Crystal Balls Were Crystal-Clear: Fed Hiked, Market Rallied

The conventional wisdom was wise for a change, with the S&P 500, the Nasdaq and the DOT shooting to records after the Fed's move.
Author:
Publish date:

Coming into today, Wall Street was split over the outcome of today's

Federal Open Market Committee

meeting.

What many market players did have a good feeling for, however, was that the stock market was going to rally regardless of what the kids in Washington did.

Looks like they were right. The optimism that has fueled the recent rally seemed to reach up another level as the

Nasdaq Composite Index

, the

S&P 500

and

TheStreet.com Internet Sector

index all closed at all-time highs.

The FOMC

voted to raise its target for the fed funds rate by 25 basis points, to 5.5% from 5.25%. The FOMC also adopted a neutral stance, after adopting a bias toward raising rates at its Oct. 5 meeting. The neutral directive indicates the Fed is leaning toward neither raising nor lowering rates at the year's next and last meeting, Dec. 21.

Going into the FOMC meeting, Wall Street was evenly divided on whether or not the Fed would tighten.

The Fed, in a

statement, said that "although cost pressures appear generally contained, risks to sustainable growth persist."

"Despite tentative evidence of a slowing in certain interest-sensitive sectors of the economy and of accelerating productivity, the expansion of activity continues in excess of the economy's growth potential," the Fed said. "As a consequence, the pool of available workers willing to take jobs has been drawn down further in recent months, a trend that must eventually be contained if inflationary imbalances are to remain in check and economic expansion continue."

The fed funds rate is the rate banks charge one another for overnight loans.

The discount rate was also raised 25 basis points, to 5%. The discount rate is the rate the Fed charges member banks to borrow from its discount window.

Chris Low, chief economist at

First Tennessee Capital Markets

, who wasn't calling for a rate hike, said even though he was wrong on his call, "I think it was the right thing to do anyway." Low said the rate hike removes the uncertainty from the market. Uncertainty, of course, is not something the financial markets like.

Low said if the Fed didn't raise rates today it would've on Feb. 2. The FOMC has a two-day meeting running from Feb. 1-2. Of the rate hike today, he said the Fed wasn't as nervous as he thought about year-end liquidity related to the Y2K problem.

Market participants were optimistic that the Fed won't hike again this year.

"I don't see how they can do anything then," said Louis Todd, head of equities trading at

J.C. Bradford

, of the FOMC voting to raise rates at its December meeting.

"We'll have to see how these three increases play out," he said. He pointed to analysts who say that the effects won't probably be felt until the first quarter of next year.

Major stock proxies traded higher ahead of the Fed announcement. Major market gauges spiked higher and hit their then-best levels of the session after the Fed news hit, but they quickly said goodbye to those intraday highs and tumbled well off those peaks. However, as is usually the case, the final hour of trading held the most notable action as major gauges took off and flew into the close.

The

Dow Jones Industrial Average

soared 171.58, or 1.6%, to 10,932.33. Powering the gauge the most were

General Electric

(GE) - Get Report

and

J.P. Morgan

(JPM) - Get Report

.

The S&P 500 rallied 25.64, or 1.8%, to 1420.03, breaking its old closing high record of 1418.78.

The Nasdaq Comp rallied 73.51, or 2.3%, to 3293.05, closing at an all-time.

The

Russell 2000

gained 3.91, or 0.9%, to 897.57. Today's positive close for the Russell 2000 marked its 14th advance out of the last 15 sessions.

Todd said there's a lot of momentum out there toward year-end. Going forward, he thinks the market will be focusing on inflation numbers coming out.

The performance of the Russell has been pretty good in the last few weeks, said Todd, adding that it looks like some people are starting to look at some small caps for bargains.

TheStreet.com Internet Sector index rallied 37.64, or 4.3%, to a record 897.57.

TheStreet.com E-Finance Index

hopped 5.7%.

