inflation data took care of that. The second-quarter
Employment Cost Index
, one of the reports that
is thought to follow very closely, showed a gain of 1.1% against expectations of 0.8%, and stocks dropped like a stone at the open.
"I think it was a correction waiting to happen," said Ned Riley, chief investment officer at
Private Bank of BankBoston
. "Up until this point, equity holders were a lot more bullish about the interest rate outlook than the fixed-income market. I think this is just an adjustment to reality."
A painful adjustment.
Dow Jones Industrial Average
was down 169, or 1.5%, to 10,803. The broader
was down 22, or 1.6%, to 1343.
Tech stocks were getting whacked. The
Nasdaq Composite Index
was off 55, or 2%, to 2651.
TheStreet.com Internet Sector
index was down 23, or 3.9%, to 562. The small-cap Russell 2000 was down 5, or 1%, to 442.
The 30-year Treasury was off 30/32 to 88 18/32, sending its yield to 6.09%. (For more on the fixed-income market, see today's early
Market internals stank. On the
New York Stock Exchange
, decliners led advancers by 2,146 to 708 on 430 million shares. Downs were beating ups 2,497 to 1,116 on 495 million shares in
Nasdaq Stock Market
activity. New 52-week lows were outpacing new highs 103 to 26 on the Big Board while new lows led 66 to 46 on the Nasdaq.
The drop has done a lot of damage to the market's technical outlook, particularly in the S&P 500 futures. At 1350.5, they've taken out a key level at 1352. The next level of support is a long way down. "There's nothing that interesting technically, unfortunately, until you get down to 1319," said Brad Benshop, vice president of CME equities at
J.P. Morgan Futures
. "The tide has turned here. You've got a lot of heaviness."
Furthermore, if the futures close below 1352, their chart will bear an uncanny resemblance to last July's. Yet another entry on the long list of things that makes people worry that this summer will be just like last summer.
"It's a high-risk market. It has been for some time," said Greg Nie, chief technical analyst at
in Chicago. "There's very little cushion. If an event were to unfold, some kind of background catalyst, then, yes, I think the market is going to go down very quickly."
But Nie doesn't sense that the current interest-rate jitters are enough to spark a selloff, nor does he see think a sufficiently strong catalyst is likely to arise. "The market has traded very poorly, but it's premature to say the market is working its way into a full-fledged bearish move," he said. Instead, he believes it's likely that the market will stay locked in a range.
Riley, too, does not think a big selloff is scudding its way toward Wall Street.
"I don't see it as the beginning of a long-awaited 15% or 20% correction," he said, contending that the market, too sanguine on the Fed, may have gotten too bilious.
"I'm not convinced the Fed is going to raise rates Aug. 24. I think the Fed might want to wait and see," he said. I think what we'll see in the next four to six weeks is an interest-rate rally. I think that will lift the stock market back up."
Thursday's Midday Watchlist
Despite reporting strong earnings,
was slightly down as concerns about inflation overshadowed the market and pulled major indices down.
was faring better, though.
AT&T was down 1 1/4 to 53 11/16 after it reported second-quarter profits from continuing operations of 49 cents a share, a penny ahead of the
21-analyst estimate, but down from the year-ago 54 cents. Ma Bell's profits from continuing operations rose to $1.59 billion from $1.47 billion.
3M was up 2 to 91 1/8 after it reported second-quarter operating earnings of $1.03 a share, ahead of the nine-analyst estimate of $1 and above the year-ago 94 cents.
Mergers, acquisitions and joint ventures
, parent of
, was down 3/4 to 66 11/16 and
was down 1/2 to 65 after the
reported that the airlines abandoned their three-year struggle to set up a global aviation alliance. The decision comes after the airlines were informed that the
was set to dismiss their application for immunity from antitrust proceedings, the newspaper reported. The two airlines, meanwhile, said they would continue to pursue ties within regulatory limits.
Earnings/revenue reports and previews
was down 6 3/16, or 7.3%, to 78 13/16 after it said operating profit in the first half of the year rose 11% to $5.5 billion, below expectations.
was down 5 1/4, or 16.7%, to 26 3/16 after it said its second-quarter operating results will be less than recently forecast. Waste Management expects second-quarter earnings of 58 cents to 60 cents a share. The 13-analyst estimate called for earnings of 67 cents. On July 6, the company said it expected second-quarter earnings would be in the range of 67 cents to 70 cents a share, exclusive of merger and other acquisition-related charges.
was up 1 3/16, or 6.4%, to 19 11/16 after last night posting second-quarter earnings of 1 cent a share, beating estimates for a break-even quarter.
In other earnings news:
Offerings and stock actions
was down 1/8 to 83 3/8 after it late yesterday set a 2-for-1 stock split, effective Sept. 15 for shareholders of record Aug. 31.
Carnival Cruise Lines
was down 2 to 47 3/8 after late yesterday raising to 108 from 62 the number of sexual assaults committed on its ships, saying the new count includes 22 charges of rape made by passengers or crew.
was down 7/16 to 69 7/8 despite the
Heard on the Street column, which said the company was benefiting from "free" PC promotions being offered by Internet service providers.