As all things stocks and bonds failed to get any better than in the dreadful morning, investors could be heard (listen real close) crooning their best
: If this is it, they'd like to know, please.
Stock market watchers have been waiting for telescopic valuations to matter and for this whole inflation thing to come to a head. They've been waiting for some sense to be made of ever-shifting sector rotation and, mostly, for a recess in blue-chip indices' ferocious appetite for new records.
While today's action did little to clear overall confusion about what's next, it verified that these nagging inflation fears aren't going anywhere -- at least until Tuesday. And even then, when the
Federal Open Market Committee
meets, things could get worse if the
adopts a bias toward raising interest rates, as many think it may following this morning's release of inflationary
Consumer Price Index
The April CPI gained 0.7%, well above the 0.4% expected by economists. The core, which excludes the often volatile food and energy sectors, tacked on 0.4% -- above an expected 0.2% gain. On the news, the yield on the 30-year Treasury shot as high as 5.94%, triggering anxiety about a 6% yield. The price on the long bond ended near its lows, tumbling 2 8/32 to 90 22/32 and lifting its yield to 5.92%.
Peter Canelo, U.S. investment strategist at
Morgan Stanley Dean Witter
, said today didn't tell him anything he didn't already know: that a small amount of inflation is creeping into the economy and that there is real strength in cyclical stocks and real weakness in high P/E consumers, techs and Nifty 50 names. That doesn't mean his long-term outlook is anything less than bullish -- "some of us have a market view beyond five weeks," he chuckled. He sees 1400 to 1425 on the S&P by midyear and 12,000 on the Dow by the end of the year.
Today's action "is just another indication that the high P/E sector and the growth sector have made a major top and cyclicals have made a major bottom," Canelo said. "This settles the argument. And if the Fed does more than take a direction Tuesday, that's it -- the debate is completely over. And you'll see even some die-hards
in growth sell."
Ringing true to Canelo's cause, the
Philadelphia Stock Exchange Forest & Paper Products Sector Index
climbed 2.4% while the
Morgan Stanley Consumer Index
dropped 1.2%. Although the
Morgan Stanley Cyclical Index
gave up 0.8%.
"This is a problem for growth. You can't explain away an uptick in inflation," said Canelo, noting that his firm shifted away from bonds to 15% bonds, 70% stocks and 15% cash in early March. Last month, the strategist added, Morgan moved out of some of the higher P/E names and into "basics, capital goods, transports and energy, and we were underweight tech and massively underweight utilities and consumers."
As for today's hawkish economic data, Canelo, who believes the Fed will move toward a tightening bias Tuesday, said: "A 6% yield is not the end of the world. It's just that 5-something sounded so much nicer. But it's what we expected. There were people who foolishly thought the American economy was slowing down -- I don't know why, but they did. And the global picture is just getting so much better with export orders rising the last three months. I mean,
? -- those numbers were good enough for me. And that's why we made the moves in early April."
The strategist also said he wasn't surprised by today's CPI numbers, which he thinks are slightly less important than
data. "The core PPI had been rising for a year -- it was 3.5 in December, and has fallen since then to 2.1," he said. "So following the logic that the PPI dictates the CPI, we knew the CPI had to start rising. And now the PPI is already coming down.
"We're not talking about 10% inflation. We're talking about the bottom in the rate of inflation, but that's the end of the world to bonds," he said, with a bit of a poke at bond bulls. "You know, you better start saying your prayers now."
Dow Jones Industrial Average
tanked 193.87, or 1.8%, to 10,913.32, above its intraday low of 10,870.08. On the inflation worries, financials
each fell about 3.5%.
Standing above the muck in a pleasant haze of green were
Procter & Gamble
lost 29.76, or 2.2%, to 1337.80, and the smallish-cap
skidded 7.71, or 1.7%, to 443.13.
As mentioned above, tech was not spared. In fact, targeted. The
Nasdaq Composite Index
plunged 54.14, or 2.1%, to 2527.86, not too far from its session low of 2519.53.
was one of the very few to enjoy a gain -- and only a fraction. And
spiked up 7.5% thanks to the usual Friday rumor mill, with some help from
TheStreet.com Internet Sector
index slid 12.17, or 1.9%, to 629.53.
Encouraging to some was that volume -- compared to recent sessions -- was fairly light. In
New York Stock Exchange
trading, 729.8 million shares were exchanged while decliners brutally led gainers 2,399 to 668. In
Nasdaq Stock Market
activity, 938.4 million shares were exchanged with decliners leading 2,480 to 1,560. New 52-week lows paced ahead of new highs 71 to 17 on the Big Board while new highs managed to overcome new lows by 46 to 36 in over-the-counter trading.
Bryan Piskorowski, market analyst at
, noted that the session's afternoon story was basically a mirror of morning action.
