If this is anticlimax, bring on the denouement.
For the third time this week, the
Dow Jones Industrial Average
rallied above 10,000 on an intraday basis but failed to sustain five figures by day's end. The Dow rose as high as 10,085.31 early on but meandered through much of the day before falling sharply in the final hour of trading. The index closed down 94.07, or 0.9%, at 9903.55.
A combination of psychological factors; the triple-witching expiration of index options, index futures and stock options; and some good old-fashioned rumor-mongering conspired to send major market averages into negative territory.
Those who would cast aspersions on the market's rise were out in force today, proffering rumors of an earnings shortfall at
and the resignation of
. Neither proved correct (at least on this day), but they kept pressure on financial markets.
Treasury and White House officials flatly denied the Rubin scuttlebutt but the price of the 30-year Treasury bond fell 23/32 to 95 25/32, its yield rising to 5.54%.
"The only thing that's going on today is the bond market got clobbered," said Peter Canelo, U.S. investment strategist at
Morgan Stanley Dean Witter
. "The real reason why stocks are down has nothing to do with 10,000. Higher bond yields hurt the growth sectors of the market."
They also hurt financial stocks such as
, which slid 3.5%. The
Philadelphia Stock Exchange/KBW Bank Index
Debt traders said concerns about a heavy corporate bond calendar and a desire to book profits after recent gains also contributed to bond market losses. "Don't forget, we've just had bunch of economic reports which continue to show a strong economy," Canelo added. "The bond market seems to have its own 10,000, and it's 5.50%. It has trouble getting down there. These
Rubin rumors feed that perception."
Meanwhile, IBM, fell 5.1%, and was the biggest drag on the Dow. The company's fortunes also ignited one of the more entertaining and short (coincidence?) media battles of recent memory.
Around 2 p.m. EST,
Morgan Stanley Dean Witter
had cuts its price target on Big Blue and issued some cautious comments on the company. Shortly thereafter,
reported Morgan Stanley was denying the "rumor" it made comments about IBM. Bartiromo, clearly upset at having to take time away from her
vigil, promptly reiterated the Morgan call, calling it "fact," not rumor. Minutes later, Reuters posted a correction. Bartiromo 1 (at least),
Conspiracy buffs (and some drunkards) theorized Morgan's negativity on IBM was a plot to keep the Dow from hitting 10,000 and thus generate negative sentiment ahead of the pending IPO of its Wall Street rival
Traders said there were also rumors about a profit shortfall at
, which fell 2.3%. Concerns about Intel were "spilling into" PC makers, one trader said, citing
, down 3.5%,
, which lost 4.9%, and
, off 4.6%.
As the Dow faltered at the precipice of history, other proxies stumbled.
closed down 17.26, or 1.3%, at 1299.29 after rising as high as 1323.88 early on. The
Nasdaq Composite Index
declined 41.69, or 1.7%, to 2421.27 after climbing as high as 2480.63. The
shed 2.97, or 0.7%, to 396.58, while the
Dow Jones Transportation Average
lost 94.59, or 2.8%, to 3338.48.
An exception throughout was
TheStreet.com Internet Sector Index
, which rose 11.14, or 1.8%, to 628.60, its second straight record.
TheStreet.com E-Commerce Index
fell 2.01, or 1.7%, to 114.60.
New York Stock Exchange
trading, a solid 920.6 million shares traded while declining stocks bested advancers 1,806 to 1,165. In
Nasdaq Stock Market
activity 1.061 billion shares were exchanged while losers led 2,386 to 1,605. New 52-week lows led new highs 89 to 59 on the Big Board and by 107 to 77 in over-the-counter trading.
Not 1000 All Over Again
The Dow's inability to close above 10,000 has some market players (and financial papers) musing about 1000, a level the index first approached in 1966 but did not close above until 1972 and did not move consistently beyond for 10 years more.
"This is not the late '60s and early '70s," Canelo began his retort of the comparison. "The reason the bull market of the 1950s and early 1960s ran into trouble is because the underlying level of inflation rose
and we were in a primary bear market. Earnings were rising, that's why the market held up close to 1000, but multiples kept collapsing as bond yields kept rising. It was not a technical thing but a real fundamental change for the worse in the U.S. economy."
There are "virtually no similarities" in today's economy, the strategist said, noting "the dollar is surprisingly strong, commodities are not booming, wage inflation has actually moderated and bond yields are half the levels they were. Inflation expectations are simply de minimis."
The lone similarity between the periods is money supply, which is "booming," Canelo said. "I would say the risks are that the
shuts the party down the way they always do. Eventually they say money supply is growing too rapidly and they have to tighten."
