Bonds' Battering Weighing Down Equities' Juggernaut

For a change, something's actually grounded the highflying Nasdaq.
Author:
Publish date:

It's been a while since stocks have paid much mind to bond yields. But though the carnage that is today's Treasury market was starting to turn more than a few heads in the equity market, the serious rubbernecking has yet to start.

Weighing on the bond market today was a stronger-than-expected spike in

retail sales

, which the Census Bureau said rose 0.9% in November from a revised 0.3% clip the previous month. Excluding automobiles, sales rose a more moderate 0.4%. But the headline number was big enough to spook the bond market -- economists polled by

Reuters

were looking for sales to grow 0.5%.

All this despite a quite benign

Consumer Price Index

. The CPI rose 0.1% overall, a tenth of a percentage point below expectations. The core CPI, which excludes food and energy prices, rose just 0.2%, matching estimates.

The 30-year Treasury was off 1 10/32 to 97 20/32, its yield rising to 6.29%. The March bond futures contract, which equity players typically watch more closely than the cash bond, was down 1 8/32 to 93 2/32. (For more on the fixed-income market, see today's early

Bond Focus.)

"The U.S. economy remains strong," said Peter Boockvar, equity strategist at

Miller Tabak

. "Today's sales figures confirm that. And as long as the economy remains strong, that raises the possibility that the

Fed

will have to do something."

The bond market was helping to keep the equity proxies underwater. Technology and Net shares were getting the worst of it, with the

Nasdaq Composite Index

off 44.02 to 3614.15 and

TheStreet.com Internet Sector

index down 28.13 to 1125.88. But the broader big cap market was faring better: The

Dow Jones Industrial Average

was up 18.96 to 11,211.55 while the

S&P 500

was off 2.41 to 1412.81.

Boockvar was surprised to see the selling as muted as it was.

"It's interesting how well the market trades relative to bonds," he said. "The yield is getting close to 6.30% again and the market's barely down. I don't know whether the market doesn't care or whether it thinks this is a short-term thing."

It's not that technology stocks weren't getting roundly hammered today. It's just that the extent to which those losses were linked to the Treasury market's performance is unclear.

"Technology is starting to show some chinks in the armor," Boockvar said. "

Solectron

(SLR)

today is down 10,

IBM

(IBM) - Get Report

reaffirming last week that Q4 and Q1 will be affected by Y2K and concerns about rising inventories in the semiconductors."

Computer maker Solectron was selling off after its first-quarter results revealed disappointing revenues, which analysts chalked up to component shortages. The stock lately was off its session lows, down 7 1/16, or 7.8%, to 83 15/16.

The broader sector proxies weren't faring much better. The

Morgan Stanley High Tech 35

was down about 2%. And a note from

Bear Stearns

saying that inventory buildups are putting semiconductor stocks at near-term risk was helping send the

Philadelphia Stock Exchange Semiconductor Index

down 5.2%.

But, unbeknownst to those unable to take their eyes of the Nasdaq, the broad large-cap market has been in a narrow range for the past month -- ever since the last

Federal Open Market Committee

meeting. Specifically, the S&P 500 has been bouncing between 1390 and 1430, with few signs of making a convincing breakout.

"There's not a good deal of direction right now," said Richard Dickson, technical analyst at

Scott & Stringfellow

in Richmond, Va. "What direction there was had been up, but what we're seeing right now is a market that, on a two- to four-week basis, is extremely overbought. But on a one-week basis, it's neutral to moderately oversold.

"That produces this push/pull effect," Dickson continued. "It tries to rally, but it's overbought. So it goes down, but there's really no reason to be going down," because of the better short-term condition of the market. "I think we'll churn around until we can work off this two- to four-week overbought condition," he said.

The weakness in bonds was sending banks and brokers into tailspins. The

Philadelphia Stock Exchange/KBW Bank Index

was down 1.4%, while the

American Stock Exchange Broker/Dealer Index

had fallen 2.8%.