The 30-year Treasury bond, which was up 8/32 to 101 16/32, yielding 6.02% before the announcement, tumbled into the red, recovered, but retreated in the end was down 7/32 to 100 20/32, to yield 6.08%.

Going forward, Low, the economist, is seeing glory days ahead for the bond market.

The economist thinks that as the economy slows, which was something the Fed acknowledged was happening in its statement today, and in an environment of high productivity, putting those two factors together and the labor market constraints will disappear in the first half of next year, and once people are comfortable that the labor markets are no longer tight, bonds will rally accordingly.

Low thinks the yield on the long bond could fall to 5.75% by the end of the year and 5.25% by the middle of next year, and "that's very positive for stocks."

"I think we have seen the high in yields," he said and that for bonds it's smooth sailing for a year.

Looking ahead, he said "there's no recession risk on the horizon," and as long as the Fed behaves the way it is now," more money is going to flow into the stock market.

TheStreet.com

Red Hots index rose 10.34, or 3.4% to 315.37. The 20-stock index tracks action in particularly volatile stocks and is meant to measure so-called hot money.

Speaking of red-hot type stocks, certain so-called momentum stocks turned in a scorching performance. The biggest gainers in terms of value on the

Nasdaq Stock Market

were, not surprisingly, momentum stocks.

E.piphany

(EPNY)

soared 43.4% after it said it would buy privately held

RightPoint

in a $393 million stock swap.

Juniper Networks

(JNPR) - Get Report

, which makes high-speed Internet routers and is a member of the Red Hots index, exploded higher after it set a 3-for-1 stock split. Juniper went public this summer. It soared 15.8% to 328 1/2.

Qualcomm

(QCOM) - Get Report

, arguably the king of the momentum stocks, took another breather today and slipped 4 3/16 to 363 1/4. It is up 1,302% year-to-date.

One of the big market story stocks yesterday,

China.com

(CHINA)

, which soared yesterday on news of the trade deal between the U.S. and China, padded those outsized gains again today. It soared 27.6% to 127.

Financials rallied. The

American Stock Exchange Broker/Dealer Index

roared up 4.6%, while the

Philadelphia Stock Exchange/KBW Bank Index

rose 2.2%, The

S&P Insurance Index

soared 3.7%.

In

New York Stock Exchange

trading, 942.3 million shares were exchanged while advancing stocks beat decliners 1,788 to 1,256. On the Nasdaq, 1.475 billion shares changed hands while winners beat losers 2,243 to 1,812. New 52-week highs beat new lows 97 to 88 on the Big Board, while new highs beat new lows 220 to 77 in over-the-counter trading.

Providing a little quirk to today's session, the Nasdaq Stock Market citing "technical problems" said that its trade reporting and quotation system shut down at 3:40 p.m. EST and went back up at 3:57 p.m. Nasdaq said the systems are functioning properly during the extended hours trading session, which lasts from 4 p.m. through 6:30 p.m.

Among other indices, the

Dow Jones Transportation Average

rose 35.07, or 1.1%, to 3099.67; the

Dow Jones Utility Average

fell 0.16, or 0.1%, to 297.97; while the

American Stock Exchange Composite Index

slipped 3.65, or 0.4%, to 827.01.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

dropped 20.49 to 7579.73 and the

Mexican Stock Exchange IPC Index

slid 13.24 to 6101.86.

Tuesday's Company Report

By Eileen Kinsella
Staff Reporter

(

Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified. New highs and lows on a closing basis unless otherwise specified.

)

The already-exuberant tech sector paid little attention to the news of a quarter-point interest rate hike from the Fed. Investors turned their attention -- and applause -- to a number of positive analyst actions instead.

Investors freed up plenty of cash for

Liberate Technologies

(LBRT) - Get Report

after

U.S. Bancorp Piper Jaffray

started coverage with a strong buy and set a price target of 175. Shares lifted 43 7/8, or 38.7%, to 158.

