Market Pares Back and Gears Up for Its Date With the Fed
Hey, don't do us any favors,
Fed
, it's not like anybody here has been sitting around waiting for you to call. OK, maybe earlier this month some of us were. But during the last two days, many of us have gathered the courage to get out of our
Doritos
-crusted beds and rack in some profits. And today, we're busy -- that's right, busy -- returning some of those gains and thinking about economic numbers
you
didn't provide.
So you see, while you've been messing around with your boys in D.C., we've been moving on without you. But if you do finally give a ring with that answer -- say at 2:15 p.m. EDT today -- we just might answer the phone. Don't expect us to necessarily be healthy enough to have a normal reaction, though.
This kind of passive-aggressive mentality has been in the stock and bond markets ever since an exceptionally strong
Consumer Price Index
number got Wall Streeters worrying about a rate hike. Then the debating
ad nauseam
began: We need an uptick in interest rates to ward off inflation; inflation -- what inflation?; we need a series of upticks to ward off inflation; we need nothing of the sort!; the
Federal Open Market Committee
is our best friend; the Fed's policy-setting arm is the enemy; etc.
For all the escalating drama, if the FOMC increases the fed funds target rate to 5% from 4.75% this afternoon as anticipated, there may be few, if any, fireworks. There could be heavy selling on word of a rate hike, no matter how foretold. There could be very little reaction at all.
TheStreet Recommends
Along with the FOMC's
bias (will it continue to lean toward raising rates? switch to neutral?), the markets instead may pay close attention, as it has been, to economic data. Tomorrow we have the release of the June
Purchasing Managers' Index
; Friday, it's the June
employment report
.
Today, markets were given further evidence of an expanding economy with the June
Chicago Purchasing Managers' Index
, which hopped to 60.0 from 57.9 in May. The prices paid index jumped to 57.2 from 52.5.
Bonds were less than thrilled. The 30-year Treasury recently was down 9/32 to 88 19/32, pushing up its yield to 6.09%. (For more on the fixed-income market, see today's early
Bond Focus.)
"I think the mood today is one of complacency prior to the big news, which is a forgone conclusion," said Brian Belski, chief investment strategist at
George K. Baum
in Kansas City, Mo. "And I think we've already priced in 50
basis points."
Belski sees a 0.25-percentage-point hike today and another 0.25-percentage-point tightening before the year's end. He expects a small rally after the news but just as much because today is the last day of the second quarter than anything else. Tomorrow, with the Fed news out the way and it being the first day of July and the first day of a new quarter, Belski expects a more substantial rally. He also called tomorrow the "last real trading day of the week" before the three-day Fourth of July weekend.
"This is the stock market in July," Belski said. "People are gonna stick around for the Fed -- that's the big thing -- rebalance or make any adjustments tomorrow, maybe work a half-day Friday and then take off for wherever they're going."
The strategist is calling for a more "ambiguous" second-quarter earnings season than are many of his peers, saying companies can beat year-ago quarters easily but will have a tough time topping first-quarter figures. During earnings season, Belski expects bond yields to make a short-term top -- he says bonds will continue to suffer from inflation fears after today's FOMC news -- and stocks to trade "mixed to down." We won't get our summer rally, he said, until early fall.
The
Dow Jones Industrial Average
lately was down 32 to 10,783, off its intraday low of 10,731.45. Getting hit the hardest was a mixed bag of sector representatives, including
Boeing
(BA) - Get The Boeing Company Report
,
General Electric
(GE) - Get General Electric Company Report
,
Hewlett-Packard
undefined
and
Union Carbide
(UK)
.
On the upside among the gilded 30 were
Chevron
(CHV)
,
General Motors
(GM) - Get General Motors Company Report
and
IBM
(IBM) - Get International Business Machines Corporation Report
. The broader
S&P 500
was down 8 to 1344, but the small-cap
Russell 2000
was up 2 to 456.
With the
S&P SmallCap 600
up 0.4% today, Belski predicted small-cap stocks will outperform in the coming months with the help of a continued growth/value story influencing the market.
Yesterday's star, the tech-driven
Nasdaq Composite Index
, was down 6 to 2636, above its earlier low of 2621.06. The
Nasdaq 100
was losing 0.7%, with
Cisco
(CSCO) - Get Cisco Systems Inc. Report
one of the few keeping its head above water.
Internet names marched on with continued confidence, lifting
TheStreet.com Internet Sector
index up 8, or 1.3%, to 604.
Market internals were mixed on stronger volume than one might expect before news from the Fed. (Several traders called were too swamped to come to the phone.) On the
New York Stock Exchange
, decliners were leading advancers 1,472 to 1,333 on 409 million shares. But the ups had the downs 1,919 to 1,700 on 529 million shares in
Nasdaq Stock Market
activity. New 52-week highs were outpacing new lows 63 to 34 on the Big Board and 146 to 25 on the Nasdaq.
Wednesday's Midday Movers
By
Aaron L. Task
Senior Writer
News the
Justice Department
is launching an antitrust investigation of the undersea cable business of a consortium consisting of some of the biggest telecommunications companies in the world has cast a pall over the group.