In other sector news, oil and oil service stocks were moving higher. The

Philadelphia Stock Exchange Oil Service Index

was up 2.6%, while January crude futures were up a scant 16 cents to $25.54.

Paper stocks were absolutely ripping. The

Philadelphia Stock Exchange Forest & Paper Products Index

was up 2.9%.

Small caps were shaving off points from their recent resurgence. The

Russell 2000

was down 5.26 to 465.12.

Market Internals

Breadth was solidly negative on strong volume.

New York Stock Exchange:

1,067 advancers, 1,879 decliners, 592 million shares. 46 new 52-week highs, 393 new lows.

Nasdaq Stock Market:

1,444 advancers, 2,467 decliners, 902 million shares. 156 new highs, 102 new lows.

Tuesday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

Red Hat

(RHAT)

was sinking 23 3/8, or 9.5%, to 223 and

Hewlett-Packard

(HWP)

fell 3.3%, to 104 1/8, despite saying they entered into a sales initiative.

Shares of

American Airlines

parent

AMR

(AMR)

were rising about 3, or 5.1%, to 66 7/8 after the company said it will spin off its 83% interest in computer services company

Sabre Holdings

. AMR will distribute 107 million shares of Sabre common stock to AMR shareholders, who will receive 0.7 shares of Sabre for each common stock of AMR. Sabre also named William Hannigan as its new president and CEO, effective immediately. Hannigan was formerly president of SBC Global Markets at

Southwestern Bell

.

Mergers, acquisitions and joint ventures

General Motors

(GM) - Get Report

slipped 0.8% to 70 13/16 after it said it is well-positioned to acquire the financially floundering

Daewoo Motor

, citing past relations between the two companies, said a GM spokesperson Kay Lee. Lee said that executive vice president Louis Hughes and GM Korea president Alan Perriton launched a proposal, headed by

Korea Development Bank

, to Daewoo Motor's local creditors. According to Lee, the proposals indicate GM's assessment of Daewoo's assets and debt but do not offer a price.

Emerson Electric

(EMR) - Get Report

was unchanged at 53 9/16 after it said it has entered a $980 million cash and debt agreement to acquire the telecom products division of

Jordan Industries

.

Excite@Home

(ATHM) - Get Report

lost 1 1/4 to 50 3/8 after it said it has agreed to provide content for

Sega Dreamcast

Internet users.

Silicon Valley Group

(SVGI)

gained 1 5/16, or 9.8%, to 14 3/4 after it said it won a $100 million order for its Micrascan 193 lithography system from an unnamed chip maker.

The

Justice Department

has brought antitrust lawyer Stephen Axinn on board to examine

MCI WorldCom's

(WCOM)

planned $115 billion acquisition of

Sprint

(FON)

, indicating that the acquisition will be scrutinized by federal regulators,

The Wall Street Journal

reported. Shares of WCOM fell 1 1/8 to 78 1/16, while Sprint was down 1 3/4 to 66 1/4.

Robinson-Humphrey

started coverage on MCI with a buy rating and set a 12-month price target of 122 a share.

Unocal

(UCL)

slipped 0.4% to 33 3/4 and

Titan Exploration

(TEXP)

lost 5/8, or 16.1%, to 3 3/8 after the companies said they will merge their oil and gas assets in the Permian and San Juan basins to form a new publicly traded exploration and production company called

Pure Energy Resources

.

Unocal will control 65% of the new company upon completion of the merger, which is expected in the first quarter. The new company will have 50 million common shares outstanding, and should result in cost savings of at least $5 million per year, the companies said in a statement.

On a pro forma basis, the new company will have reserves of 175 million barrels of oil equivalent, and will produce approximately 40,000 barrels of oil equivalent per day, 60% of which is natural gas.

ValueVision International

(VVTV)

lost 7/8 to 43 1/2 after it said it has purchased a 14% interest in

BigStar

(BGST)

for $10 million. Shares of BigStar gained 1 7/16, or 25.8%, to 7 1/8.

