How Do You Spell 'Real Rally'? Market Stumped in Spelling Bee
SAN FRANCISCO -- As August began, a rough second half of July, fears of a hostile
Fed
and the sense the bull market can't last forever (can it?) combined to generate ... if not fear itself, then something darn close in the minds of many on Wall Street. Then a weaker-than-expected
National Association of Purchasing Management
report hit the tape this morning, calming some rate-hike worries and sending major market averages to solid midday gains.
All the while, however, bonds continued to struggle as did the "average" stock, accompanied by an absence of robust volume (or much volume at all, for that matter). Even at session highs, many traders speculated the rise would prove to be a one-day affair. It turned out to be even less.
The
Dow Jones Industrial Average
, which rose as high as 10,791.60 early on, closed off 9.19, or 0.1%, to 10,645.96. Similarly, the
S&P 500
closed off 0.67 to 1328.05 after rising as high as 1344.73.
IBM
(IBM) - Get Report
was the Dow's big laggard, falling 2.7%, while
American Express
(AXP) - Get Report
embodied the reversal. AmEx closed off 1.3% to 130 1/16 after rising as high as 135 3/4. Similarly, the
Philadelphia Stock Exchange/KBW Bank Index
fell 0.7% to 828.17 vs. its session high of 845.12.
After receiving positive comments from
Salomon Smith Barney
and others,
Intel
(INTC) - Get Report
sparked an initially solid session by tech bellwethers. Thanks to an additional boost from
Sun Microsystems
(SUNW) - Get Report
, which announced it is developing a new media processing chip, the
Nasdaq Composite Index
rose as high as 2670.81. Intel closed up 3.4% to a 52-week high and Sun gained 2.3%, but the tech-flushed index returned all the early gains and more, closing off 14.86, or 0.6%, to 2623.63.
The Comp was sabotaged by weakness in
Microsoft
(MSFT) - Get Report
, as well as secondary names such as
Sabratek
(SBTK)
, down 27.2% after warning of a profit shortfall.
Additionally, Net bellwethers such as
Amazon.com
(AMZN) - Get Report
struggled amid ongoing concerns about valuations and supply of dot-com IPOs. Although August is traditionally a slow time for IPOs, more than 30 stocks are scheduled to go public this week, most of the online variety.
TheStreet.com Internet Sector
index slid 16.06, or 2.9%, to 540.03.
The
Russell 2000
dipped 2.14, or 0.5%, to 442.63 as market internals belied the blue-chip's rally, even at its apex.
"The same people that bid it up -- probably trader types, specialists and hedge funds -- took it down," said Bob Basel, director of listed trading at
Salomon Smith Barney
, when asked about the afternoon swoon. "Institutional investors are on the sidelines waiting for Friday's
employment numbers."
As a result, Basel expects market activity to remain subdued for the rest of the week -- and thus subject to similar volatility -- although "not quite as slow" as today.
In
New York Stock Exchange
trading, 649.6 million shares were exchanged -- the fourth-slowest session of the year -- while declining stocks led advancers 1,733 to 1,215. In
Nasdaq Stock Market
action 758 million shares traded while losers led 2,320 to 1,595. New 52-week lows bested new highs 164 to 37 on the Big Board while new highs led 87 to 55 in over-the-counter trading.
"There's a lot of negativity out there," the trader continued. "But if it keeps up and the numbers aren't too negative," a rally will ensue.
Asked to speculate whether that will occur, he quipped: "I don't think anybody knows for sure. Talk to me about 2 o'clock Friday and I'll let you know."
Stocks Get No Backup From Bonds
The bond market's inability to rally off the NAPM report restrained stocks, traders said. The price of the 30-year Treasury bond fell 4/32 to 88 7/32, its yield rising to 6.12%.
Although the 53.4 reading on the purchasing management report was off the 56.1 economists were expecting, "the fact remains the economy is growing too fast for the Fed to feel comfortable," said Alan Skrainka, chief market strategist at
Edward Jones
in St. Louis. "Any economist that looks at today's NAPM and says the economy is slowing is engaging in wishful thinking."
