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midday09-02-99's MIDDAY UPDATE

September 2, 1999

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Market Data as of 9/2/99, 1:14 PM ET:

o Dow Jones Industrial Average: 10,781.16 down 156.72, -1.43%

o Nasdaq Composite Index: 2,729.04 down 21.76, -0.79%

o S&P 500: 1,314.53 down 16.54, -1.24%

o TSC Internet: 561.63 down 1.51, -0.27%

o Russell 2000: 427.59 down 3.40, -0.79%

o 30-Year Treasury: 99 28/32 down 22/32, yield 6.127%

In Today's Bulletin:

o Midday Musings: Hints of Higher Rates Send Equities Tumbling
o The Invisible Mouth: First, the Bad News on Productivity and Costs

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Midday Musings: Hints of Higher Rates Send Equities Tumbling


Tara Murphy

Staff Reporter

9/2/99 1:14 PM ET

The color red has long been associated with Valentine's Day. Red roses, balloons, cards and sweaters fill the Feb. 14 holiday. Unfortunately, when it comes to the stock market, red doesn't exactly give Wall Street the same sweet, warm feeling as getting chocolates from a loved one.

For the most part, Wall Street insiders blamed their red heartache on today's Fed comments, which alluded to another possible interest-rate hike. The market took the "I'm not through with you" message to heart. "The market is looking for something to be nervous about," said Tony Cecin, director of equity trading at

U.S. Bancorp Piper Jaffray

, referring to Federal Reserve Gov. Edward Kelly's comments.

By midday, the

Dow Jones Industrial Average

was melting down 148, or 1.4%, to 10,790, having traded as low as 10,732.71 just after 10 a.m. EDT. The

Nasdaq Composite Index

was a slightly cheerier shade of cherry, off 21, or 0.8%, to 2730, while Internet Sector

index was down a relatively modest 2, or 0.3%, to 561.

The broad

S&P 500

was down 16, or 1.2%, to 1315 and the small-cap

Russell 2000

was off 3, or 0.8%, to 428.

The rate worries naturally slammed the bond market as well, sending the benchmark 30-year Treasury down 24/32 to 99 26/32, its yield rising to 6.14%. (For more on the fixed-income market, see today's early

Bond Focus.)

Republic New York


was going up in smoke, falling 7 1/4, or 10.5%, to 62 1/8, after

The Wall Street Journal

reported that U.S. prosecutors and regulations were probing its securities division for allegedly bloating an investment fund's net asset value which could contain up to $1 billion from Japanese investors.


(S) - Get SentinelOne Inc. Class A Report


Best Buy

(BBY) - Get Best Buy Co. Inc. Report


Circuit City

(CC) - Get Chemours Company (The) Report

were certainly having a "sale." Shares of Best Buy slid 7, or 9.7%, to 64 15/16 after the retailer fell short of

Salomon Smith Barney's

same-store sales expectation of a 13% to 15% increase. Circuit City appeared to be trading down in sympathy, skidding to 3 1/4, or 7.7%, to 38 9/16. Sears, which warned it expects third-quarter earnings of 63 cents to 67 cents a share after posting soft same-store sales, was down 3 15/16, or 10.6%, to 33 1/4.

On the

New York Stock Exchange


Vodafone AirTouch

(VOD) - Get Vodafone Group Plc Report

was following the lead of its other British cronies in the

FTSE 100

, trading down 4 1/2 to 194.

Lehman Brothers

senior economist Ethan Harris said investors are getting ready for tomorrow's payroll numbers and people do not want to be long. "All indicators used to forecast payroll are pointing to a possible gain of 190,000 to 350,000, which is in a very high range," said Harris.

Nasdaq Stock Market

decliners were beating advancers 2,311 to 1,176 on 493 million shares, while on the Big Board, laggards were whipping leaders 2,144 to 686 on 401 million shares. New 52-week lows were leading new highs 84 to 18 on the NYSE, while on the Nasdaq, new lows were edging out new highs 51 to 42.

Thursday's Midday Watchlist

By Eileen Kinsella
Staff Reporter


Earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified


Sears got slapped 3 15/16, or 10.6%, to 33 1/4 after warning it expects to report third-quarter earnings of 63 to 67 cents a share, excluding items. The 15-analyst estimate called for Sears to earn 82 cents.

Donaldson Lufkin & Jenrette

cut Sears' rating to market perform from buy.