Earnings/revenue reports and previews

(

Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified.

)

AutoNation

(AN) - Get Report

gained 3/16 to 8 11/16 despite

warning investors after yesterday's close that it expects to post fourth-quarter earnings of 10 cents a share, missing the five-analyst estimate of 19 cents a share. AutoNation said it would shut down 23 of its used-car megastores and combine six other stores with new vehicle businesses. The closings, which will cut the companies' work force by 1,800 jobs, along with previously announced restructuring changes, will have the company assuming a fourth-quarter pretax charge of $430 million to $490 million.

In addition, the company said it has added $500 million worth of common stock to its current share repurchasing plan.

Morgan Stanley Dean Witter

sliced its rating on the stock to a neutral from outperform.

Best Buy

(BBY) - Get Report

dropped 4 1/8, or 7.9%, to 47 1/2 after it reported third-quarter earnings of 37 cents a share, missing the 16-analyst estimate of 38 cents but up from the year-ago 25 cents.

Commercial Metals

(CMC) - Get Report

gained 5/8 to 31 1/16 after it posted first-quarter earnings of 70 cents a share, beating the five-analyst estimate of 65 cents, but down from the year-ago 75 cents a share.

Chiquita

(CQB)

slipped 3/8, or 9.2%, to 3 11/16 after it warned investors that fourth-quarter results would miss the two-analyst estimate of a 45-cent loss. The company expects to post a fourth-quarter loss between $1.15 and $1.30 a share, down from the year-ago $1.62 loss. The company blamed tough operating conditions for the disappointing results.

FMC

(FMC) - Get Report

gained 2 3/16 to 49 11/16 after it said it sees fourth-quarter operating net at $1.60 to $1.65 a share, above the current eight-analyst estimate of $1.48 a share. FMC said it sees 1999 operating net at $5.95 to $6.00 a share, also above the eight-analyst estimate of $5.81 a share.

General Electric

(GE) - Get Report

slipped 1/16 to 148 3/4, despite an announcement from Chairman and CEO Jack Welch, who said the company is comfortable with the 13-analyst consensus estimate of $3.22 a share and expects to post fiscal 2000 EPS at $3.70 a share. GE's fiscal 2000 estimate is a penny better than the 13-analyst consensus number. Welch said the company is set to make $20 billion to $25 billion in acquisitions in 1999 and said that it has "no intention" of selling its

NBC

television network.

Pier 1 Imports

(PIR) - Get Report

slipped 3/8, or 5.9%, to 6 despite reporting third-quarter earnings of 16 cents a share, beating the 16-analyst estimate of 14 cents a share, but down from the year-ago 19 cents a share.

Offerings and stock actions

3Com

(COMS)

popped 4 1/16, or 9.1%, to 48 13/16 after its

Palm

division, maker of the Palm Pilot, filed with the

Securities and Exchange Commission

to raise up to $100 million in an initial public offering.

Goldman Sachs

,

Morgan Stanley Dean Witter

,

Merrill Lynch

and

Robertson Stephens

are serving as the deal's underwriters.

According to the prospectus,

America Online

(AOL)

,

Motorola

(MOT)

and

Nokia

(NOK) - Get Report

said they will buy shares through a private placement equal to up to 4.5% of Palm stock. AOL lost 3 7/8 to 90 1/8, Motorola dropped 4 13/16 to 123 7/8 and Nokia shed 8 3/16 to 158 7/8.

Thomas Industries

(TII)

climbed 3/4 to 18 7/8 after it set a share-repurchasing program for 15% of its common stock.

Viacom

(VIA) - Get Report

lost 1/4 to 55 5/8 after it filed with the

Securities and Exchange Commission

to split off the rest its

Blockbuster

(BBI) - Get Report

unit once the stock price hits $20. Blockbuster was unchanged at 15 3/4. In August, Viacom held an IPO for 20% of the movie rental chain, with plans to split off the business. However, Blockbuster's stagnant $15 stock price has analysts wondering if Viacom will follow through with its intentions.