Skrainka expects the Fed to raise rates at its Aug. 24 meeting because he feels the productivity figures to be released Thursday will be "strong, but not quite as strong as wage growth. Wages by themselves are not inflationary. Wage growth in excess of productivity growth is."
That, plus weakness in the dollar, means "it's going to be difficult for the market to make meaningful progress until the next Fed meeting," he said.
But the strategist recommended long-term investors "shake it off and look for stocks of great companies that have pulled back."
Skrainka's current favorites include
MCI WorldCom
(WCOM)
,
Bristol-Myers Squibb
(BMY) - Get Report
and
Franklin Resources
(BEN) - Get Report
.
Edward Jones has done no underwriting for the aforementioned.
Among other indices, the
Dow Jones Transportation Average
rose 37.03, or 1.1%, to 3370.27; the
Dow Jones Utility Average
rose 1.02, or 0.3%, to 315.68; and the
American Stock Exchange Composite Index
shed 4.59, or 0.6%, to 783.64.
Elsewhere in North American equities, the
Mexican Stock Exchange IPC Index
dropped 153.58, or 2.9%, to 5106.77. Canadian markets were closed for a civic holiday.
Monday's Company Report
By
Eileen Kinsella
Staff Reporter
(
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.
)
US Airways
(U) - Get Report
rose 2 7/8, or 8.1%, to 38 1/2 as a major shareholder moved to shake things up at the airline.
Julian Robertson's
Tiger Management
hedge fund, which owns about 22.4% of the airline's common stock, said in a
Securities and Exchange Commission
filing that it is exploring "a variety of alternatives" to enhance shareholder value. Possibilities could include a merger, a sale or a recapitalization.
An outside Tiger spokesman couldn't comment further on a buyout price or the timing of any deal, except to say that management was definitely not in the doghouse. "Tiger has over the years been quite supportive of the management of USAir and still feels very much that way. They have great faith in
Chairman Stephen Wolf and his team." Tiger currently is not seeking seats on the US Airways board.
One hedge fund manager, a US Airways shareholder who did not want to be identified, said the airline's stock repurchase program is "a
leveraged buyout. By buying shares and reducing the share account, the company is buying back themselves on a creeping-basis, self-starting LBO. But it doesn't seem to be working fast enough" for Tiger's liking.
--
Erin Arvedlund
Mergers, acquisitions and joint ventures
Comdisco
(CDO)
slipped 1/2 to 23 5/8 after it said it will provide about $320 million over four years to set up
Net Wolves
' Internet delivery system in convenience stores owned by oil companies.
Dominion Resources
(D) - Get Report
gained 5/8 to 44 11/16 after it agreed to sell its Latin American power generation businesses to
Duke Energy
(DUK) - Get Report
for $405 million. Duke's shares rose 1/16 to 53.
Fidelity National Financial
(FNF) - Get Report
moved up 5/8 to 18 1/16 after saying it would buy
Chicago Title
(CTZ) - Get Report
for $1.2 billion, or $52 a share in cash and stock. Chicago Title jumped 5 5/16, or 12.4%, to 48 1/16. The $52 price for each Chicago Title share represents a 42% premium to Chicago Title's closing price Thursday, the day before the companies announced they were holding talks.
IBM
(IBM) - Get Report
lost 3 7/16 to 122 1/4 and
3M
(MMM) - Get Report
gained 1 1/4 to 89 3/16 after the companies announced an agreement to share access to networking and communications patents. Financial details were not disclosed but industry observers say the deal could be worth as much as $1 billion over five years.
Shares of
Louisiana Pacific
(LPX) - Get Report
rose 1/2 to 22 7/16 after the company sweetened its takeover offer for
Groupe Forex
to compete with a bid from
Boise Cascade
(BCC) - Get Report
which moved up 1/4 to 39.
Motorola
(MOT)
lifted 1 5/8 to 92 7/8 after it said it inked a $370 million supply pact with
China Eastern Airlines
(CEA) - Get Report
for cellular equipment. China Eastern rose 5/8, or 5.5%, to 12.
Tompkins
(TMP) - Get Report
, a commercial and consumer banking business, was unchanged at 34 3/4 after it said it would acquire
Letchworth
(LEBC)
for $81.5 million in stock as part of a strategy to expand its community banking operations in New York State. Shares of Letchworth, however, jumped 7 11/16, or 55.7%, to 21 3/4.
