May 15, 2000

Market Data as of 5/15/00, 1:24 PM ET:

o Dow Jones Industrial Average: 10,749.18 up 139.81, 1.32%

o Nasdaq Composite Index: 3,509.78 down 19.28, -0.55%

o S&P 500: 1,437.99 up 17.03, 1.20%

o TSC Internet: 849.48 up 5.92, 0.70%

o Russell 2000: 489.65 down 1.29, -0.26%

o 30-Year Treasury: 101 02/32 up 12/32, yield 6.172%

In Today's Bulletin:

o Midday Musings: Fed Anticipation Squelches Volume; Dow Pops, Nasdaq Flops
o Herb on TheStreet: Reality for Dell: Its Growth Is Slowing

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Midday Musings: Fed Anticipation Squelches Volume; Dow Pops, Nasdaq Flops


Justin Lahart

Associate Editor

5/15/00 1:00 PM ET The way it usually works on Wall Street, once everybody expects something to happen, once some event becomes a near-certainty, it turns into a nonevent. Makes sense: A lot of investing is about discounting the future, so once the future's known, who cares?

So given that there is a near-unanimous belief that the

Federal Open Market Committee tomorrow will raise the target

fed funds rate by a half-point, to 6.5%, you might think there'd be at least a little action. Not the case: The market is on track for its lightest volume day of the year.

"It's dead waiting for tomorrow," said Peter Blatchford, a trader at

Miller Tabak

. "Everything is just really quiet."

Though the Street is professing a high degree of certainty over what the

Fed will do on rates, tomorrow's inflation report is a different thing altogether. When the March

Consumer Price Index

came out last month, it came in hot, sending stocks to their lows of the month. Nobody expects a repeat when the April CPI comes out tomorrow morning, but there's a general sense that the report will color how much higher rates go.

Investors are also wondering what kind of statement will accompany the expected rate hike. Though it will probably leave the door open for more rate hikes, saying that risks are "weighted mainly toward conditions that may generate heightened inflation pressures," how harshly that will be qualified is unknown.

"They're going to go 50 basis points almost certainly," said Blatchford. "We're waiting more for the CPI and the statement than the actual rate hike."

A bit past midday, the

Dow Jones Industrial Average was up 112, or 1.1%, to 10,721, helped by some good moves in Old Economy companies. Standouts included

International Paper

(IP) - Get Report

, up 10.3% and contributing 21 points to the Dow, and

Philip Morris

(MO) - Get Report

, up 9.8% and contributing 14 points.


S&P 500 was up 15, or 1.1%, to 1436.

Technology issues, however, were not faring well. The

Nasdaq Composite Index was lately down 14, or 0.4%, to 3515. Dot-coms were bucking that trend, however: Internet Sector

index was up 7, or 0.8%, to 850.


Russell 2000 was off 1 to 490.

Despite uncertainty over the Fed and where the market will go over the next few months, the general sense on Wall Street is that the longer term bull market is intact. Just about everybody believes that the Fed will successfully steer the U.S. economy to another soft landing.

In a report today,

Lehman Brothers

chief investment strategist Jeffrey Applegate noted a number of factors -- good policy, strong productivity, increased IT spending, continued low inflation -- that he believes will propel this longest-ever bull market forward.

Meanwhile, the strategists at

Salomon Smith Barney

have taken a look at the performance of the U.S. market in election years, and they like what they see.

"There have only been two periods where the six-month return going into an election has been down," said Salomon strategist Jeff Warantz.

The Solly strategists have also noted that whenever the Nasdaq gets pummeled like it has been recently, it tends to rebound strongly -- one reason they still like selected tech companies.

"The real techs that are really contributing to the infrastructure, we believe these stocks are gong to be strong," said Warantz, though he went on to say that he doubts the "high-multiple, no-earnings, no-product stocks are coming back."

Market Internals

New York Stock Exchange:

1,506 advancers, 1,196 decliners, 439 million shares. 76 new 52-week highs, 34 new lows.

