Late-Day Faltering Leaves Market Players Wary
SAN FRANCISCO -- Like a butterfly caught in the pull of a vacuum cleaner, the stock market flapped its wings mightily today but ultimately couldn't help but lose its initial forward progress. A giant sucking sound from the bond market and bellwether tech names pulled major averages well off session highs, although they ended mixed.
Bonds faltered in the face of a stronger-than-expected
Atlanta Fed
survey and lackluster demand for the final leg of the
Treasury Department's
three-day auction. A power outage which ultimately caused the
Chicago Board of Trade
to close at 2 p.m. EDT exacerbated the selling, as traders feared being unable to get out of positions before tomorrow's
PPI
figures are reported. (For more, see the CBOT's
Web site.)
Power problems in the city also affected the
Chicago Board Options Exchange
and the
Chicago Mercantile Exchange
, although not nearly to the same degree.
"We're fully powered unless you want to go down the escalator and stuff," said Brad Benshop, vice president of CME equities at
J.P. Morgan Futures
. "We're open but a lot of people have just stopped trading." Many options trading firms routed business through New York desks or specialists on the
American Stock Exchange
and
Pacific Exchange
floors.
All of the Chicago exchanges now say they'll be up and ready for trading tomorrow morning, although the CBOT will remain shut overnight.
Equity traders said the CBOT shutdown didn't really hurt in what was already a slow-moving session. But it certainly didn't help, especially as bonds weakened further from already declining levels.
The price of the 30-year Treasury bond fell 22/32 to 86 9/32, its yield rising to 6.28%. (For more on the fixed-income market, see today's late
Bond Focus.)
Technology stocks weakened from
yesterday's big advance after
Merrill Lynch's
Steve Fortuna initiated coverage on
Dell
(DELL) - Get Report
,
Gateway
(GTW)
and
Micron Electronics
(MUEI)
with neutral recommendations. Fortuna described the PC business as "an industry under siege" and the stocks reacted accordingly. Dell fell 4.6% and Micron Electronics lost 5%, although Gateway dipped just 0.9%.
The
Nasdaq Composite Index
closed down 15.49, or 0.6%, to 2549.49 after trading as high as 2586.10 early on. In addition to Dell, the Comp was hampered by
Microsoft
(MSFT) - Get Report
and
Oracle
(ORCL) - Get Report
while other traditional tech bellwethers could muster no forward progress. The
Nasdaq 100
fell 1.2%.
The Comp avoided a wider loss thanks to strength in names such as
Amgen
(AMGN) - Get Report
and
Nextel
(NXTL)
. The latter leapt 10.8% after striking a deal to acquire the wireless airspace from
NextWave Personal Communications
, which filed for bankruptcy in June 1998.
The Comp also got a boost from renewed gains in Internet favorites.
TheStreet.com Internet Sector
index gained 4.16, or 0.8%, to 506.52.
'Seasonality is not conducive to people coming in and buying stocks and believing heartfelt we've seen the worst,' said Daiwa's Ned Collins. 'That doesn't mean you can't rally from here, but my own gut feeling is we're limited on the upside.'
The Merrill-inspired selling spilled over into other PC makers, such as
IBM
(IBM) - Get Report
, down 1.8%, and
Hewlett-Packard
(HWP)
, which lost 5.8%. H-P was further hampered by an unfavorable ruling in a legal battle vs.
Xerox
(XRX) - Get Report
over color laser chips. Nonetheless, Xerox fell 4.6%.
Elsehwere in
New York Stock Exchange
trading,
Motorola
(MOT)
dipped 5.4% and
Micron Technology
(MU) - Get Report
-- which owns most of Micron Electronics -- fell 7.9%. The
Morgan Stanley High-Tech 35
shed 1.6%.
Hampered by its tech components, the
Dow Jones Industrial Average
retreated from its morning best of 10,900.83. However, the proxy retained enough of the early impetus to close with a modest gain, up 1.59 to 10,789.39.
The Dow got a boost from
American Express
(AXP) - Get Report
,
United Technologies
and
Caterpillar
(CAT) - Get Report
. UTX gained 5% after announcing restructuring at its units while Caterpillar rose 3.3% after being upgraded by
Goldman Sachs
.
The
S&P 500
tracked the Dow but ultimately succumbed to its heavier tech influence, falling 3.77, or 0.3%, to 1298.16 after trading as high as 1313.59.
The S&P got a lift from both drugmakers and transports, which each had their best day in recent memory.
Warner-Lambert
(WLA)
led the way among the former, rising 5.5% to help the
American Stock Exchange Pharmaceutical Index
rise 2.3%. The latter got a boost from big carriers such as
AMR
(AMR)
, up 3.5%. The
Dow Jones Transportation Average
closed up 26.93, or 0.9%, to 3157.46 and the
Amex Airline Index
gained 2.1%.
