TheStreet.com's MIDDAY UPDATE
August 23, 1999
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Market Data as of 8/23/99, 1:02 PM ET:
o Dow Jones Industrial Average: 11,231.37 up 130.76, 1.18%
o Nasdaq Composite Index: 2,693.74 up 45.41, 1.71%
o S&P 500: 1,351.20 up 14.59, 1.09%
o TSC Internet: 571.04 up 13.87, 2.49%
o Russell 2000: 436.68 up 2.30, 0.53%
o 30-Year Treasury: 10 128/32 unchanged, yield 5.985%
In Today's Bulletin:
o Midday Musings: Fed Proves Powerless to Instill Further Worry as Stocks Rally
o SiliconStreet.com: Morgan Stanley Dean Witter Analyst Sees the Y2K Silver Lining
Also on TheStreet.com:
Wrong! Tactics and Strategies: No Accounting for Taste
You can't play these accounting-irregularity stories anywhere but from the short side, the trader has decided.
Commentary Features: A Clear Fed Action Still Lends Little Clarity to the Market
Tuesday's hike may be a sure thing, but divining the market's twists and turns is anything but.
Silicon Babylon: Siebert Financial Is the Little Internet Broker That Could
Or is it? The percentage of trades that are electronic seems to be overstated.
Networking: Networking IPO Sycamore Takes a Leaf From Cascade's Book
The Massachusetts start-up's management was practically imported from nearby Cascade, once a highflier in its own right.
Europe: Schroeder's Political Woes Could Spell Trouble for the Euro
Problems within the Social Democratic Party could push voters to other parties.
Dear Dagen: What Can I Do About My Company's Woeful 401(k) Options?
Absent any egregious violations, there's not much you can do except complain.
Midday Musings: Fed Proves Powerless to Instill Further Worry as Stocks Rally
8/23/99 1:05 PM ET
Alan raise rates, and I don't care.
You might think that on the day before the
Federal Open Market Committee
is expected to raise rates a quarter-point, the market would show a little reserve, spending its time speaking in hushed tones, fasting and meditating. But that's not the way things are done anymore, apparently. Stocks flew on the day before the
decision came out in June, and they're flying again today.
"It's very surprising to me to see this thing with this much power the day before," said Ned Collins, senior vice president of U.S. equities at
Daiwa Securities America
. "People are satisfied that they'll do 25
basis points and maybe that will be the last."
Dow Jones Industrial Average
was lately up 135, or 1.2%, to 11,235, paced by big gains in
was up 15, or 1.1%, to 1351.
Nasdaq Composite Index
was up 46, or 1.7%, to 2694.
TheStreet.com Internet Sector
index was up 14, or 2.5%, to 571. The small-cap
was up 2 to 437.
So much for fearing the Fed.
"I think it's just become totally irrelevant," said Peter Canelo, U.S. market strategist at
Morgan Stanley Dean Witter
, of tomorrow's meeting. "What really matters is if they'll do one in October or not."
Canelo suspects that the Fed will go again when it meets Oct. 5 -- something that the market has not really come to terms with yet. And even if it doesn't hike another quarter-point then, it's a near enough thing that the market will likely get jittery about it. "I don't think this interest-rate uncertainty will be resolved until late September or early October," he said, "so the market could get whacked again."
For the moment, though, it looks to Canelo as if the market has some more room to move on the upside. "We made a pretty good bottom, so I think the S&P is heading back to the upper end of its trading range -- there's another 70 points to go." And he thinks the Dow could hit new highs in the 11,400-to-11,500 range.
But where Canelo sees a good, tradable rally -- nothing to build positions on, but certainly something to make money on -- some see less.
"It doesn't have very good volume, it doesn't have very good breadth," said Dick Dickson, technical analyst at
Scott & Stringfellow
in Richmond, Va. "If I'm a trader, I'm not buying that kind of rally."
"Dickson was especially struck by Friday's low volume, when only 673.7 million shares traded on the
New York Stock Exchange
-- not what you'd expect during a double expiration. "I know it's August, I know things are slow, but that's really slow," he said.
True, internals today we're not quite so cheery as the major averages. On the
New York Stock Exchange
, advancers were beating decliners 1,584 to 1,210, with 364 million shares trading hands. There were 56 new 52-week highs and 35 new lows. On the
Nasdaq Stock Market
, advancers were topping decliners 2,013 to 1,586 on 501 million shares. There were 110 new highs and 38 new lows.
The bond market was showing a modestly positive tone, with the benchmark 30-year Treasury up 2/32 to 101 28/32, its yield at 5.99%. (For more on the fixed-income market, see today's early
Monday's Midday Watchlist
Mergers, acquisitions and joint ventures
Continuing the consolidation trend in the world of utilities,
Carolina Power & Light
was off 2 9/16, or 6.5%, to 36 7/16 after it agreed to buy
for about $5.3 billion in cash and stock. The deal values Florida Progress at $54 a share, a juicy premium over its Friday closing price of 44 5/8. Today,
cut Carolina Power & Light's rating to a near-term neutral from accumulate, while
upped its rating on Florida Progress to attractive from neutral. Florida Progress shares were up 2 1/4, or 5.5%, to 46 7/8.
was falling 3, or 5.7%, to 49 after it announced plans to buy
in a stock swap valued at $608.4 million. Centura expects the acquisition to be accretive to earnings per share in 2001. Triangle shares were jumping 4 5/8, or 28%, to 21 1/8.
was up 2 1/16 to 47 9/16 after it said it is acquiring
Transaction Network Services
in a deal it values at $720 million. Shares of Transaction Network Services were leaping 10, or 29.2%, to 44 1/4.