Canelo said the Fed may tighten in the second half of the year but added that "even if they wanted to I'm not sure they could" because of ongoing instability in global economies, specifically Brazil and Japan.
"So you have, in fact, the perfect environment for the equity market," he said. "Easy money, lots of liquidity,
no inflationary excesses and the Fed on the fence. It's the prototypical environment for getting the stock market overvalued. No one is minding the store."
Based on inflation, the stock market is already overvalued by 15%, Canelo said. But he will not get concerned until it surpasses 20%, forecasting the Dow at 10,500 before midsummer and possibly at 11,000 sometime before year's end.
Those forecasts assume the interest-rate scenario remains static. "If yields start pushing back up, you tip-toe quietly out of the tent," he said.
Clearly, some Dow 10,000 tulips got trampled under foot today.
Among other indices, the
Dow Jones Utility Average
fell 2.22, or 0.7%, to 303.94; and the
American Stock Exchange Composite Index
fell 2.99, or 0.4%, to 711.87.
For the week, the Dow industrials rose 27.20, or 0.3%; the S&P 500 gained 4.70, or 0.4%; the Nasdaq Comp rose 58.40, or 2.5%; the Russell 2000 slid 1.80, or 0.5%; TheStreet.com Internet index gained 60.60, or 10.7%; TheStreet.com E-Commerce Index rose 9.13, or 8.6%; the Dow transports gained 70.97, or 2.2%; the Dow utilities shed 0.57, or 0.2%; and the Amex Composite dipped 9.34, or 1.3%.
Elsewhere in North American equities today, the
Toronto Stock Exchange 300
rose 12.36 to 6598.80 and the
Mexican Stock Exchange IPC Index
slumped 80.47, or 1.7%, to 4784.33. For the week, the TSE 300 rose 36.74, or 0.6%, and the IPC jumped 86.60, or 1.8%.
Friday's Company Report
Earnings estimates from First Call; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.
As noted above, IBM shaved off 9 1/16, or 5.1%, to 168 9/16 after Morgan Stanley Dean Witter dropped its price target on Big Blue to 195 from 210 a share. The firm maintained its outperform rating on the stock.
Cambridge Technology Partners
plummeted 9 5/8, or 46%, to an annual low of 11 3/8 after last night warning it expects to post first-quarter earnings of 12 cents to 14 cents a share due to slower sales. The 23-analyst forecast called for 24 cents vs. the year-ago 20 cents. The news spilled over to others in the sector:
lost 1/2 to 65;
lost 2 5/8, or 10.1%, to 23 1/2; and
Complete Business Solutions
lost 2 5/8, or 11.5%, to 20 1/8.
Italy's Gucci jumped 11, or 15.7%, to an all-time high of 81 on news France's
LVMH Moet Hennessy Louis Vuitton
made a bid for 100% of the company's stock. LVMH slipped 7/16 to 50 3/4.
would-be Gucci bureau chief, Maria Bartiromo, said sources tell her LVMH is offering around $100 a share.
agreed to buy a $2.9 billion stake in Gucci this morning. Under terms of the pact, Gucci would issue 39 million shares, equal to 40% of its outstanding capital, excluding shares issued to its employee trust. LVMH said its offer is contingent on either Gucci withdrawing from the deal with Pinault-Printemps-Redoute or the deal being invalidated by a court. Gucci is scheduled to hold a board meeting on the deals Sunday.
rocketed up 56 1/8, or 233.8%, to 80 1/8 in its IPO, priced last night at $24 a share by
. iVillage is the publisher of the women's Web site of the same name. Elsewhere in new issues,
soared 16 1/4, or 108.3%, to 31 1/4 after
priced its IPO at $15 a share last night. The company is a retail seller of discount tickets for domestic air travel.
Mergers, acquisitions and joint ventures
rung up 1 7/8 to 163 1/2 while
gave up 2 1/2 to 79 5/8 on word they have begun talks with
to purchase a 30% stake in the company. The talks were reported in the Japanese newspaper
Nihon Keizai Shimbun
Dollar Thrifty Automotive
tacked on 3/16 to 13 15/16 after its
Dollar Rent A Car
unit said it and
are canceling their reservation transfer deal, effective February 2000.
Earnings/revenue reports and previews
expanded 4 5/16, or 8.7%, to an annual high of 54 after last night recording first-quarter earnings of 60 cents a share, 8 cents above the nine-analyst forecast and ahead of the year-ago 38 cents. Today,
Hambrecht & Quist
pushed up the stock to buy from hold.