The
Russell 2000
rose 0.63, or 0.2%, to 428.82.
Lack of Conviction, Peculiar Flows
"I just thought we were in such an oversold situation, it was not any great surprise to see the thing rally," said Ned Collins, executive vice president of U.S. stocks at
Daiwa Securities America
, of both yesterday's advance and this morning's rise. "But it seems to me seasonality is not conducive to people coming in and buying stocks and believing heartfelt we've seen the worst. That doesn't mean you can't rally from here, but my own gut feeling is we're limited on the upside."
Even at the markets heights today, Collins observed the advance/decline and volume indicators were not supportive of a sustainable advance.
In NYSE trading, 745.6 million shares were exchanged while declining stocks led advancers 1,528 to 1,481. In
Nasdaq Stock Market
action 952.5 million shares traded while gainers led 1,982 to 1,843. New 52-week lows bested new highs 155 to 53 on the Big Board and by 78 to 58 in over-the-counter trading.
"There's a lack of conviction and interest," the trader continued. "It's August. A lot of our clients in Japan and here are on vacation. The money flows are peculiar -- they don't seem to be quite as positive as in the past."
Asked to elaborate, he said, "I can't get a handle on money flows right now." Without hard evidence, Collins suspects inflows into outperforming funds may be coming from redemptions out of underperformers rather than from new money, which has been a major underpinning of the bull market.
Among other indices, the
Dow Jones Utility Average
slid 4.64, or 1.5%, to 312.60; and the
American Stock Exchange Composite Index
gained 3.28, or 0.4%, to 780.65.
Elsewhere in North American equities, the
Toronto Stock Exchange 300
climbed 5.92 to 6914.98 and the
Mexican Stock Exchange IPC Index
gained 36.64, or 0.7%, to 5217.52.
Thursday's Company Report
By
Tara Murphy and
Eileen Kinsella
Staff Reporters
(
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.
)
Investors took
Clorox
(CLX) - Get Report
to the cleaners, driving the stock down 16 13/16, or 16.3%, to 86 7/16. The company posted fourth-quarter earnings of 96 cents a share before charges, in line with the 12-analyst estimate and up from the year-ago 91 cents. But those numbers didn't pass the analysts' white glove test.
Salomon Smith Barney
wiped Clorox off its approved list and cut the stock to buy from outperform.
PaineWebber
cut its rating to neutral from attractive and Merrill Lynch cut its profit estimate for the year ending June 30 to $3.51 a share from $3.75.
Mergers, acquisitions and joint ventures
Aegon
(AEG) - Get Report
added 1 3/8 to 83 5/8 on news that the Dutch insurer is acquiring the U.K. life insurance activities of
Guardian Royal Exchange
.
GenCorp
(GY)
rose 9/16 to 22 1/16 after it said that was at the starting block with another defense company, discussing a possible joint venture that would involve the propulsion operations of its Aerojet segment. GenCorp told
Reuters
that both companies would have a near-equal stake in the newly formed entity.
General Mills
(GIS) - Get Report
was off 5/16 to 82 3/16 after it announced plans but buy family-owned snack maker
Gardetto Bakery
. The acquisition would put
Nature Valley Granola Bars
,
Fruit Roll-Ups
and
Golden Graham Treats
under the General Mills label.
Veronis Suhler & Associates
is forging a deal to acquire
HCIA
(HCIA)
The health-care information systems developer traded 1 3/16, or 13.4%, to 10 on the news.
Chatter is again swirling on Wall Street that
Merrill Lynch
(MER)
, the nation's largest brokerage firm, is open to a merger deal either with
Chase
(CMB)
or another financial-services company, the Heard on the Street column in
The Wall Street Journal
says. The brokerage giant has been rumored to be in discussions with
American International Group
(AIG) - Get Report
, the insurance giant, the column says. Merrill gained 4 3/8 to 71 3/8, with Chase off 1 1/4 to 75 11/16.
Bankrupt wireless carrier
NextWave Telecom
is skeptical when it comes to a possible bid from
Nextel Communications
(NXTL)
for its wireless licenses. NextWave said
Federal Communications Commission
rules would not permit Nextel, an established carrier, to purchase the license. Shares of Nextel popped up 5 3/16 to 53 1/8.
Novell
(NOVL)
added 3/16 to 24 1/8 and
America Online
(AOL)
rose 3/8 to 92 3/4 after the two said they are hooking up to integrate the AOL Instant Messenger service with Novell's directory software.