Sycamore Networks

(SCMR)

sailed up 15, or 6%, to 264 1/16, after

J. P. Morgan

started coverage with a buy rating.

Morgan Stanley Dean Witter

glued an outperform rating and a 300 price target on the stock. Somewhere off in the distance, investors may have heard an unusual whispering sound from

Lehman Brothers

, that sounded an awful lot like "neutral", though the sound was quickly dismissed.

Quintus

(QNTS)

snagged an invitation to the roaring tech-sector party on its first day of trading. The IPO was priced last night above range, at $18 a share by

Donaldson Lufkin & Jenrette

. Shares jumped 37 1/4, or 206.9%, to close at 55.

Mergers, acquisitions and joint ventures

America Online

(AOL)

jumped 7 7/8, or 5.2%, to 159 5/16 after it said it plans to roll out its Brazilian Web site today, establishing a presence in Latin America. AOL, along with its regional collaborator, Venezuela's

Cisneros

media group, said it plans to invest $200 million in Internet access service and local Web pages in Latin America.

Boeing

(BA) - Get Report

handed

Raytheon

a contract for more than $1 billion to produce five-control radar that would be put into the Navy's next-generation fighter jet,

The Wall Street Journal

reported. According to the

Journal

,

Northrop Grumman

(NOC) - Get Report

competed with Raytheon for the deal. Shares of Boeing added 1 1/4 to 41 3/8, while Raytheon gained 11/16 to 31

Comcast

(CMCSK)

and

Time Warner

(TWX)

announced plans to exchange Comcast's Lake County and Tallahassee, Fla., cable systems for Time Warner's Indianapolis system. Shares of Comcast hopped 2 13/16, or 6.2%, to 47 7/8, while Time Warner slipped 15/16 to 70.

Separately, the company said it a forged a $6.6 billion deal to buy Philadelphia cable operator giant

Lenfest Communications

, from

AT&T

(T) - Get Report

and the Lenfest family. The transaction calls for Comcast to swap 116 million shares of its Class-A Special Common Stock for all of Lenfest shares. Comcast also agreed to take on roughly $1.5 billion of Lenfest debt. The Comcast agreement also says that if AT&T's planned purchase of MediaOne Group is not completed after Comcast buys Lenfest, AT&T will be able acquire from Comcast certain cable systems that carry a subscriber base of 1.25 million. Shares of AT&T advanced 1 1/2 to 47 1/2.

Comsat

(CQ)

said it forged a multi-year satellite communications pact with

AT&T

(T) - Get Report

. Comsat rose 1/4 to 18 1/4.

E.piphany soared 48 3/16, or 43.4%, to 157 3/4 after it announced plans to purchase

RightPoint

for 3.5 million shares.

ESoft

(ESFT)

said

Intel

(INTC) - Get Report

has taken an interest in the company. ESoft's shares climbed 9 7/16, or 117%, to 17 1/2, while Intel hopped 2 5/8 to 76 9/16.

Ford

(F) - Get Report

was unchanged after it unveiled a joint venture with

TeleTech Holdings

(TTEC) - Get Report

, which would put Ford's customer service centers under one organization. TeleTech Holdings gained 7/8, or 5.4%, to 16 7/8.

Pfizer

(PFE) - Get Report

said it plans to start soliciting consents to oust

Warner-Lambert's

(WLA)

board of directors, as part of its $75 billion takeover bid for Warner-Lambert. Pfizer said that consent solicitation would enable Warner-Lambert shareholders to determine the most gainful transaction possible.

In addition, Pfizer said it would seek expedited discovery a prompt hearing on its action to prevent Warner-Lambert's planned $71 billion merger with

American Home Products

(AHP)

.