Mergers, acquisitions and joint ventures

Global Crossing


shed 1 5/16, or 5.5% to 22 3/4 after it sweetened its buyout offer for telephone firm


(FRO) - Get Frontline Ltd. Report

, compensating for the decline in its stock price that had wiped out much of the premium it had agreed to pay in its previous bid. Global Crossing is now offering Frontier about $10 billion in stock, or 2.05 shares for each Frontier share. Shares of Frontier slipped 1/8 to 42 1/8.


(NOK) - Get Nokia Corporation Sponsored American Depositary Shares Report

inched up 13/16 to 83 1/16 after saying it has purchased

Rooftop Communications

for $57 million in cash and stock.

Ryerson Tull


added 1/16 to 19 7/16 and

Bethlehem Steel


tacked on 1/8 to 7 7/8 after the two companies agreed to sell some of their steel products through start-up Internet firm



Fresh-pork processor

Smithfield Foods


lost 1 5/8 or 5.6%, to 27 7/16 after it agreed to buy privately held hog producer

Murphy Farms

for about $290 million in stock, plus the assumption of $170 million of debt.

Earnings/revenue reports and previews


(BA) - Get The Boeing Company Report

lost 7/16 to 44 9/16 after it set a pretax third-quarter charge of $225 million related to inventory on its F-15 fighter program. The action adds to an earlier $45 million charge for F-15 inventories.

Separately, members of Boeing's largest union voted overwhelmingly to approve a three-year contract, the union said.

Campbell Soup

(CPB) - Get Campbell Soup Company Report

slipped 1 5/16 to 42 15/16 after reporting fourth-quarter operating earnings of 28 cents a share, a penny shy of the 15-analyst estimate and down from the year-ago 40 cents.

Costco Wholesale

(COST) - Get Costco Wholesale Corporation Report

fell 1 3/4 to 72 1/16 after the company set a fourth-quarter after-tax charge of 13 cents a share to cover impaired assets and warehouse-closing costs. Excluding the provision, the company expects earnings to be in line with the current consensus earnings estimates of 76 cents a share for the fourth quarter and $2.34 a share for the full year.

Martin Marietta Materials

(MLM) - Get Martin Marietta Materials Inc. Report

lost 1 7/16 after the company warned third-quarter earnings would fall below expectations due to weaker construction demand and the impact of Hurricane Dennis. The nine-analyst estimate called for third-quarter earnings of $1.09 a share and $2.91 for the year. Martin Marietta said it expects annual earnings to be cut by as much as 10 cents to 15 cents a share.

Offerings and stock actions

Israeli Internet service provider


is planning to enter the U.S. securities markets with an IPO that would value the company at about $250 million, according to the newspaper



Analyst actions

Deutsche Banc Alex. Brown

lowered its earnings estimates on five major airlines citing weak revenue trends and higher fuel prices:

American Airlines

parent company


(AMR) - Get Alpha Metallurgical Resources Inc. Report


Delta Air Lines

(DAL) - Get Delta Air Lines Inc. Report


Southwest Airlines

(LUV) - Get Southwest Airlines Company Report


Northwest Airlines




(CAL) - Get Caleres Inc. Report


  • AMR lost 1 1/2 to 56 5/8 after its 2000 estimate got a wing clip to $5.70 from $6 a share.
  • Delta inched up 3/16 to 50 9/16 despite its 2000 estimate being lowered to $6.70 from $7.20 a share.
  • Southwest edged up 1/8 to 16 7/8 x after its 2000 estimate was snipped to $1.05 from $1.07 a share.
  • Northwest lost 3/4 to 28 3/16 after its 2000 estimate was slashed to $3.90 from $5.25 a share.
  • Continental dropped 1 to 38 5/8 after its 2000 estimate was nicked to $5.30 from $5.50.

(BOUT) - Get Innovator IBD(R) Breakout Opportunities ETF Report

added 3 1/8, or 9.7%, to 36 after Bear Stearns upgraded it to buy from attractive.


(AES) - Get The AES Corporation Report

lost 15/16 to 60 5/16 despite a hand from

Credit Suisse First Boston

which upped the stock to buy from hold, raised the price target to 85, and lifted the earnings estimate to $1.88 from $1.78 a share for 2000.

Lehman Brothers

also reiterated its buy rating on the stock.



netted 5 1/2, or 9.2%, to 65 17/32 after


initiated coverage of the stock with a buy rating.


(HAS) - Get Hasbro Inc. Report



(MAT) - Get Mattel Inc. Report

weren't having any fun despite U.S. Bancorp Piper Jaffray's positive coverage. Hasbro lost 7/16 to 24 1/8 after it received a strong buy and Mattel was down a notch to 21 1/4 after it received a buy.