Earnings/revenue reports and previews
Charles Schwab
(SCH)
jumped up 2 3/4 to 41 after the largest online and discount broker said July trading was up 19% from June, still below its high in April. The broker boasted July trades averaging 147,700 a day, up from the year-ago 102,600. Charles Schwab reported in Reuters that U.S. stocks jumped 10% last April when it processed a record 207,000 trades.
Coeur d'Alene Mines
(CDE) - Get Report
slipped 3/16 to 4 3/8 after reporting a second-quarter loss of 44 cents a share, 9 cents wider than the three-analyst expectation and wider than the year-ago loss of 36 cents.
Elan
(ELN)
, the Irish drug company with earnings whose accountant must be
Samuel Beckett
, was up 2 1/4, or 7.7%, to 31 1/4 on rumors that the
Securities and Exchange Commission
has sent a letter to the company saying it has a cleanish bill of health on its accounting issues. The rumor is the company will only have a 1-cent to 2-cent-per-share restatement of its earnings. This would be viewed positively, because the Street has been worried that the accounting problems were worse. Company officials in Ireland and New York weren't available immediately to comment.
Engle Homes
(ENGL)
added 5/16 to 10 5/8 after it reported third-quarter earnings of 71 cents per share, ahead of the three-analyst estimate of 60 cents per share and up from 44 cents a share a year ago.
e.Spire Communications
(ESPI)
lost 1/4 to 9 3/16 after posting a second-quarter loss of $1.40 a share, 2 cents narrower than the nine-analyst outlook but wider than the year-ago loss of 91 cents.
Flowers Industries
(FLO) - Get Report
added 3/8 to 16 1/2 after reporting second-quarter earnings of 10 cents a share, in line with the 10-analyst estimate but down from 19 cents a year ago.
Gap
(GPS) - Get Report
lost 5/8 to 37 7/8 after it reported second-quarter earnings of 22 cents a share, a penny ahead of the 18-analyst estimate and up from the year-ago 15 cents.
TheStreet.com
wrote about Gap in a story
yesterday.
Gottschalks
(GOT)
slipped 3/8 to 8 1/16, after it reported second-quarter earnings per share of a loss of 1 cent, better than the single analyst estimate of a 5-cent loss, and narrower than the year-ago loss of 13 cents.
Healtheon
(HLTH)
was up 3 7/8, or 12.9%, to 34 1/8 despite reporting a second-quarter loss of 25 cents a share, wider than the three-analyst estimate of a 22-cent loss but narrower than the year-ago loss of 47 cents. On Tuesday, the stock skidded sharply due to a lockup expiration.
New Plan Excel
(NXL)
rose 3/16 to 18 7/16 after reporting second-quarter earnings of 56 cents a share, in line with the nine-analyst estimate and up from 51 cents a year ago.
Home Depot
(HD) - Get Report
added 1 5/8 to 59 3/8 after saying it expects to report second-quarter earnings of 44 cents a share. The 22-analyst estimate currently calls for earnings of 39 cents. The company said it will post second-quarter results Tuesday.
Keebler Foods
(KBL)
slipped 1/8 to 28 7/8 after it reported second-quarter earnings before a charge of 27 cents a share, 3 cents ahead of the 10-analyst estimate and up from the year-ago 22 cents.
Kmart
(KM)
added 3/8 to 14 5/16 after it reported second-quarter income from continuing operations of 26 cents a share, a penny ahead of the 16-analyst estimate.
Macerich
(MAC) - Get Report
rose 1/4 to 23 13/16 after the company reported second-quarter earnings per share of 64 cents, a penny better than the 11-analyst estimate and up from a pro forma 59 cents a year ago.
ShopKo
(SKO)
lost 3 5/16or 9.6%, to 31 3/16 after it posted second-quarter operating earnings of 32 cents a share, a penny ahead of the three-analyst estimate and up from the year-ago 27 cents, which excludes a charge.
Thermo Instrument
(THI)
was unchanged at 13 5/8 after posting second-quarter earnings of 18 cents a share, 3 cents short of the single-analyst estimate and lower than the year-ago 20 cents.
Weider Nutrition
(WNI)
slipped 3/16 to 4 1/2 after it reported fourth-quarter pro forma earnings of 4 cents a share, lower than the two-analyst estimate. Year-ago EPS was 23 cents after a restatement.
Offerings and stock actions
Video chain
Blockbuster
(BBI) - Get Report
wasn't getting any awards from the Academy. The two-day old stock closed flat again at 15, albeit after an active session that saw it trade as high as 16 7/8.
FirstAmerica Auto's
(FAA:NYSE) plans for an IPO came to an abrupt stop after the size of the offering had earlier been cut.