In the

Delaware Court of Chancery

, Pfizer filed an amended complaint in hopes of being granted a declaratory judgement that Warner-Lambert's board infringed upon its fiduciary duties and implemented several defensive provisions, calling the provisions part of Warner-Lambert's attempt to insure that its planned merger with American Home "would not be derailed by a competing superior merger proposal from Pfizer or any other entity." Pfizer also filed an S-4 registration statement with the

Securities and Exchange Commission

.

Today Pfizer announced that it plans to pursue its proposed acquisition of Warner-Lambert using a pooling-of-interest accounting method. Pfizer's bid depends on Warner and American dropping provisions in their agreement that prevent Pfizer from using pooling-of-interest accounting for the takeover. Shares of Pfizer fell 1 to 34, while American Home lost 7/8 to 55. Warner-Lambert slid 1 7/8 to 90 7/8.

R. R. Donnelley & Co.

(DNY)

climbed 3/16 to 24 7/8 after it said it has forged a deal to buy

Penton Media

(PME) - Get Report

division

Penton Press

. R&R Donnelley said that in addition to its purchasing, it has inked a seven-year deal to print more than 30 Penton Media publications. Shares Penton Media gained 1/2 to 17 3/4.

TheStreet.com Inc.

(TSCM)

, publisher of this Web site, and

New York Times

(NYT) - Get Report

formally unveiled their

TheStreet.com/nytimes.com

joint newsroom, which provides free coverage of breaking business news on

TheStreet.com

and

The New York Times on the Web

. Shares of TheStreet.com bounced 1 9/16, or 10.6%, to 16 5/16, while the New York Times added 1 1/16 to 39 1/16.

Vodafone AirTouch

(VOD) - Get Report

said it would begin talks with investors this afternoon regarding what price it should bid for

Mannesmann

(MNNSY)

. According to

Reuters

, CEO Chris Gent said during a telephone conference call that the company's board plans to convene Thursday and launch a new bid for Mannesmann, which refused Vodafone's initial $106 billion offer Sunday. Shares of Vodafone slipped 3 5/8, or 7.6%, to 43 7/8.

In other Mannesmann news, the company has sued

Goldman Sachs

(GS) - Get Report

, claiming a conflict of interest in Goldman's advisory relationships, reported in

The Wall Street Journal

.

Earnings/revenue reports and previews

AnnTaylor

(ANN)

lost 1 13/16 to 44 after it posted third-quarter earnings of 65 cents a share, in line with the 13-analyst estimate and up from the year-ago 50 cents.

BJ's Wholesale

(BJ) - Get Report

gained 1 1/2 to 34 1/16 after it posted third-quarter net income of 31 cents a share, beating the eight-analyst estimate of 25 cents and the year-ago 19 cents.

Bob Evans

(BOBE)

was unchanged after it posted second-quarter earnings of 37 cents a share, matching both the two-analyst estimate and the year-ago report.

Charming Shoppes

(CHRS) - Get Report

climbed 3/4, or 14.3%, to 5 15/16 after it posted third-quarter operating earnings of 6 cents a share, beating the nine-analyst estimate of 3 cents, but down from the year-ago 30 cents.

Charlotte Russe

(CHIC) - Get Report

mounted 1 7/16, or 10%, to 15 1/2 after it posted fourth-quarter earnings of 22 cents a share, beating the three-analyst estimate of 20 cents and up from the year-ago 8 cents.

Cost Plus

(CPWM)

slid 1/16 to 35 3/4 after it reported third-quarter earnings of 2 cents a share, beating the four-analyst estimate of a 1-cent loss and the year-ago 4-cent loss.

Del Webb

(WBB)

added 1 3/8, or 6.4%, to 22 5/8 after it said it was on track to earn $3.60 to $3.90 a share in 2000, compared with $3.11 in 1999. The current six-analyst estimate calls for earnings of $3.51 a share in 2000.

Gadzooks

(GADZ)

bounced 5/8, or 6.4%, to 10 3/8 after it reported third-quarter earnings of 6 cents a share, beating the six-analyst estimate of 4 cents and up from the year-ago 8-cent loss.

