The Justice Department took to the field today, keeping its eye on a heavy-hitting long-distance merger and the future of a software giant. And with the Old Economy issues on the upside, and tech-heavy growth stocks in the red, it was clear where Wall Street spectators had placed their wagers. MCI WorldCom (WCOM) and Microsoft (MSFT) - Get Report may be in the big leagues, but are they big enough to play the law and win?
The question is a tough one and has left many insiders considering the profound effect that the
Fed and the Justice Department's actions may have on tech growth stocks. "You have two wet blankets: higher interest rates and a proactive Justice Department," said Brian Gilmartin, portfolio manager at
Trinity Asset Management
, referring to the Fed's cautionary comments on future rate increases and the Justice Department's recommendation to stop MCI WorldCom from acquiring
. "You have a Justice Department that's hell-bent on making life tough for growth companies."
Nasdaq Composite Index was falling 45, or 1.2%, to 3600.
In Nasdaq trading, MCI WorldCom shares were slipping 1 11/16, or 4%, to 40 5/16 on news that its merger plans with Sprint were being scrutinized by the government. Sprint was also lower, off 1 3/4, or 3%, to 56 1/4.
Microsoft was down 1 1/16, or 1.6%, to 66 5/8 on word that the government is less than thrilled with the software giant's proposed antitrust remedies.
Elsewhere in tech,
shares were rewarded with a gain of 5 13/32, or 9%, 62 13/16 after the company posted better than expected second-quarter earnings. The stock fell during the previous two sections on news that its would buy Spanish-based
, in a deal valued at $12.5 billion.
TheStreet.com Internet Sector
index, which includes Lycos, nevertheless was losing 16, or 1.7%, to 898, with
The semiconductor sector was also headed south, with the
Philadelphia Stock Exchange Semiconductor Index
were both lower.
In the fall of 1999, the Fed gave the green flag to buy tech after pumping cash into the economy. Even with interest rates rising, small-cap tech names were hot issues that were labeled the latest investment trend. But when liquidity pump ended, so did the trend, leading buyers back to some Old Economy names.
"Leadership has changed, whether it's oils or drugs," said Barry Lafer, CEO of
Lafer Equity Investors
, commenting on the shift out of tech into other sectors. "Financials
are acting well in the face of rising interest rates."
Dow Jones Industrial Average was holding onto a gain of 37, or 0.3%, to 10,806, with
its driving force. The stock was gaining ground after Merrill Lynch named its
unit to its Focus One list.
Big Board news,
National Discount Brokers
was in business after
signed a letter of intent to buy a 19.3% stake in the online broker.
The financials were faring well on the session, with the
American Stock Exchange Broker/Dealer Index
and Dow component
were both on the upside.
Philadelphia Stock Exchange Oil Service Index
was sinking 5.2% after posting gains in recent sessions.
, which was losing 4.2%, and
, falling almost 7%, were pressuring the sector.
But until all of the players get back in the game, its difficult to gauge what will happen next. "You have the backing up of rates and cash on the sidelines, volatile swing will be more pronounced," said Lafer, referring to how a lack of participation effects market activity.
S&P 500 was shedding 3, or 0.2%, to 1445, while the small-cap
Russell 2000 was losing 3, or 0.6%, to 497.
Breadth was negative on both the Nasdaq and NYSE, on moderate volume.
New York Stock Exchange:
1,228 advancers, 1,496 decliners, 478 million shares. 42 new 52-week highs, 52 new lows.
Nasdaq Stock Market:
1,535 advancers, 2,179 decliners, 726 million shares. 25 new highs, 66 new lows.
For a look at stocks in the midsession news, see Midday Stocks to Watch, published separately.