Selling Pressure Bursts Through After Week's Flood of Gains
SAN FRANCISCO -- With Wall Street reportedly in disarray along with much of New York City today, the recent enthusiasm for stocks got washed out.
The bond market reversed after some jobless claims data showed more economic strength than expected; the price of the 30-year Treasury bond fell 22/32 to 103 4/32, its yield rising to 5.90%. That, plus a sense the most recent rally had become overdone, was more than enough to send major averages to modest losses.
The
Dow Jones Industrial Average
retreated from
yesterday's record-setting gain, falling 127.59, or 1.1%, to 11,198.45.
J.P. Morgan
(JPM)
was the biggest negative influence on the Dow, followed by
Chevron
(CHV)
and
Procter & Gamble
(PG)
. Procter & Gamble slid 2.3% after announcing a $265 million acquisition of
Recovery Engineering
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, which soared 103%.
The
fell 19.78, or 1.4%, to 1362.01 amid broad weakness in major energy names (despite a rise in crude prices), drugmakers, transports and tech bellwethers.
Reflecting a setback for the latter, the
Nasdaq Composite Index
shed 30.98, or 1.1%, to 2774.62. Weakness in
Intel
(INTC)
and
MCI WorldCom
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were the most notable drags on the Comp. The
Nasdaq 100
fell 1.8%.
The
Russell 2000
fell 1.84, or 0.4%, to 436.02 while
TheStreet.com Internet Sector
index shed 14.69, or 2.5%, to 576.45.
In
New York Stock Exchange
trading, 719 million shares were exchanged while declining stocks led advancers 1,784 to 1,163. In
Nasdaq Stock Market
action 1.1 billion shares traded while losers led 2,120 to 1,712. New 52-week lows bested new highs 50 to 36 on the Big Board but new highs led 112 to 59 in over-the-counter trading.
Noting the moderate volume -- at least on the NYSE -- most market players chalked up today's decline to the natural fallout from the market's recent advance. Furthermore, many traders took solace in the strong performance of new issues such as
bamboo.com
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, up 151.7%, and
Imagex.com
(IMGX)
, which rose 97%.
Big Deal
Aside from the weather and nightmarish commutes, the big topic of conversation among market players was
Cisco's
(CSCO)
$6.9 billion acquisition of
Cerent
. Cisco rose 0.5% to a new 52-week high of 68 15/16 in wake of the deal. Meanwhile,
Ciena
(CIEN)
gained 7.3% after
Banc of America Securities
upped its recommendation to buy from market performer. The firm cited Cisco's purchase of Cerent "highlights the value of Ciena's optical products."
Conversely, the transaction also raised concerns about Cisco's competitors, such as
Tellabs
(TLAB)
, which fell 7.7%.
To some skeptical market watchers the Cisco acquisition was another signal of the market's excesses.
"Cisco pays $6.9 billion for a company with 10 million in revenues? I guess it must be great technology," said Bill Meehan, chief market analyst at
Cantor Fitzgerald
. "A lot of the market appears nothing more than too much money chasing too few goods. People paper over how much of the float doesn't belong to shareholders -- it's overhung by huge option demands from employers."
Regarding the broader market, Meehan said "it looks like we're getting a little bit of a beating today after the move we had got stock and bond markets overbought."
The strategist foresees the Nasdaq and S&P eventually joining the Dow in record territory, believing bank stocks will "make a bit of a comeback" and defensive consumer stocks, such as pharmaceuticals will get a "kick" if bonds "stabilize. I suspect yesterday was not a top."
Still, Meehan remains "very skeptical" and "finds very little to rejoice about
given the Fed is tightening."
Noting the market rallied after the Fed's June tightening on the notion it was done for the year, Meehan believes more rate hikes could be in the offing. "I see little reason to believe a 50-basis-point tweak is going to all of sudden loosen the labor market and reverse the economic data that indicates the economy is still running red hot." The
NAPM
data due next Wednesday and/or the employment report next Friday could quickly turn sentiment regarding what the Fed will or will not do at it's October meeting, he said.
The strategist called the market "a mania," and compared it to the late 1920s without a touch of irony or sarcasm.
"I haven't been around since 1929 but from all the charts I've seen and all the market history I've read, I don't think we've had anything like this since the late 1920s," he said. "Since 1996 we have been closely mirroring the action the market exhibited from 1926 to 1929. Can it go higher? Certainly. But there's way to much risk in this market for my blood."