MCI WorldCom
undefined
was down 5 1/4, or 5.6%, to 88 5/16;
Sprint
undefined
was down 1 7/8, or 3.4%, to 53 3/16;
AT&T
was off 3/4, or 1.5%, to 54 13/16; and
Level 3 Communications
(LVLT)
was down 1, or 1.5%, to 67 13/16.
At the other end of the spectrum (far-reaching pun intended), Net issues -- particularly of the e-commerce variety -- continued to garner huge interest among investors.
E-Loan
undefined
, which soared 164% in its public debut yesterday, was up 2 3/16, or 5.9%, to 39 1/2 after trading as high as 43 1/2.
nFront
(NFNT)
, which gained 33.8% yesterday, was up 2 5/16, or 17.3%, to 15 3/4, though off a morning high of 17 1/2 on its second day of trading. Meanwhile,
Digital Island
(ISLD)
, which rose a relatively modest 18.8% on its first day yesterday, was up 5 5/16, or 44.7%, to 17 5/16. Also,
Mail.com
undefined
, which went public June 18, was up 6, or 47.1%, to 18 13/16.
In a more established but somewhat similar vein,
National Discount Brokers
undefined
is building on the momentum generated yesterday by some favorable analyst commentary, lately up a further 8 9/16, or 18.8%, to 53 3/4. Finally,
Equitex
undefined
was up 2 3/8, or 21.4%, to 13 13/16 after announcing plans to introduce online mortgage lending, following its recent acquisition of privately held
First Bankers Mortgage Services
.
In other news:
Corning
(GLW) - Get Corning Incorporated Report
was up 4 9/16, or 7%, to 69 3/4 after
I-21 Future Communication
said it will use Corning fiber for 80% of the 8 million kilometers of optical fiber it plans to deploy in Europe's largest broadband network. I-21 is a unit of
Interoute Telecommunications
, a privately held, pan-European telecom group.
Covad Communications
(COVD)
was up 5 1/2, or 13.3%, to 46 3/4 after
Morgan Stanley Dean Witter
initiated coverage with a market outperformer recommendation.
Danka Business Systems
(DANKY)
was down 2 7/32, or 30.6%, to 5 1/32 on word its agreement to sell an outsourcing unit to
Schroeder Ventures
has been terminated.
Gainsco
(GNA)
was up 1 15/16, or 46.3%, to 6 1/8 on news an investor group including rainmaker
Richard Rainwater
has agreed to acquire a 23% stake in the property and casualty insurer for $31.6 million. The group --
Goff Moore Strategic Partners
-- also acquired warrants enabling it to increase its stake going forward.
i-Cube
undefined
was up 4 7/16, or 23.4%, to 23 7/16 thanks to a Morgan Stanley Dean Witter upgrade to strong buy from market outperformer.
Iridium World Communications
undefined
was up 31/32, or 9.8%, to 10 7/8, though down from an earlier high of 11 5/8, after its lenders agreed to extend its $800 million secured credit facility through Aug. 11. This is the third extension received by the satellite phone company since March. (
TheStreet.com's
Herb Greenberg wrote about the company last
Friday.)
Network Plus
undefined
was up 60.2% to 25 5/8 after
Goldman Sachs
priced the telephone service provider's IPO top-range at $16.
Newcourt Credit Group
(NCT)
was up 11/16, or 5.6%, to 12 7/8 after saying merger discussions with
CIT Group
(CIT) - Get CIT Group Inc. Report
, rumored to have been on the verge of collapse, are continuing. CIT was off a fraction.
Copper giant
Phelps Dodge
(PD) - Get PagerDuty Inc. Report
was up 2 7/16, or 4.1%, to 61 7/16 after announcing plans to reduce costs and improve operating performance by further curtailing higher-cost production, The moves will result in a nonrecurring aftertax charge of $61 million, or $1.05 a share, in the second quarter.
Pinnacle Holdings
undefined
was up 4 7/16, or 23.4%, to 23 3/8 after
last night announcing plans to acquire
Motorola's
(MOT)
North American antenna site business for $255 million in cash. Motorola was down 1.5%.
Private Bancorp
(PVTB)
was up 47.6% to 26 9/16 after
Everen Securities
priced the bank holding company's IPO at $18.
Tellabs
(TLAB)
was down 1 15/16, or 2.8%, to 67 1/2 on word it is acquiring privately held
NetCore Systems
for about $575 million in stock.
VaxGen
(VXGN)
was up 17.8% to 15 5/16 on its first day of trading.
Prudential Securities
priced the offering for the biotech concern at $13, the low end of the expected range.
Earnings/revenue movers
Franklin Electronic Publishers
(FEP) - Get FIRST TR EXCH ALPH Report
was down 1 1/17, or 22.4%, to 3 11/16 after posting a fourth-quarter loss of $2.73 a share vs. a loss of 11 cents a year ago. The company also said it expects a "substantial loss" in its fiscal first quarter.