Varlen
(VRLN)
ascended 3 7/8, or 10.2%, to 41 49/64 after the company agreed to a sweetened $42-a-share takeover offer from Chicago-based
Amsted Industries
.
Earnings/revenue reports and previews
AutoNation
(AN) - Get Report
rose 5/16 to 15 1/4 after posting earnings from continuing operations of 21 cents a share, which matched the four-analyst
First Call
estimate of 27 cents with the inclusion of 6 cents of earnings from discontinued operations. The company earned 11 cents a year ago. AutoNation's board also decided to separate the company's automotive rental division from the company and "is exploring various strategic alternatives" on the form of a separation. AutoNation's automotive rental division includes
National Car Rental
,
Alamo Rent-A-Car
and
CarTemps USA
. The board also authorized the repurchase of an additional $500 million of stock. The company announced that Michael E. Maroone, formerly president of AutoNation's
Automotive Retail Group
, has been named president and chief operating officer of AutoNation, succeeding John H. Costello, who has resigned.
CBS
(CBS) - Get Report
gained 15/16 to 44 7/8 after it posted second-quarter income from continuing operations of 11 cents a share, matching the six-analyst estimate and up from the year-ago earnings of a penny a share.
Frontier Oil
(FTO)
climbed 5/16 to 6 7/8 after reporting second-quarter earnings of 14 cents a share, beating an analyst estimate of 10 cents and down from 32 cents a year ago.
Litton Industries
(LIT) - Get Report
lost 1 3/16 after it said its fiscal 1999 results, slated to be released Sept. 1, will be sliced by special fourth-quarter charges totaling $116.8 million pretax, or $77.4 million after tax. The company said it will depart the mainframe outsourcing and professional services businesses conducted at its
Litton Enterprise Solutions
subsidiary.
Sabratek
(SBTK)
shed 5 7/16 to 14 9/16 after warning it expects second-quarter earnings to be "significantly lower" than the current two-analyst estimate of 7 cents a share. The results will be released on or about Aug. 12, the company said.
Tyson Foods
(TSN) - Get Report
lost 9/16 to 18 1/8 after reporting third-quarter earnings of 34 cents a share, a penny better than the eight-analyst estimate of 33 cents and ahead of 20 cents a year ago. Despite the better than expected numbers,
Morgan Stanley Dean Witter
downgraded the stock to neutral from strong buy because the company said it faced price pressures from a glut of chicken and expected continued losses in its swine business.
Witco
(WIT) - Get Report
slipped 1/16 to 18 1/4 after it reported second-quarter earnings of 22 cents a share, in line with the 22-analyst estimate but down from the year-ago 26 cents.
Offerings and stock actions
Acme Communications
, which operates network affiliate television stations of the
WB Network
, said it's planning a $115 million IPO.
Deutsche Banc Alex. Brown
,
Merrill Lynch
, Morgan Stanley Dean Witter and
CIBC World Markets
will underwrite the offering.
Edison Schools
, a private operator of public schools, said it plans to raise $172 million in an initial public offering, which will be underwritten by Merrill Lynch,
Banc of America Securities
,
Credit Suisse First Boston
,
Donaldson Lufkin & Jenrette
and
J.P. Morgan
.
Harrah's Entertainment
(HET)
lost 1/2 to 20 13/16 after saying it will buy back up to 10 million shares of its common stock before December 2000.
HRPT Properties Trust
(HRP)
slipped 3/8 to 13 13/16 after it said it would spin off its senior housing and health-care real estate unit to shareholders instead of holding an IPO for the subsidiary.
Splitrock Services
and
BigStar
both cut the size and terms of their IPOs. Splitrock cut its offering to 9 million shares priced at 10 to 11, from 10.7 million shares priced at $13 to $15, while BigStar cut its offering to 2.5 million shares at $10, down from an original figure of 3.1 million shares at $12 to $14.
Analyst actions
AmeriSource Health
(AAS)
tacked on 13/16 to 28 13/16 after
Warburg Dillon Read
upgraded the stock to strong buy from hold.