Asked about the fact he's been negative for several months, Meehan admitted that "since last November I've been wrong. But I'm not of the opinion the higher the prices go the better the opportunity for investors."
Among other indices, the
Dow Jones Transportation Average
fell 95.39, or 2.9%, to 3213.86; the
Dow Jones Utility Average
slid 3.47, or 1.1%, to 321.73; and the
American Stock Exchange Composite Index
fell 1.76, or 0.2%, to 784.12.
Elsewhere in North American equities, the
Toronto Stock Exchange 300
slid 63.43 to 7159.20 and the
Mexican Stock Exchange IPC Index
lost 29.91 to 5349.94.
Tuesday's Company Report
By
Tara Murphy
Staff Reporter
(
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.
)
Mergers, acquisitions and joint ventures
Shares of copper miners
Asarco
(AR)
and
Cyprus Amax
(CYM)
were on the upswing after they said yesterday that they would begin merger negotiations if once-spurned suitor
Phelps Dodge
(PD)
upped its all-stock offer for both companies to $3.3 billion from $2.5 billion. Cyprus and Asarco had initially turned down proposals from Phelps, saying they'd pursue their own merger. Cyprus increased 5/8 to 17 13/16, while Asarco advanced 1 5/16, or 6.1%, to 22 3/4. Phelps Dodge was off 15/16 to 56 11/16.
ADRs of
British Telecommunications
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slid 4 to 156 1/2 after the company said it bought
Yellow Book USA
for $665 million as part of an effort to build its online directory service. BT said it plans to integrate the company with its own yellow pages business.
Get out of the Kid's way. Exemplifying upside momentum, Cisco was up 5/16 to 68 15/16 after saying it spent a whopping $7.4 billion in stock for two privately held fiber-optic networking companies.
About $6.9 billion of Cisco stock will go to Petaluma, Calif.-based Cerent, with the other $501 million earmarked for
Monterey Networks
.
Enron
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fell 1 1/16 to 42 1/16 after discounting rumors that it was fueling a takeover bid for
TransCanada Pipelines
(TRP)
. Spokesperson Gary Foster reported in Reuters that the company "decided to comment because of the magnitude of the false rumor's apparent impact on our stock price."
Louisiana-Pacific
(LPX)
increased 1/16 to 19 9/16 after it said it would shut down a Annette, Alaska, lumber sawmill after forging a deal to sell operating assets to
Gateway Forest Products
. Sixty employees will be effected by the shutdown. The mill is operated by
Ketchikan Pulp
, a division of Louisiana-Pacific.
Recovery Engineering longs are sitting pretty today after Procter & Gamble set plans to buy the maker of household drinking water systems for $35.25 a share in cash. Recovery was halted in early trading, but investors quickly bid it up toward the acquisition price when it opened. Recovery soared 17 5/8, or 103%, to 34 3/4. Procter & Gamble slipped 2 3/8 to 100 1/4.
Rite Aid
(RAD)
declined 1 1/2, or 6.5, to 21 3/8 after it said it was in ongoing talks for potential corporate transactions that could be "material" if completed.
Vodafone AirTouch
(VOD)
jumped 7 15/16 to 205 15/16 after
The Times
of London reported that the company was in talks with
Bell Atlantic
(BEL)
to create a joint venture in the U.S. The newspaper wrote that analysts believe the deal could involve a merger of AirTouch's West Coast operations and Bell Atlantic's mobile phone unit, which covers the East Coast. The combined businesses could be worth more than $100 billion, according to the paper. Bell Atlantic hopped 1 7/16 to 65 5/16.
Earnings/revenue reports and previews
C & D Technologies
(CHP)
was unchanged at 32 1/4 after it reported second-quarter earnings of 54 cents a share, in line with the four-analyst estimate of 54 cents and up from the year-ago 47 cents.
Kellwood
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was up 5/16 to 21 11/16 after it posted first-quarter earnings of 34 cents a share, in line the four-analyst estimate of 34 cents, but up from the year-ago 32 cents.
Mavesa
(MAV)
was unchanged at 3 after it reported third-quarter earnings of 26 cents per ADR, beating both the single-analyst estimate of 12 cents and the year-ago 13 cents.
Nike
(NKE)
stumbled 1 7/8 to 51 3/8 after it said it anticipates capital expenditures to increase by $200 million this fiscal year to $584 million, up from the year-ago $384 million. In its annual report to shareholders, Nike attributed the raise to its acquisition of a Japanese distribution facility, which it initially planned to lease.
