The
Dow Jones Industrial Average
failed to escape the woes of its financial components today, while the
Nasdaq Composite Index
breezed through most of the session unscathed.
While key economic and inflation data proved hotter than expected, the Nasdaq managed to stay on course. For the Dow, however, the news was bad as it traded in the red for most of the session, although it curtailed its losses late in the day.
The Dow buckled under the weight of the
Employment Cost Index
and ended down 57 to 10,888.
The ECI showed pay and benefits for U.S. workers rose at their fastest pace in more than 10 years in the first quarter, while
gross domestic product
featured the strongest consumer spending in nearly nine years. The news sent the Nasdaq briefly into the red early, but it then headed north, ending up 144 to 3774.
While some sectors responded positively to the news, financial services acted cranky.
Citigroup
(C) - Get Report
and
General Electric
(GE) - Get Report
growled the loudest, taking a 16-point bite out of the Dow.
"If there was any group that would be hit hard by the ECI number, it would be the financials, and they are the main drag on the Dow," said Craig Columbus, an equity analyst with
Primark
.
It was easier for the Comp to shake off the news. "Everybody (except financials) shrugged off the ECI number largely because of the larger backdrop of the election year. The
Fed
has very little room to work. The second half of the election year the Fed moves to the sidelines because they don't want to be seen as interfering," Columbus added.
Frank LaSalla, chief executive of
BHF Securities
, said the financial sectors were overreacting, but he saw further instability in the next month.
"My sense is we're going to have this schizophrenic trading until the Fed meets on May 16," he said, referring to when the Federal Open Market Committee is expected to raise interest rates.
He said trading restraint will continue until the announcement and then he expects a slowdown for the second half of the year.
After initially trading on early economic data, the market turned its focus on the
AT&T Wireless
(AWE)
initial public offering. The stock traded 2 higher, or 7%, to 31 1/2. The modest gains were seen as a success in a market roiled by instability and interest rate uncertainty.
Aside from the clamor created by the largest U.S. IPO in history, investors were complacent and activity was relatively slow, according to David Baker, an equity trader at
Deutsche Bank
.
The
S&P 500
finished up 4 to 1465. The
Russell 2000
climbed 10 to 495.
The
TheStreet.com Internet Sector
index was up 53 to 857.
Market Internals
Breadth was mixed.
New York Stock Exchange:
1,308 advancers, 1,592 decliners, 1.1 billion shares. 46 new 52-week highs, 67 new lows.
Nasdaq Stock Market:
2,120 advancers, 1,952 decliners, 1.52 billion shares. 35 new highs, 122 new lows.
Most Active Stocks
Most active on the Big Board today (no big surprise here) were AT&T Wireless,
Nokia
(NOK) - Get Report
and
AT&T
(T) - Get Report
.
Most active on the Nasdaq were
MCI Worldcom
(WCOM)
, which reported better-than-expected earnings,
Cisco
(CSCO) - Get Report
and
Microsoft
(MSFT) - Get Report
.
Sector Watch
The Employment Cost Index and the GDP report couldn't keep the oil service, semiconductor and telco stocks from rallying. But brokers/dealers and bankers were seeing red.
The
Philadelphia Stock Exchange Oil Service Index
rose 5%.
Cooper Cameron
(CAM)
, which reported earnings that beat estimates, and
R&B Falcon
(FLC) - Get Report
were bulking up the sector.
The
Philadelphia Stock Exchange Semiconductor Index
was up 6.5%, boosted by nearly every component.
Xilinx
(XLNX) - Get Report
,
Applied Materials
(AMAT) - Get Report
and
Novellus Systems
(NVLS)
were its biggest boosters.
The
Nasdaq Telecommunications Index
was up 4%.
A big increase in the ECI caused a drop in
American Stock Exchange Broker/Dealer Index
, which was lately down 1%, with negative weight from components
Legg Mason
(LM) - Get Report
,
Lehman Brothers
(LEH)
,
Merrill Lynch
(MER)
and
Morgan Stanley Dean Witter
(MWD)
. The
Philadelphia Stock Exchange/KBW Bank Index
, which ended the day down yesterday, continued its downward slide. It was 3% lower.
The
S&P Retail Index
was lately off 2.5%, with most components in the red.
Bonds/Economy
The bond market was lower on today's economic news, with the short end of the curve taking the brunt of the weight. The Employment Cost Index rose 1.4%, greater than expected, and the
gross domestic product
report's inflation indicator, the implicit price deflator, came in stronger than expected as well. The report ups the ante on a potential 50-basis point hike in the fed funds target by the
Federal Reserve
at its May 16 meeting.
Lately the benchmark 10-year Treasury was off 23/32 to 101 28/32, yielding 6.238%, while the two-year note, which reacts most harshly to expected changes in Fed policy, was down 8/32 to 99 17/32, yielding 6.625%.
The ECI, an important measure of wage costs, rose 1.4% in the first quarter, bringing its year-over-year rate of increase to 4.3%, highest since the fourth quarter of 1991. GDP grew 5.4% in the first quarter, lower than the
Reuters
consensus estimate for 5.9% growth, but more importantly, the implicit price deflator, the report's inflation component, was 2.7%, way ahead of expectations for a 2.2% increase.
The May
fed funds futures
contract, traded on the
Chicago Board of Trade
is selling off, reflecting increased chances of a 50-point hike. They're currently factoring in a 57% chance of a rate hike, up from a 28% chance yesterday.
Just about all economists believe that the Fed will raise rates at least a quarter point from the current 6%, and today some are changing their forecasts for Fed policy in coming months. Fed Chairman
Alan Greenspan's
fears that the tightness in the labor market would eventually result in wage cost pressures seems to have come to fruition.
International
The large
European bourses
were down in thin trade at the end of the day after the U.S. inflation data. The Paris
CAC
dropped 136 to 6255, while Frankfurt's
Xetra Dax
was 139 lower to 7249. Across the channel, London's
FTSE
was down 89 to 6168.
The euro was trading down at $0.9105.
Asian markets
refocused on the U.S. overnight, as they edged down in thin cautious trade. Yesterday's renewed Nasdaq and Dow plunges hurt sentiment in Tokyo and Hong Kong and investors were waiting on U.S. GDP and ECI data to be released this morning. Hong Kong's
Hang Seng
index lost 34.52 to 15192.87. Hong Kong investors also continue to worry over reports issued Wednesday suggesting growing tensions between Taipei and Beijing.
In Tokyo, the
Nikkei
index slid 115.14 to 18019.17.
Meanwhile, the dollar inched up to around 106.30 yen in Tokyo trading as investors borrowed yen to buy dollars. Many believe that hedge funds are expecting significant interest rate hikes in the U.S. next month and want to take advantage of the interest rate gap between U.S. and Japanese government bonds before that happens, borrowing low-cost yen in order to invest dollars at a significantly higher interest rate. The greenback was lately sitting at 106.35 yen