"This was a story that broke at 8:30 in the morning," he said. "It was a textbook-type day in the market. If you're the lead dog, your view never changes. Techs got clobbered, financials worked lower and we saw something of a bounce in cyclicals as money was left sloshing around. The news is we're back on Fed watch, and I don't think they'll raise rates but there's more pressure now to move to a bias. The press is overstating the risk of inflation -- there was nothing here symbolizing a brave new world. It's more of a return to a mean. People are hanging their head over one number. We've haven't seen a trend, just one number skewed by a couple of upticks in tobacco prices and airlines."
Like many otherwise optimistic Wall Streeters, Piskorowski said a troubled bond market is "the only thing that can undo our bull. But 7% is a real magic level here, not 6%. We haven't seen these rates in about a year, but it's a much broader
stock market now than a year ago. Earnings are substantially better, I think it's much healthier.
"And, you know," the trader went on, "1000 Dow points a month isn't really sustainable, it invites some 'Book 'em down.' And remember, the Fed cut rates three times last fall, and sometimes they do an extra one just in case. So God forbid we should give one back, right? This is more a return to normalcy. There's no way to have oil at $9 a barrel if you want the world economy to pick up. Now I've got more people to sell my product to -- I'd rather have that than be the only show in town."
Among other indices, the
Dow Jones Transportation Average
sagged 86.17, or 2.3%, to 3666.34; the
Dow Jones Utility Average
lost 4.41, or 1.4%, to 315.98; and the
American Stock Exchange Composite Index
dipped 11.58, or 1.5%, to 788.81.
For the week, the Dow industrials lost 118.27, or 1.1%; the S&P 500 dropped 7.20, or 0.5%; the Nasdaq Comp rose 55.58, or 2.3%; the Russell 2000 added 7.02, or 1.6%; TheStreet.com Internet index grew 15.38, or 2.5%; the Dow transports sank 76.49, or 2.0%; the Dow utilities gained 0.03; and the Amex Composite tacked on 1.52, or 0.2%.
Elsewhere in North American equities today, the
Toronto Stock Exchange 300
plummeted 170.65, or 2.4%, to 6886.50 and the
Mexican Stock Exchange IPC Index
plunged 109.66, or 1.8%, to 5913.20. For the week, the TSE 300 fell 72.36, or 1%, and the IPC dropped 51.17, or 0.9%.
Friday's Company Report
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.
A flock o' financials headed south after the
dropped a greater-than-expected CPI-bomb on the markets this morning. The carnage was highlighted by J.P. Morgan, down 5 13/16 to 140 15/16; American Express, which lost 4 to 120 3/4;
Morgan Stanley Dean Witter
, off 7 7/8, or 7.3%, to 100 1/8;
, which fell 4 15/16, or 5.9%, to 79 1/16; and
, down 5 1/2, or 6.4%, to 80 3/4.
The drug sector's generally supposed to be above niggling economic data. But it wasn't the CPI that knocked the wind out of
; it was the news that the company will have to go it alone on its
allergy drug, currently in Phase III clinical trials. The li'l pharma firm disclosed that big brother
Johnson & Johnson
won't be picking up its option to co-promote the drug because of its general lack of interest in the respiratory market. Unfazed, Sepracor announced its intention to fund the drug's trials and marketing on its own -- and saw its stock drop 13 5/8, or 14.8%, to 78 3/4.
Volpe Brown Whelan
downgraded Sepracor to buy from strong buy on the news.
Mergers, acquisitions and joint ventures
Networking gear maker 3Com gained 2, or 7.5%, to 28 9/16 on rumors that it is a takeover target. The company hasn't commented on the rumor, which was started by Gene Marcial's oft-mistaken Inside Wall Street column in
. Marcial identified possible bidders as
, down 1 1/8 to 26 7/8, and
, down 2 1/2 to 58 1/2.
Wrought-iron furniture manufacturer
flew up 2 11/16, or 38.39%, to 9 11/16 after it agreed last night to a $53.2 million buyout by controlling shareholder and Chairman Samuel Blount. Blount, who already owns about 73% of Meadowcraft's common stock, is paying $10 a share in cash.
U S West
lifted 2 1/4 to 62 1/4 after
reported that it has held merger talks with undersea fiber-optics firm
. Global Crossing rose 15/16 to 61 3/8.
Earnings/revenue reports and previews
Oil and gas company
rose 1/4, or 11.4%, to 2 1/2 after posting a first-quarter loss of 99 cents, considerably narrower than the four-analyst view of $1.28 but wider than last year's 72-cent loss.
closed down 15/16 to 59 1/16 after it posted third-quarter earnings of 3 cents a share, missing the seven-analyst estimate by a penny and down from last year's 41 cents. The company attributed its earnings decline to the costs of drug development and its own impending acquisition by
, a deal that still needs shareholder approval.