Home Depot

(HD) - Get Report

hopped 1 to 79 3/4 after it reported third-quarter earnings of 37 cents a share, beating the 22-analyst estimate of 35 cents and the year-ago 26 cents.

J.C. Penney

(JCP) - Get Report

advanced 3/16 to 23 5/8 after it posted third-quarter earnings of 51 cents a share, beating the 11-analyst estimate by a penny but down from the year-ago 68 cents.

Lycos

(LCOS)

slipped 1 15/16 to 57 15/16 after it reported yesterday first-quarter pro forma earnings of 1 cent, in line with the 18-analyst estimate and up from a year-ago loss of 3 cents a share. The company told analysts that acquisitions will remain an important part of its growth in the coming months.

Credit Suisse First Boston

sliced the stock's fiscal 2000 EPS estimates to 9 cents a share from 13 cents, while

Bear Stearns

cut its estimated to 10 cents a share from 18 cents a share. For a closer look at the

results, check out the story from

TheStreet.com/nytimes.com

joint newsroom.

Rite Aid

(RAD) - Get Report

lost 3/8, or 5%, to 7 after it said it plans to release information on Thursday regarding

KPMG's

decision to resign as the drug store chain's auditors. Yesterday, Rite Aid said it changed auditors due to a restatement of earnings earlier this month, adding that KPMG was expected to re-audit the company's last financial statements relating to the earnings revision but KPMG said it wouldn't be available. Rite Aid said it would disclose the reason for the resignation in a report to be given to the

Securities and Exchange Commission

by Thursday.

Staples

(SPLS)

gained 9/16 to 25 3/8 after it posted third-quarter earnings of 20 cents a share, beating the 22-analyst estimate by a penny and up from the year-ago 15 cents.

Tiffany

(TIF) - Get Report

climbed 1 3/8 to 69 1/16 after it posted third-quarter earnings of 29 cents a share, beating the 18-analyst estimate of 25 cents and the year-ago 17 cents.

Offerings and stock actions

IDEXX

(IDXX) - Get Report

gained 1 5/16, or 7.6%, to 18 3/4 after it said it increased its share repurchase authorization to 6 million from 4 million shares of common stock.

Juniper jumped 44 3/4, or 15.8%, to 328 1/2, after it set a 3-for-1 stock split, payable on Jan. 14 to shareholders of record Dec. 31.

Northern Trust

(NTRS) - Get Report

gained 2 1/2 to 101 1/4 said it set a 2-for-1 stock split, payable on Dec. 9 to shareholders of record on Nov. 29.

Sapient

(SAPE)

lost 1 to 78 3/16 after it offered 3.5 million shares at $78 a share. Sapient said it offered 1.1 million shares, while shareholders put up the remaining 2.4 million shares, which included 1.17 million from both co-Chairmen and co-CEOs Jerry Greenberg and J. Stuart Moore.

Analyst actions

Soundview Technology Group

has sliced its fiscal 2000 estimates on

Computer Sciences

(CSC)

to $2.52 from $2.54 and its fiscal 2001 estimates to $3.09 from $3.13. Computer Sciences lost 1 9/16 to 62.

Warburg Dillon Read

upped its rating on

CVS

(CVS) - Get Report

to a buy from a hold. CVS gained 15/16 to 39 3/4.

Goldman Sachs

sliced its rating on

Devon Energy

(DVN) - Get Report

to market outperformer from trading buy. Devon rose 1/16 to 40 1/16.

ING Barings

upgraded a handful of healthcare companies.

Aetna

(AET)

added 1 9/16 to 59 7/16 after it was upgraded to buy from hold and the price target was upped to 65 from 60.