Children's Comprehensive Services
sliced off 4 9/16, or 41%, to an annual low of 6 5/8 after warning it expects third-quarter earnings of 24 cents to 26 cents a share due to delays and costs associated with program openings and changes in reimbursement methods in California. The three-analyst forecast called for 33 cents vs. the year-ago 25 cents.
added 1 5/16 to 68 5/8 after
The Wall Street Journal
reported that the company is launching a major restructuring that seeks to double the company's net income within five years through job cuts and other cost reductions.
declined 2 15/16 to 59 5/16 after posting first-quarter earnings of $1.57 a share, beating the 10-analyst estimate by 12 cents and moving up from the year-ago $1.44.
skidded 3/8, or 5.6%, to 6 5/16 after last night missing the 10-analyst estimate by 3 cents a share with a profit of 4 cents.
kicked up 6 3/4, or 12.3%, to an annual high of 61 3/4 after last night reporting third-quarter earnings of 44 cents a share, 6 cents higher than the 14-analyst estimate and ahead of the year-ago 25 cents. But the retailer said it's cautious about near-term growth and it posted revenue down 2% from the year-ago period. Today, Hambrecht & Quist raised the stock to buy from hold and set a 12-month price target of 75 a share.
BT Alex. Brown
upped it to buy from market perform.
tumbled 2 7/16, or 12.1%, to 17 3/4 after last night posting a fourth-quarter loss of 31 cents a share, including a 6-cent charge for costs associated with the selling and closing of 109 stores. The 13-analyst view called for a loss of 8 cents vs. the year-ago loss of 18 cents.
lowered 1 3/4, or 11.4%, to an all-time low of 13 5/8 after last night saying it expects to record first-quarter underwriting losses of about $22 million stemming from reinsurance provided by its
Risk Capital Reinsurance
unit. The company also said Bonnie Baccitto, chief underwriting officer at the unit, left the company.
slid 2 9/16, or 14.3%, to 15 3/8 after last night saying it sees first-quarter earnings of 15 cents to 17 cents a share, below the five-analyst prediction for a repeat of the year-ago 25 cents. The company blamed lower sales.
Offerings and stock actions
climbed 14, or 11.1%, to an all-time high of 141 after its shareholders approved a measure to boost the company's authorized common shares to 100 million, clearing the way for a previously reported 2-for-1 stock split.
flew 22 5/16, or 14.2%, to an all-time high of 179 3/4, also on enthusiasm for its upcoming stock split.
flourished 3, or 7.8%, to an all-time high of 41 1/2 after Morgan Stanley Dean Witter raised it outperform from neutral.
increased its 1999 earnings estimate for the company to $1.01 from 98 cents and its 2000 view to $1.30 from $1.20.
hopped up 6 1/2, or 8.4%, to an all-time high of 83 5/8 after Morgan Stanley Dean Witter started coverage with a strong buy and a price target of 98 a share.
excelled 2 9/16, or 17.8%, to 17 after
NationsBanc Montgomery Securities
issued a favorable report on the company, calling it "an attractive acquisition candidate." The report also said the stock is worth 30 a share.
GE rallied 2 to an all-time high of 112 after
lifted its price target for the stock to 130 from 110 a share.
shot up 4 3/16, or 32.4%, to 17 3/16 after BT Alex. Brown upgraded it to buy from market perform.
jumped 5/8, or 5.7%, to 11 9/16 after BT Alex. Brown raised it to buy from market perform.
expanded 5 1/4, or 27.6%, to 24 1/4 after
Salomon Smith Barney
lifted the stock to buy from hold and increased its price target to 30 a share.
lifted 1 to an all-time high of 32 1/2 even after
cut it to attractive from buy. The firm also set a 12-month price target of 35 a share.
surged 3/4, or 11.1%, to 7 1/2 after
Inside Wall Street column quoted Brian Hathaway of
Hathaway Investment Advisers
, which owns more than 230,000 shares of the stock, saying: "Digital is a very undervalued play on the future of video applications on computer networks."
The column also reports that Jeff Hershey of
Awad Asset Management
, which is part of
Raymond James Financial
, thinks a recent slump in
makes the company vulnerable to a takeover by a larger lensmaker such as
Johnson & Johnson
Bausch & Lomb
. Cooper rose 1 5/16, or 9.2%, to 15 5/8; JNJ rose 1 1/4 to 91 1/16; and Bausch & Lomb fell 1/8 to 66. Awad Asset Management owns 5% of Cooper's stock.
sloughed off 3/4 to 54 1/2 after announcing plans to cut 5,850 jobs, or 7% of its workforce, in a restructuring. The bank also reaffirmed its 1999 earnings estimate of $4 a share, which is in line with the 26-analyst estimate. The company expects the restructuring to produce pretax cost savings of about $400 million for 1999.