Anadarko Petroleum
(APC) - Get Report
dropped 1 9/16 to 36 5/8 after Merrill Lynch cut its recommendation to near-term accumulate from buy.
Applied Analytics
(AAII)
fell 1 1/8 to 5 5/8 after
Lehman Brothers
cut its rating to neutral from outperform.
Credit Suisse First Boston started coverage of four stocks with buy ratings:
Atmel
(ATML)
rose 1/8 to 30 after it received a price target of 38;
Clarent
(CLRN)
lost 2 1/8, or 5.6%, to 36 after its target was set at 50 to 55;
Commerce One
(CMRC)
dropped 1 3/8 to 48 3/8 after its price target was set at 68; and
LSI Logic
(LSI) - Get Report
fell 13/16 to 49 9/16 after its target was set at 65.
Baan
(BAANF)
slipped 5/8 to 12 5/8 after Credit Suisse First Boston initiated coverage with a hold rating.
GPU
(GPU)
lost 1/4 to 38 1/8 after Morgan Stanley Dean Witter downgraded the stock to neutral from outperform.
Harley Davidson
(HDI)
lost 3/8 to 55 after Merrill Lynch initiated coverage with a near-term neutral long-term buy rating.
Intel jumped 2 5/16 to 71 5/16 after
Salomon Smith Barney
reiterated a buy rating and set a price target at 95.
SoundView
also reiterated its Intel rating, a strong buy.
Miscellany
Alaska Airlines
(ALK) - Get Report
moved up 13/16 to 45 3/16 after it said it reached an agreement with its 2,000-member flight attendant union concerning wage and benefit increases as well as enhancements to its 401(k) plan.
U.S. market analysis group
Barra
(BARZ)
was unchanged at 23 11/16 after it named Kamal Duggirala CEO, effective immediately. Duggirala, who retains the title of president, replaces Andrew Rudd, who resigned effective Aug. 2.
King Pharmaceuticals
(KING)
rose 3/4 to 28 1/16 after saying it bought the rights to sell
Eli Lilly's
(LLY) - Get Report
Lorabid
antibiotic for $90.5 million plus sales performance milestones that, if achieved, would bring the total value of the deal to $158 million. Eli Lilly lost 7/16 to 65 1/4.
Foster Wheeler
(FWC)
rose 3/16 to 12 3/8 and
Pfizer
(PFE) - Get Report
moved up 11/16 to 34 9/16 after Foster won a $300 million contract from Pfizer to build a pharmaceutical plant in Ireland.
Maker Communications
(MAKR)
gained 7/8 to 28 9/16 after Lehman Brothers raised its rating to outperform from neutral.
Oregon Steel Mills
(OS)
was down 5/16 to 11 13/16 after the company appointed Joe Corvin as the new CEO effective January 2000. Corvin replaces Thomas Boklund, who will remain chairman when he steps down in December.
Pitney Bowes
(PBI) - Get Report
lost 1 7/16 to 62 3/16 after saying it had reached an agreement with the
Postal Service
to resolve a postage-metering lawsuit filed by Pitney Bowes, under which Pitney Bowes will receive $51.75 million from the Postal Service.
Sears
(S) - Get Report
climbed 1 1/16 to 41 9/16 after it said it will cut up to 1,400 jobs at its headquarters by Oct. 31, in a move to trim expenses. The cuts will not affect the retailer's hardware or department stores.
Sun Microsystems
(SUNW) - Get Report
gained 1 9/16 to 69 7/16 after announcing it will disclose its plans for a microprocessor with a radical new architecture designed to handle complex graphics, voice and video, challenging Intel and other chipmakers in the fast-growing market for communications and media-processing chips, according to an article in
The Wall Street Journal
.
Time Warner
(TWX)
lost 1 7/8 to 70 1/8 after it appointed COO Barry Meyer as the new chairman and chief executive of
Warner Bros.
, and Alan Horn as president and chief operating officer of the studio. The new team replaces co-Chairmen Robert Daly and Terry Semel, who announced last month they would step down.
As originally published, this story contained an error. Please see Corrections and Clarifications
.