Luminant Worldwide
(LUMT:Nasdaq), an Internet consulting firm, lowered the number of shares it plans to offer, to 9 million from 12.6 million, and dimmed the price range to $10 to $11 from an earlier $11 to $13, said lead underwriter
Deutsche Banc Alex. Brown
.
Despite the nervousness,
NetScout Systems
(NTCT:Nasdaq) fared well in its first trading day, climbing 2 3/4, or 25%, to 13 3/4 after being priced at $11 a share by Deutsche Banc Alex. Brown
Ralston Purina
(RAL)
was off 1/4 to 28 1/16 on news that its board gave its stamp of approval for an 8 million-share buyback of its common stock, permitting the company to buy periodically at existing market prices. The company has almost completed another 8 million-share buyback ,which gained approval in February. PaineWebber gave Ralston a boost, raising it from an attractive to buy.
U.S. Aggregates
, a maker of crushed stone, hammered down its offering to 5 million shares from 6.94 million, and chiseled the price to $15 a share from the original $17 to $19, according to lead underwriter Alex. Brown.
Ixnet
(EXNT)
ended up flat at 15, after it decided to be brave and go ahead with its 6.5 million-share IPO. The offering, led by Donaldson Lufkin & Jenrette, priced below its expected range of $16 to $18 a share.
Analyst actions
BankBoston
(BKB)
edged up 1/8 to 47 7/16, after Merrill Lynch raised its rating to near-term accumulate from neutral.
Caterpillar crawled up 1 3/4 to 61 after Goldman Sachs said it raised the company to the recommended list from market perform.
Corning
(GLW) - Get Report
fell 3 3/4, or 5.8%, to 61 3/8 after
J.P. Morgan
started coverage with a buy rating and set a 12-month price target.
Dow Jones
(DJ)
rose 3/8 to 51 3/16 after
Morgan Stanley Dean Witter
upgraded it to outperform from neutral.
First Health
(FHCC)
added 1/4 to 23 7/16 after Credit Suisse First Boston started coverage with a buy rating and set a price target of 27.
Metro-Goldwyn Mayer
(MGM) - Get Report
lost 1 1/2 to 17 1/8 even though J.P. Morgan raised its rating to buy from long-term buy.
Reynolds Metals
(RLM) - Get Report
added 1 7/8 to 66 3/8 even though Deutsche Banc Alex. Brown cut its rating to market underperform from market perform.
Splitrock
(SPLT)
rose 7/16 to 9 13/16 after Credit Suisse First Boston initiated coverage with a buy rating and set a price target of 18.
Sun Microsystems
(SUNW) - Get Report
lost 1 11/16 to 70 1/16 after Credit Suisse First Boston reiterated its buy rating on the stock.
Texas Instruments
(TXN) - Get Report
lost 1 to 145 1/4 after yesterday's run-up, even though Deutsche Banc Alex. Brown raised its price target to 185 from 161.
24/7 Media
(TFSM)
jumped 2 3/16, or 8.2%, to 29 after Merrill Lynch raised it to near-term buy from accumulate.
Miscellany
Shares of
Iridium
(IRID)
got slammed 1 11/16, or 28.4%, to close at a new low of 4 1/4. Last night the troubled phone-service provider said it had defaulted on more than $1.5 billion in loans, $750 million of which was provided by
Motorola
(MOT)
.
C.E. Unterberg Towbin
analyst William Kidd repeated a sell rating for the shares, saying an Iridium bankruptcy was probably near. Motorola dropped 5, or 5.4%, to 87 3/4.
TheStreet.com
examined Iridium's mounting woes in a
July 14 story.
MidAmerican EnergyHoldings
(MEC) - Get Report
dropped 2 3/4 to 30 3/8 after it announced plans to slash its British subsidiary
Northern Electric's
distribution staff by 500 jobs. British energy regulator
OFGEM
proposed a draft report recommending net revenue cuts for Northern Electric's distribution business of 18% to 23%. Merrill Lynch downgraded the stock from accumulate to neutral but reiterated a long-term buy rating.
Xerox
(XRX) - Get Report
lost 2 1/8 to 44 1/2 after Kansas U.S. District Court Judge J. Thomas Martin said its printers could contain microchips technologically enhanced by Hewlett-Packard. Shares of H-P plummeted 6 5/16, or 5.8%, to 103 1/16.
Unicom
(UCM)
, parent of Chicago-area utility
Commonwealth Edison
, slumped 1 to 38 5/16 after a power outage shut down trading at some Chicago exchanges (see above).
Staff reporters
Brian Louis and
Erin Arvedlund and senior writer
Justin Lahart contributed to this story.
