Market Update: Dow, Nasdaq Plow Into Green, Driven by Fed Hopes

<LI>Investors anticipate early announcement of interest rate cuts.</LI><LI>Aetna heals stock woes with job cuts.</LI>

Author:
Betsy Riley
Publish date:
Dec 18, 2000 10:54 AM EST

<LI>Investors anticipate early announcement of interest rate cuts.</LI><LI>Aetna heals stock woes with job cuts.</LI>

The

Dow Jones Industrial Average was reclaiming much of the 240 points it lost in Friday's session. The

Nasdaq Composite Index was also on the rebound, but being a bit volatile this morning.

The

S&P 500 was making its way back from hitting its year closing low Friday.

The market was buoyed by a story in

The Wall Street Journal

, which said the

Federal Reserve might get really aggressive and announce a interest rate cut tomorrow instead of waiting until January. The market, however, is pricing in only 46% odds of a rate cut tomorrow, up from 41% Friday. Word is information in the article was put out before the open in an effort to soften the blow of whatever announcement comes out of the

Federal Open Market Committee meeting tomorrow.

Ever since

Big Al gave a

speech to the

America's Community Bankers Conference

on Dec. 5 -- in which he acknowledged that the past six interest rate hikes had worked and resulted in a visibly slowing economy -- the belief has been widespread that the Fed would say the risk of inflation doesn't exceed that of recession.

If Greenspan and his wild and crazy crew decide to adopt an easing stance, it would most likely lead to an interest rate cut next month.

The Dow was being pushed up by financials (read: interest-rate sensitive stocks)

J.P. Morgan

(JPM) - Get Free Report

and

Citigroup

Boeing

(BA) - Get Free Report

was a big blue-chip contributor after it announced a $365 million deal with Chile's leading airline

LanChile

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. Lately, the Dow had only four detractors.

Elsewhere on the

Big Board,

Aetna

(AET)

, the large health insurer that has been going through a series of changes since it bought

U.S. Healthcare

several years ago, this morning announced moves to get its house in order. Lately, the stock was up $5.75 to 38.75.

Aetna said it would cut 5,000 jobs and take after-tax charges of about $100 million in the fourth quarter to pay for the restructuring. The Hartford, Conn.-based insurer also said it would take an after-tax charge of $235 million in the fourth quarter related to good will in connection with Medicare markets. Other after-tax charges for the fourth quarter include $35 million for the recent spinoff of its Aetna healthcare unit and $195 million for the sale of Aetna Financial Services and Aetna International. The sale of those two units was completed last week.

Also in healthcare,

Tenet

(THC) - Get Free Report

was upgraded to strong buy from buy at

Credit Suisse First Boston

on signs of a strong quarter. The firm also raised

Lincare Holdings'

(LNCR)

2001 EPS to $2.67 a share from $2.57 and its 12-month price target to $70 from $47 after Congress approved legislation restoring $35 billion in Medicare and Medicaid funding over five years to the healthcare industry. Both stocks were higher in recent trading.

After the closing bell Friday,

Boston Scientific

(BSX) - Get Free Report

was ordered to pay $324 million to blue-chip drug company

Johnson & Johnson

(JNJ) - Get Free Report

in a patent infringement case concerning a stent, which is a tube used to keep open weakened heart arteries. J&J on Friday also announced that it expects its full-year earnings to meet estimates. Strangely, Boston Scientific was up a bit, while J&J was sliding.

Media meets market research in a newly announced $2.3 billion merger between Dutch media publisher

VNU

and market research firm

ACNielsen

(ART)

. VNU, which publishes

Billboard

magazine and the

Hollywood Reporter

, will pay $36.75 per Nielsen share. The deal is expected to close in the first quarter of 2001. If the deal goes through, ACNielsen will be reunited with

Nielsen Media Research

, which does the television ratings and was bought by VNU last year for $2.5 billion. ACNielsen was bouncing $11.25 to $35.88.

In breaking merger news, luxury goods company

LVMH Moet Hennessy

undefined

submitted a bid for high-end clothing maker

Donna Karan

(DK) - Get Free Report

. Donna Karan shot up 73%, or $3.56, to $8.44, while LVMH was 31 cents higher to $13.25.

There were more earnings warnings attracting attention today -- big surprise.

Online toy retailer

eToys

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was the latest Internet company to warn that it's having problems. It was plummeting 75 cents to 31 cents. The company said third-quarter earnings would fall well short of expectations and that it was looking into a merger, asset sale or other type of restructuring in an effort to stay afloat. And as if eToys needed any more pain, its rating and loss estimates were placed on review at

Robertson Stephens

Nasdaq components were getting whacked by

Goldman Sachs

, which cut a slew of Internet companies, including eToys and online ad company

DoubleClick

undefined

. The firm removed e-business softwaremakers

BroadVision

(BVSN) - Get Free Report

and

Blue Martini

(BLUE) - Get Free Report

from its recommended list because of concerns about potential 2001 budget cuts. DoubleClick still got a rally on, but BroadVision and Blue Martini were falling.

Automaker

DaimlerChrysler

(DCX)

was down on fears of a profit warning from its ever-troubled Chrysler unit, which on Friday announced temporary plant shutdowns. The company has recently announced a management shake-up that is part of efforts to give the company's earnings traction.

Cognex

(CGNX) - Get Free Report

, which makes machine vision technology, said it's expecting first-quarter earnings to miss estimates, citing decreased bookings from customers in the semiconductor and electronics industries. It was off 56 cents to $18.56.

And

Time Warner

(TWX)

this morning said it is reducing its growth expectations for earnings before interest, taxes and amortization to 11% for full-year 2000, from an earlier projection of 12% to 13%. The media giant in part blamed weakness in advertising on its cable network and weaker than anticipated music sales. Time Warner's merger with

America Online

(AOL)

got a boost last week when the

Federal Trade Commission

gave its approval to the deal. Time Warner was down $4.42 to $68.30 and AOL was sliding $3.45 to $45.62.