Peninsular & Oriental Steam Navigation
of Britain denied it received a buyout offer worth about $11 billion from
, the world's biggest cruise operator. P&O's comments rebutted a report in Britain's
Mail on Sunday
, which reported that P&O had rejected the bid. Shares of Carnival were up 1 1/16 to 48 1/16 at the midday.
was up 1/8 to 35 after it agreed to be bought by
Cooper Tire & Rubber
for $760 million. The company, a leading player in auto plastic and rubber manufacturing, said it would assume a one-time, after-tax $15.3 million charge, or about 95 cents a share, the first quarter of fiscal 2000. The transaction will be completed in the fourth quarter. Shares of Cooper Tire were down 1/8 to 20 3/8.
Suez Lyonnaise des Eaux
United Water Resources
, the second-largest water distributor in the U.S., for $35 a share. Shares of United Water Resources were up 2 3/8, or 7.7%, to 33 7/16.
was off 13/16 to 73 1/2 after it unveiled plans to buy
in a deal valued at $540 million. Forte shares were hopping 4 1/16, or 24.2%, to 20 7/8 on the news.
was up 2 11/16 to 83 7/8 after it said it is acquiring
for $21 a share in cash. OmniQuip was rocketing 7 1/2 to 20 5/8.
Earnings/revenue reports and previews
Stewart & Stevenson
was up 3/16 to 13 11/16 after it posted second quarter earnings of 11 cents a share, beating the three-analyst
estimate of 7 cents but down from the year-ago 30 cents.
Offerings and stock actions
has put IPO plans on hold due to volatile market conditions. The online travel company asked the
Securities and Exchange Commission
to withdraw $50 million offering from consideration and also notified Nasdaq of the cancellation. Travelscape planned to offer 5 million common shares, pricing at $10 to $12 each. On an estimated IPO price of $11 a share, the company hoped to rake in roughly $50 million for debt repayment and working capital.
American National Can
was up 3/8 to 16 3/4 after
Deutsche Banc Alex. Brown
started coverage with an initial buy rating.
Credit Suisse First Boston
initiated coverage of the stock with a strong buy rating and a price target of 33.
was up 7/16 to 7 11/16 after PaineWebber upgraded the stock to buy from attractive.
was down 5/16 to 36 15/16 after
lowered its rating on the stock to outperform from buy, citing a lower production growth outlook through 2000.
was down 5/8 to 21 11/16 despite Morgan Stanley Dean Witter giving the stock an initial outperform rating.
was up 1/16 to 6 1/8 after
U.S. Bancorp Piper Jaffray
started coverage at strong buy.
Cross Timbers Oil
was up 5/16 to 12 after Lehman Brothers upped its rating to buy from outperform.
was up 1 11/16 to 49 15/16 after
Donaldson Lufkin & Jenrette
started coverage at buy.
was unchanged at 55 9/16 after
Warburg Dillon Read
raised its rating to buy from hold.
was up 1 5/8, or 11.6%, to 15 11/16 after DLJ started coverage with an initial buy rating.
Warburg Dillon Read initiated coverage of
with a strong buy rating and a price target of 25. Lennox International was up 9/16 to 17 9/16.
was off 1 3/8 to 35 1/8 despite PaineWebber's upgrade to attractive from neutral.
was off 1, or 8.6% to 10 3/4 despite
BancBoston Robertson Stephens
analyst Keith Benjamin's initial buy rating. Merrill Lynch started coverage of the stock with a near-term accumulate and a long-term buy.
was leaping 4, or 6.5%, to 65 3/4 after U.S. Bancorp Piper Jaffray initiated coverage with a strong buy rating.
was up 3/8 to 47 3/16 after it set a multiyear pact valued at more than $400 million with
. The deal calls for
, AT&T's professional services division, to provide global networking management and standardize communications technology capabilities across AlliedSignal's infrastructure. Shares of AlliedSignal were up 1 7/8 to 64 13/16.
The Wall Street Journal
, citing people familiar with the matter, reported that law-enforcement authorities are probing whether
Bank of New York
was among a chain of banks that served as conduits for about $200 million that may have been diverted from loans to Russia made by the
International Monetary Fund
was up 1 3/8 after it said a group led by its
division had been awarded a $214 million contract for the Army's Battle Command Training Program at Fort Leavenworth, Kan. The U.S. Army Training & Doctrine Command, Mission Contracting Activity granted the contract, which includes one base year and four one-year options, potentially reaching $214 million. The training program prepares Army commanders and their staffs for the operational aspects of war using computer-based simulation.