Industrial equipment maker
plummeted 9 15/16, or 29.3%, to 24 after it warned that its fiscal 1999 earnings won't make the estimated $2.31 a share. The company, which said it expects earnings of $2.05 to $2.15, cited slack European sales resulting from a strong dollar.
Canadian auto parts company
rose 1 11/16 to 61 1/4 after reporting first quarter earnings of $1.22 a share, 6 cents over the 11-analyst call and down from last-year's $1.33.
shed 3 1/8, or 8.8%, to 32 7/16 after it last night reported first-quarter earnings of 22 cents a share, missing the 20-analyst First Call forecast by 2 cents and above the year-ago 21 cents. The retailer also said same-store sales fell 2.6% from a year earlier. A bevy of analysts from
Donaldson Lufkin & Jenrette
Hambrecht & Quist
downgraded Nordstrom on the news.
International telecom carrier
Pacific Gateway Exchange
jumped 5 15/16, or 16.1%, to 42 7/8 after it last night reported first-quarter earnings of 22 cents a share, a penny below the 11-analyst forecast and a repeat of the year-ago figure.
Customer service software maker
was up 1 9/16, or 31.65%, to 6 1/2 after it last night announced a deal to work on
Member Services division. The deal was timely, as last night PegaSystems posted a first-quarter loss of 29 cents a share, wider than the four-analyst estimate of 13 cents and down from the restated penny earned a year ago.
, a maker of communications gear for the defense industry, lost 5/8, or 5.5%, to 10 7/8 despite recording first-quarter earnings of 23 cents a share, a penny above the four-analyst call and up from the year-ago 19 cents.
Offerings and stock actions
Three Net IPOs took of today in their first day of trading. Web e-tailer
(ALOY:Nasdaq) gained 5, or 33.3%, to 20 after being priced at 15 by lead underwriter
BancBoston Robertson Stephens
. Web credit card processor
(NXCD:Nasdaq) soared 15, or 75%, to 35; it was priced last night at 20 by lead underwriter DLJ, outside its revised pricing range of $17 to $19. And Internet consulting firm
(SCNT:Nasdaq) jumped 12 1/2, or 62.5%, to 32 5/8 after pricing at 20 by Morgan Stanley.
lost 4 9/16, or 7.8%, to 54 on news of some impending dilution; Seagram filed with the SEC today to offer $2.3 billion in common stock.
Three days after its IPO,
, publisher of this Web site, fell 5, or 9.8%, to 46.
, which makes products for high-speed data transmission, was up 3 7/8, or 18.24%, to 25 1/2 after Hambrecht & Quist initiated coverage with a buy.
backed off 2 1/2, or 23.7%, to 8 1/8 after
Credit Suisse First Boston
lowered it to hold from buy.
shed 1 3/16, or 7.1%, to 15 11/16 despite
upgrading it to strong buy from buy. Guitar Center announced late yesterday that it would it will acquire and merge with Internet retailer
in a $50 million deal.
Iridium World Communications
dumped 4, or 27.8%, to 10 7/16 as
C.E. Unterberg Towbin
downgraded it to hold from long-term buy. Last night Iridium said it had hired DLJ to advise it on restructuring its debt, prompting
Moody's Investors Service
to lower its senior debt rating to Caa3 from B3. It's been more than two weeks since
couldn't get his
cell phone to work at the St. Martin airport.
popped 1 15/16, or 5.2%, to 39 1/4 after
started it with a buy.
Earnings worries didn't plague
for a second straight day, as the stock gained 7/8 to 23 7/8 after Prudential raised it to strong buy from accumulate. The upgrade came as Oracle announced a deal to help discount druggist
upgrade its Web site.
shot up 1 7/8, or 12%, to 17 9/16 after Morgan Stanley upgraded it to strong buy from underperform.
Startec Global Communications
stepped down 7/8, or 8.7%%, to 9 1/4 after
lowered it to outperform from buy.
was giving back yesterday's gains from Lehman Brothers' upgrading of the stock to buy from neutral. Tut lost 3 15/16, or 7.4%, to 49.
Retail store operator
was up 1 7/16, or 14.9%, to 11 1/16 after Morgan Stanley Dean Witter upgraded it to near-term buy from neutral; Merrill Lynch also raised the stock to near-term buy from near-term neutral.
lost 11/16 to 31 7/8 after it said it will take a $69 million pre-tax charge to close its Sayrevile, N.J., manufacturing plant. The company said the charge should reduce second-quarter earnings by 48 cents a share.
Investors aren't buying into well to life and health insurer
act. Provident fell 4 1/4, or 11.1%, to 34 1/4 after setting plans to merge itself into its majority-owned subsidiary, online health insurance marketer
shot up 7 3/4, or 22.9%, to 41 9/16 two days after
agreed to use its Silknet eCommerce and Silknet eService products on its Web site.