Phillips Petroleum


lost 1 9/16 despite a

J.P. Morgan

upgrade to buy from market performer.

J.P. Morgan

(JPM) - Get JP Morgan Chase & Co. Report

shed 3 5/8 to 126 after


cut its rating to neutral from outperform.

Sunglass Hut


darkened 1 15/16, or 14.9%, to 11 1/4 after

Morgan Stanley Dean Witter

downgraded the stock to outperform from strong buy.

Sun International Hotels


was unchanged at 26 15/16 after Morgan Stanley upgraded it to strong buy from outperform.

Union Pacific

(UNP) - Get Union Pacific Corporation Report

lost 9/16 to 49 1/16 after J.P. Morgan raised it to buy from market perform.



(BUD) - Get Anheuser-Busch Inbev SA Sponsored ADR (Belgium) Report

lost 3/4 to 76 1/4 after saying it doesn't expect a recall of bottled


beer in 12 European countries to result in any material cost impact,




(IBM) - Get International Business Machines Corporation Report

fell 2 to 125 1/4 after it announced a series of initiatives and products as part of its push to become a major technology supplier to the communications industry.


(INTC) - Get Intel Corporation Report

added 3/8 to 83 3/4 after embracing a low-cost alternative to


(RMBS) - Get Rambus Inc. Report

-based memory chips. Shares of Rambus were rammed 7 1/4, or 7.8% to 88 1/8. Intel said at the

Intel Developers Forum

in Palm Springs, Calif., late yesterday it will support PC133 SDRAMs in the first half of next year.

wrote about the move

last night. For more on Intel, check out the


notebooks published last night.

Republic New York Securities, a unit of Republic New York, fell 7 1/4, or 10.5%, to 62 1/8 after it suspended its CEO and replaced the management of the futures division of the securities unit. The company has launched an investigation relating "to the accuracy of certain net asset valuations and confirmations provided" to a client of the unit.

HSBC Holdings

is planning to buy Republic.

The Invisible Mouth: First, the Bad News on Productivity and Costs


James Padinha

Economics Correspondent

9/2/99 12:56 PM ET

Beast of Burden

JACKSON HOLE, Wyo. -- Second-quarter

productivity and costs

numbers were released this morning.

The nonfarm productivity numbers shown in the table above are the popularly reported ones. A 4.5% year-on-year increase in output less a 1.7% year-on-year increase in hours worked yielded a 2.8% year-on-year increase in this measure of productivity during the second quarter. (Note that subtracting the increase in unit labor costs from the increase in compensation produces the same result; note also that not all calculations are precise due to rounding.)

The good news here -- good meaning things the


want to see in order to keep them from tightening further -- is that this measure of productivity growth accelerated between the first quarter and the second.

The bad news is that unit labor cost growth accelerated. And that compensation growth accelerated. And that the gap between compensation growth and productivity growth widened.

One good. Three bads.

A lopsided seesaw.

No bueno.

The productivity numbers for nonfinancial corporations shown in the table above are the ones

G. Love

is known to strongly prefer. A 5.5% year-on-year increase in output less a 1.6% year-on-year increase in hours worked yielded a 3.8% year-on-year increase in this measure of productivity during the second quarter.

There is no good news here.

Productivity growth decelerated between the first quarter and the second. Unit labor cost growth accelerated. Compensation growth accelerated. And the gap between compensation growth and productivity growth widened.

Four bads. No goods.

And yeahyeahyeah. Maybemaybemaybe. Maybe the second quarter will prove to be an aberration. Maybe productivity growth will continue to soar.

And maybe it won't.

You're a Pretty, Pretty, Pretty, Pretty, Pretty, Pretty Girl

The Fed has placed a huge burden squarely on the shoulders of the productivity and costs data. (See these

two recent

columns for quotes, and note that the compensation measures listed in the tables above, unlike the

average hourly earnings

series from the employment report and the

wages and salaries

portion of the Employment Cost Index, include

stock options). The numbers need to keep on showing the kinds of stellar performances they've been turning in.

They didn't do so between the first quarter and the second.

And the figures in the tables above are the ones the Feds will be looking at when they

meet 33 days from today.

Forget pre-emptive. This Fed has one truly sorry forecasting record -- and admits as much.

This Fed is reactive, not pre-emptive. It has been reduced to responding to what's happening here and now.

And right here, right now, one end of the teeter-totter is sticking up at a pretty stiff angle.

Side Dish

Best chef?



Isaac Hayes.

Yan Can Cook.

Biker Billy Cooks with Fire.

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