Analyst actions

Morgan Stanley Dean Witter

downgraded shares of

Ahold

(AHO)

to neutral from outperform. Shares of Ahold slipped 1 1/2, or 5.1%, to 27 3/4.

Salomon Smith Barney

said it initiated coverage of

Barnes & Noble

(BKS) - Get Report

and

Borders Group

(BGP)

with outperform ratings. Analyst David Strasser pegged Barnes & Noble's 12-month price target at 26, and Borders' at 19. Barnes & Noble slipped 1/8 to 21 1/8 while Borders inched up 1/16 to 15 1/4.

Goldman Sachs

rolled out coverage of

Classic Communications

(CLSC)

, placing the stock on its recommended list. Merrill Lynch also began coverage with an intermediate, long-term buy rating. Shares of Classic Communications were popping 2 1/16, or 7.1%, to 30 7/8.

Salomon Smith Barney upped its rating on

Exodus Communications

(EXDS)

to a buy and set a 215 price target. Shares of Exodus Communications were climbing 2 1/4 to 170 3/16.

Flextronics

(FLEX) - Get Report

dropped 9 5/8, or 10.1%, to 83 1/16 after Morgan Stanley Dean Witter cut its rating to outperform from a strong buy.

Banc of America Securities

upped its rating on several retail stocks, including

Dayton Hudson

(DH)

,

Kohl's

(KSS) - Get Report

,

Ames Department Stores

(AMES)

,

Fred's

(FRED)

and Whitehall Jewelers, to strong buys from buys.

Shares of Dayton Hudson were mounting 1 7/16 to 69 7/8, while Kohl's was sliding 1/2 to 65. Shares of Ames Department Stores were bouncing 2 1/2, or 9%, to 30 1/4 and Fred's was gaining 2 11/16, or 19.3%, to 16 1/2.

Morgan Stanley Dean Witter downgraded shares of

Hughes Electronics

(GMH)

to outperform from strong buy. Shares of Hughes Electronics were sinking 3 to 89 1/8.

Merrill Lynch sliced its rating on

Orbital Sciences

(ORB)

to intermediate-term neutral from accumulate. Shares of Orbital were losing 2 1/8, or 16.3%, to 10 7/8.

J.P. Morgan

began coverage of

Quaker Oats

(OAT)

as a market performer. Shares of Quaker Oats were slightly lower to 64 1/4.

Goldman Sachs added

Rohm & Haas

(ROH)

to its recommended list. Shares of Rohm & Haas were hopping 2 5/16, or 6.2%, to 39 1/4.

ING Barings

began coverage of

Scient

(SCNT)

with a buy rating. Shares of Scient were skidding 4 1/8 to 96 3/4.

Morgan Stanley sliced its rating on

SCI Systems

(SCI) - Get Report

to neutral from outperform. Shares of SCI Systems were stumbling 4 to 81 1/2.

First Boston rolled out coverage of

Symyx Technologies

(SMMX)

with a buy rating and a price target of 40. Shares of Symyx Technologies were adding 5/8 to 28 1/2.

First Boston reinstated coverage of

Viant

(VIAN)

with a strong buy rating. Viant shares were bouncing 1/2 to 118 5/8.

First Boston started coverage of

Xircom

(XIRC)

with a buy rating and a price target of 85. Shares of Xircom were hopping 1 11/16 to 64.

Miscellany

Metacreations

(MCRE)

was losing 1 11/16, or 19.1%, to 7 1/16 after it said CEO Gary Lauer is departing the company to join another firm.

Reebok

(RBK)

was shedding 1/8 to 7 15/16 after it said it would pay

Supracor

$18.75 million to settle a suit brought on by the sneaker cushion supplier. The lawsuit claimed that Reebok violated its agreement with Supracor when it bought material from one of the material supplier's competitors. Reebok said it plans to assume a fourth-quarter charge as a result of the settlement and legal fees.