Market Update: What Looked Like Bush Victory Briefly Pushes Up Indices - TheStreet

Market Update: What Looked Like Bush Victory Briefly Pushes Up Indices

<LI>U.S. Supreme Court ruling puts ball back in Florida's high court.</LI><LI>New home sales higher than expected, but lower than last month's.</LI><LI>Xerox unhappy about Moody's credit rating downgrade.</LI>
Author:
Publish date:

News that the U.S. Supreme Court threw the case concerning the vote recount back to the Florida Supreme Court pushed the Dow and the Nasdaq up initially, but they were lately sliding off those gains.

At first, the news seemed to imply a George W. Bush victory, but upon closer examination, the statement didn't declare a winner in the presidential bid and wasn't indicating any immediate closure. The

Dow and

Nasdaq reacted accordingly.

Meanwhile, until he could analyze the U.S. Supreme Court's decision, a Leon County, Fla., Circuit Court judge put on hold his ruling that had been expected shortly on Al Gore's request for a recount of some ballots.

The indices had been playing leapfrog earlier, when the Dow shot up from its spot in the red shortly after the opening bell at about the same time the Comp -- which had started on the upside -- took a dive.

The market was digesting a ton of data, including merger announcements, company news and research notes mixed in with some optimistic economic indicators.

Over the weekend,

Quaker Oats

(OAT)

finally accepted a proposal, worth about $13 billion. The lucky suitor was

PepsiCo

(PEP) - Get Report

, if you haven't already heard. Investors seemed happy with the news and were lifting both parties on the news. It helped that Pepsi said the acquisition would increase its revenue growth rate by 7% annually.

Also attracting attention was

Cardinal Health's

(CAH) - Get Report

agreement to buy

Bindley Western

(BDY)

for about $1.6 billion in stock. Cardinal Health is a health care products distributor, while Bindley Western distributes pharmaceuticals. Cardinal Health was down 6.5%; Bindley Western was up 16.3%.

Meanwhile,

Qualcomm

(QCOM) - Get Report

was an investor favorite this morning after it signed a cross-licensing deal with

Texas Instruments

(TXN) - Get Report

and signed a pact of understanding with China's Ministry of Information Industry for deployment of its proprietary CDMA technology in China. The pact with China's government means it may finally do a deal with China's No. 2 wireless carrier

China Unicom

. Qualcomm said China Unicom could begin awarding contracts to build a 10 million subscriber network using the CDMA technology by 2001. Qualcomm was lately up 5.7%.

In an effort to revive an area of tech,

ABN-Amro

analyst Dave Kang this morning recommended buying such optical networkers as

Corning

(GLW) - Get Report

,

JDS Uniphase

(JDSU)

and

Digital Lightwave

(DIGL)

on "trading weakness." The good news seemed to be working, with JDS up 2.7%, Corning 3.4% higher, and Digital Lightwave lifting 2.3%. The optical networkers were some of the last tech "growth" stocks to fall.

And then there was

Xerox

(XRX) - Get Report

, which on Friday called a credit rating downgrade by

Moody's

"disappointing" in light of the company's turnaround plan.

Moody's cut the company's senior unsecured debt to junk status. In response, the Stamford, Conn., copier- and office-equipment maker said its turnaround plan -- which includes asset disposals, cost reductions and a refocusing of its core businesses -- will allow it to keep sufficient liquidity. According to a report, Xerox, which has been fighting off rumors of liquidity concerns in recent weeks, also handed out layoff notices this week to 200 workers in the Rochester, N.Y., area, on top of 350 administrative staff who were let go last month.

Meanwhile, as more data showing an economic slowdown accumulate, the likelihood grows of a change in the Fed's policy outlook on inflation when it next meets Dec. 19. This is important because a move away from a bias toward concerns about inflation is the first step toward an interest-rate cut. And lower rates help stimulate economic growth by letting consumers and companies borrow money more cheaply.

October

new home sales came in this morning at 928,000, a little higher than the expected 910,000, but down from the previous month's 946,000. The report measures the selling rate of new one-family houses and is important because, historically, changes in consumer spending patterns have appeared first in autos and housing.

Sector Watch

Defensive stocks were strong today. The

Philadelphia Stock Exchange Forest & Paper Products Index

was jumping 2.8%, the

Morgan Stanley Commodity Related Equity Index

was rising 2.96% and the

Morgan Stanley Cyclical Index

was moving up 2.1%.

Internet-related stocks were suffering, with

TheStreet.com Internet Sector

index, or DOT, falling 3.9%, and

TheStreet.com E-commerce Index

dropping 5.8%. Fears of slowing ad sales haven't abated, and there are those who say some Internet companies are still overpriced.

Back to top

Bonds/Economy

Treasuries surrendered some of the gains they made earlier following the Supreme Court's ruling improving Republican candidate

George W. Bush's

chances of prevailing over Democrat

Al Gore

in the presidential election.

The bond market views Bush as the less friendly of the two candidates because -- to a greater extent than Gore -- he would change fiscal policy in ways that would erode projected federal budget surpluses.

Also, news of the ruling boosted blue-chip stock prices, sapping demand for Treasuries. The 10-year note was lately up 5/32 to 101 28/32, yielding 5.497%.

Earlier, Treasuries had posted moderate gains on investor optimism that the

Fed will lower interest rates in the months ahead.

Today's

Wall Street Journal

reports that the Fed is "leaning heavily toward" changing its assessment of the economy at the

Federal Open Market Committee's next meeting on Dec. 19. Such a move is seen as the first step in a process that could eventually lead the Fed to lower interest rates.

In the

statement it releases after meetings, the FOMC opts for one of three assessments of the economy. Either the risk of rising inflation is paramount, or the risk of slowing growth is paramount, or the two risks are in balance. Since early 1999, the committee has declared inflation the greater risk. It will probably switch to a risks-balanced assessment on Dec. 19, the Journal story suggests.

In economic news,

new home sales

(

definition |

chart |

source

) fell 2.6% to 928,000 in October, somewhat less than they were expected to, from 953,000 in September. Economists polled by

Reuters

had forecast a larger drop, to 909,000 on average. Mortgage interest rates have fallen sharply since May, aiding the housing sector.

The

index of leading economic indicators

(

definition |

chart |

source

) fell 0.2% in October, in line with expectations. The index has fallen or been unchanged for seven months in a row, portending slower economic growth in the months ahead.

Back to top