Trigon Healthcare

(TGH) - Get Report

tacked on 1 5/16 to 29 3/16 after it was raised to buy from hold, while

Cigna

(CI) - Get Report

rose 2 3/16 to 86 1/8 and

WellPoint

(WLP)

gained 3 3/4. Or 6.1%, to 65 3/4 after both companies were raised to strong buy from buy.

Merrill Lynch

upped its long-term rating on

Forest Labs

(FRX)

to buy from accumulate. Forest gained 1 1/2 to 52 3/8.

Deutsche Banc Alex. Brown

sliced its rating on

Georgia Gulf

(GGC)

to market perform from buy. Georgia Gulf lost 5/8 to 25 5/8.

Deutsche Banc Alex. Brown raised its price target on

Incyte Pharmaceuticals

(INCY) - Get Report

to 36 from 26 and reiterated a rating of strong buy. Incyte fell 1 1/16 to 22 1/4.

U.S. Bancorp Piper Jaffray rolled out coverage of

Liberate Technology

(LBRT) - Get Report

with a strong buy rating. Liberate soared 44 5/8, or 39.2%, to 157 15/16.

Soundview raised its price target on

Mattson Technology

(MTSN)

to 22 from 17. Mattson moved up 1 5/16 to 16 7/8.

Merrill raised its price target on

MicroStrategy

(MSTR) - Get Report

to 105 from 90. Shares gained 7 7/16, or 8.7%, to 93 1/4.

Salomon Smith Barney

sliced its rating on

National City

(NCC)

sliced its fiscal 1999 estimates to $2.20 from $2.25 a share. National City lost 1 1/4, to 28 7/8.

PaineWebber upped the price target on

Nextel

(NXTL)

to 135 from 110. Nextel jumped 6 3/8, or 6.8%, to 100.

CIBC World Markets

started coverage on online brokers today, with hold ratings on

AmeriTrade Holding

(AMTD) - Get Report

and

E*Trade

(EGRP)

. AmeriTrade shrugged off the news, moving up 4 1/16, or 15,4%, to 30 3/4, while E*Trade tacked on 1 to 39 3/16.

TD Waterhouse

(TWE)

rose 1 3/8, or 7.2%, to 20 3/8 after it was started with a rating of strong buy.

Banc of America

upped its fiscal 2001 estimates on

Research in Motion

(RIMM)

to 50 cents a share from 41 cents and raised its price target to 65 from 30. The shares moved up 5 1/8, or 10.8%, to 52 1/2.

Warburg Dillon Read lowered its fiscal 1999 estimates for

Revlon

(REV) - Get Report

to a $4.88 loss from a $4.55 loss. Shares slipped 1/4 to 10 3/16.

Credit Suisse First Boston

upped its rating on

Rollins Truck

(RLC)

to buy from hold. Yesterday, Merrill Lynch analyst Jeff Kauffman took the stock's long-term rating to buy from accumulate. Rollins gained 7/8, or 8.1%, to 11 3/4.

Miscellany

CK Witco

(CNW)

inched up 1/16 to 11 1/2 after it said it plans to reduce its workforce by 500, in an effort to save $40 million.

Hewlett-Packard

(HWP)

rose 1 1/2 to 76 1/8 after Chairman Lewis Platt was tapped as the new CEO of Kendall-Jackson Wine Estates. Carly Fiorina replaces Platt (who is stepping down from his post as chairman of H-P at the end of the year) as its CEO.

Quest Diagnostics

(DGX) - Get Report

rose 1/8 to 30 3/8 after announcing plans to shut down some labs or scale down their size and reduce its workforce by 5% to 10%. Quest attributed the layoffs -- which could total as many as 2,500 -- to the incorporation of

SmithKline Beecham's

(SBH) - Get Report

laboratories into the company.

United Technologies

(UTX) - Get Report

added 2 to 56 1/2 after saying its

Hamilton Sundstrand

unit said it will cut 290 U.S. jobs by the end of next year due to a downturn in the world aerospace market, with most of the layoffs in Connecticut and Colorado.