Nasdaq Stock Market:

1,512 advancers, 2,231 decliners, 596 million shares. 22 new highs, 87 new lows.

For a look at stocks in the midsession news, see Midday Stocks to Watch, published separately.

Herb on TheStreet: Reality for Dell: Its Growth Is Slowing


Herb Greenberg

Senior Columnist

5/15/00 6:30 AM ET

Here we are. It's Monday. And the

Hostile React-O-Meter is still spinning outta control in reaction to Friday's

Hotline -- the one that dinged


(DELL) - Get Report

(yet again) for not doing as well last quarter as Wall Street and the company made it appear.

Most of the hostility (and confusion) was directed to my breakdown of results. Dell posted first-quarter earnings of 19 cents a share. I had said that operating income (the amount the company gets from making PCs, servers and the like) was right around 16 cents for the quarter.

The rest, I noted, was from investment income (or "wampum," as longtime critic

Bill Fleckenstein

likes to call it). In other words, Dell only


the number.

But, according to email after email, I was wrong because

First Call/Thomson Financial

(that is, the analysts, as instructed by the company) had


one cent of investment income in its 16-cent estimate. Since Dell's


operating income was 16 cents, the emailers argued, the company actually beat the street by a penny,


investment and other income. Which apparently means

Dell's back on fire!

Why, they wondered, didn't I get it?!

Well, I didn't and don't and won't get it for two simple reasons:

First, the company didn't really beat estimates.


company can really claim that it "beat" estimates after estimates have been shaved, as was the case with Dell. (That's called lowering the bar and there's really


reason to be impressed by a one-time champion high jumper who barely clears a


bar.) Doesn't


remember that first-quarter estimates for Dell started the year at higher than 20 cents? Those estimates were lowered to 16 cents early in the year after Dell warned of weakness. I suppose you could argue that Dell really


estimates by as much as four or five cents.

Second, it really doesn't matter whether the 16 cents did or didn't include investment income. Operating income amounted to 16 cents. That's a measly 4% gain in operating gain on a 31% increase in sales. Expenses, meanwhile, were up 48%. (Not a pretty picture.) "No matter what anybody says," argues one short, "those are the numbers," and they're worse than those of a year ago -- not better.

Dell, however, sees it differently. The way it looks at its numbers (more to the point, the way it has instructed Wall Street to look at the numbers) is that "finance and other" income amounts to one penny of foreign exchange and two cents of investment income. (Thanks for telling us, guys. You would never have known that from simply reading the press release. Companies should be


to break out investment income on a separate line, especially now that analysts are including it in their models; time was, not very long ago -- like last year! -- they


included it.)

Those numbers, however, have nothing -- I repeat,


-- to do with operating income, so they shouldn't be included in year-over-year comparisons. To which a Dell spokesman responded (and I'm paraphrasing), "Since when do companies calculate EPS on operating income?" Well, they don't. But when a category like "financing and other" income shoots up to $125 million (or 3 cents per share) from $20 million (half a cent per share) a year earlier, suddenly what is and is not operating income becomes relevant.

Still, the spokesman responds: "The bottom line was 19 cents. Wall Street was expecting 16 cents," and the company had a penny more than anybody was expecting from investment income. That's what the company says. That's what the analysts say. Of course that's what the analysts say


that's what the company tells them to say. (Like you expect any different from the toe-the-line crowd?!)

Now here's what one short says: "What the trained monkeys are saying is that the operating number they expected was 15 cents, and since it was 16 cents we should be rejoicing. What I'm saying is, forget what expectations are or were, the reality is that you are now long a company at 54 times this year's expected earnings that is growing operating income at 4% year over year, with expenses growing half again as fast as revenue. This beat-the-expectations game is ultimately such a loser for these chimps. This Dell quarter was the old 'set the bar low enough so the old man can clear it,' and when he clears it, we'll cheer!"

Still a fine gent (will always be respected), but hard to believe he can't jump as high as he used to. (Otherwise known as the law of large numbers. The faster they grow, the quicker they slow.)

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

Copyright 2000,