Offerings and stock actions
bamboo.com was lighting it up in its first day of trading, rocketing 10 5/8, or 151.7%, to 17 9/16 after being priced at $7 a share by lead underwriter
Prudential Securities
.
Concord EFS
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stumbled 1 13/16 to 36 11/16 after it declared a 3-for-2 stock split for shareholders of record Sept. 15, payable on Sept. 22.
Wells Financial
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was up 3/8 to 15 1/4 after it announced plans to initiate a share repurchasing program for 76,000 outstanding common shares. On June 30, the company had 1.6 million shares outstanding
WestAmerica
(WABC)
advanced 3/8 to 33 7/16 after the company announced plans to buy back up to 2.75 million shares, or 7.2% of its outstanding shares.
Analyst actions
Ciena popped 2 1/2, or 7.3%, to 36 3/4 after Banc of America upped its rating to buy from market performer.
Corning
(GLW)
increased 9/16 to 68 7/16 after
Goldman Sachs
rolled out coverage of the stock with a market outperform rating.
Georgia-Pacific
(GP)
hopped 2 1/2, or 6%, to 44 after Merrill Lynch raised it to near-term accumulate from near-term neutral and to long-term buy from long-term accumulate.
Halliburton
(HAL)
climbed 3/16 to 45 3/16 after Banc of America Securities raised it to buy from market performer. The brokerage also upped its rating on oil drilling service firm
Weatherford International
(WFT)
to strong buy from market performer. Weatherford jumped 2 1/8, or 6.4%, to 35.
Salomon Smith Barney
sliced its rating on
Lilly Industries
(LI)
to neutral from buy. Shares of Lilly were off 13/16 to 15 7/8.
Micron Technology
(MU)
was up 1/4 to 69 3/4 after Merrill raised it to near-term buy from near-term accumulate and upped its earnings estimate for the August 2000 fiscal year to $2.22 a share from $1.90.
Miscellany
American Home Products
(AHP)
fell 1 13/16 to 46 after it agreed to settle lawsuits with more than 36,000 women over the Norplant contraceptive device. The company didn't disclose the size of the settlements.
AMR
(AMR)
slid 3 3/16 to 61 9/16 one day after "Operation Ramp Rats," in which 58 employees of its
American Airlines
subsidiary were arrested on charges of smuggling drugs and weapons through Miami airport's baggage system.
It's not clear what drove the selloff in engineering and services construction firm
Dycom Industries
(DY)
. The company has claimed it has no idea. But there it went anyway, plummeting 6 3/16, or 14.1%, to 37 1/2. Dycom had traded as low as 33 earlier in the session.
A Heard on the Street column in today's
Wall Street Journal
questioning the high P/E ratios inspired by the Pokemon craze is taking its toll on several companies today:
Grand Toys International
(GRIN)
, skidded 6 5/16, or 27%, to 16 9/16;
Toymax International
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, fell 4 5/8, or 33.6%, to 8 15/16;
4 Kids Entertainment
(KIDE)
, sank 6 5/8, or 10.2%, to 58 1/8; and
Topps
undefined
, declined 1 1/4, or 11.6%, to 9 9/16. The TaskMaster, a.k.a.
Aaron Task
, wrote about
Pokemon last night.
Homestore.com
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and
Phone.com
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were seeing the ugly side of Net volatility today; Homestore.com lost 7 3/8, or 14.6%, to 43 1/2, while Phone.com plummeted 15 7/8, or 12.1%, to 115.
Knight Trimark
(NITE)
hopped 5 3/4, or 16.9%, to 40 after it said it plans on trading
PaineWebber
for Merrill Lynch, as its clearing and stock processing service provider. Knight Trimark, the largest buyer and seller of stocks on the Nasdaq stock exchange, said it would switch its business to Merrill in mid-October, allowing it to expand into overseas and options markets. Shares of Merrill Lynch hopped 1 1/8 to 79 5/8, while Paine Webber slid 3/4 to 42 3/16. The Street.com was the first to break the news on
Tuesday.
Schering Plough
(SGP)
declined 1 3/8 to 54 5/8 after it said that
European Union
regulators gave their stamp of approval for its drug,
Temodal
, to be used as a remedy for anaplastic astrocytoma, an aggressive form of brain cancer. The drug maker said that the approval allows the company to promote Temodal to patients who have a little success with traditional cancer treatments. Schering Plough already sells the drug in 15 European Union member states as a treatment for another form of brain cancer, glioblastoma multiforme.