Scientific Applications International
will also contribute to the training program.
analyst Cai von Rumohr upped his rating on Northrop Grumman to buy from neutral and set a 6-to-12-month price objective of 86.
SiliconStreet.com: Morgan Stanley Dean Witter Analyst Sees the Y2K Silver Lining
Silicon Valley Columnist
8/22/99 7:08 PM ETNear the end of my grandmother's long life, her frequent response to being asked how she felt was, "Better." This seems to be how a much younger optimist,
Morgan Stanley Dean Witter
computer hardware analyst Thomas Kraemer, feels about the Y2K problem. With caveats, it's getting better.
"The drama and the data don't fit," says Kraemer, who recently completed a survey of 75 big-company chief information officers on their Y2K worries. The result is a sharp reduction in the number of information-technology chiefs who are planning to freeze their tech spending in the second half of this year, already under way. In November, 31% forecasted a freeze. In June, the figure slipped to 6%. Moreover, nearly all the respondents said they are either done or nearly done with all testing for the dreaded millennium bug.
This has Kraemer -- whose job, after all, is to plug stocks, not bash them -- finding a "silver lining."
For one thing, he expects more CEOs (the "E" trumps the "I" in corporate hierarchy) becoming involved in IT spending because of enthusiasm for and anxiety over e-commerce applications. That is borne out by the opinion of 61% of CIOs that senior management views IT spending as "strategic," vs. 23% two years ago.
Secondly, Kraemer predicts that as Y2K fears slowly vanish, companies that did suffer from slowed orders will enjoy "easy compares" for all of 2000. In other words, robust quarterly results compared with year-earlier weakness looks that much stronger to Wall Street.
Kraemer, who hosted a conference call with clients Friday to discuss his findings, sees one last reason for cheer in the Y2K affair. CIOs who have convinced senior management to fork over more dollars for Y2K remediation will prove adept at keeping the cash after the crisis passes -- and spending it on more technology.
"I've never heard of a CIO who says, 'I didn't use up my budget, so here it is back,'" says Kraemer.
The findings benefit the small group of large technology companies Kraemer and his colleagues follow:
. Each makes core IT infrastructure and benefits directly from the e-commerce land grab.
Inevitably, there's a downside. A freeze in spending by even 6% of the surveyed companies would hit top tech companies. And Kraemer contends that all already trade as if there are no Y2K concerns.
"If I'm wrong
about the silver-lining scenario, I'll have to take down my estimates and ratings," he says. "They're priced for perfection."
Why I'm Wiping Some Egg Off My Face
column here last week gave a platform to Peter Jackson, CEO of business-to-business Internet services company
, so he could crow about how he and at least one other large shareholder didn't plan to sell shares when Intraware's so-called lockup expires on Thursday. To my chagrin, there's at least one reason Jackson isn't rushing to dump any shares: He already did.
What Jackson neglected to mention -- though Intraware repeatedly disclosed it in its initial public offering prospectus with the
Securities and Exchange Commission
-- is that he granted underwriters
Credit Suisse First Boston
the option to sell 200,000 of his shares after the IPO as part of an over-allotment, otherwise known as the greenshoe. The greenshoe isn't activated unless the offering is successful, meaning that the bankers see enough extra demand to satisfy additional share sales.
Jackson in fact sold those shares as part of a total 600,000-share over-allotment. Vice chairman Charles Davis granted the underwriters 50,000 shares for sale, and the company itself made available another 350,000 shares.
What Jackson did is somewhat unusual but not unheard of, according to investment bankers and venture capitalists familiar with such transactions. And it's certainly better than selling shares directly in the offering, a disconcerting move that makes it look as if the CEO rather than the company is benefiting from the IPO. What's more, Jackson paid a hefty 7% commission to the underwriters, prompting him to say in an email that "this was not a good economical deal for me."
Still, Jackson's protestations ring a little hollow. He says the investment bankers "asked" for the additional shares, implying that he reluctantly agreed to raise almost $3 million more than half a year before his employees or backers could realize any gains. This is the part that's suspect. In his negotiations with Credit Suisse First Boston, Jackson had all the power. As CEO of a fast-growing startup backed by
Kleiner Perkins Caufield & Byers
, among others, Jackson easily could have turned down such a request by suggesting that the company itself sell the shares.
Indeed, Mark Long, Intraware's vice president of strategic development, rationalizes that Jackson had "been working hard on this company for several years and got a little money off the table" by selling in the greenshoe. Long was a First Boston investment banker who joined Intraware immediately after the IPO.
Bottom line: Jackson sold a tiny portion of his holdings in a transaction openly disclosed to investors. His stake remains worth a potential $58 million at Friday's close of 17 1/16, about a buck over Intraware's February IPO price. But altruism only goes so far. Jackson says he'll wait to cash in until his company is valued on realistic metrics (like earnings, for instance), but even this self-described friend of long-term investors couldn't resist the quick gain unavailable to almost any other investor.
Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at
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