Stocks Stable With Harsh Losses as Equity Players Eye Interest Rates
OK, remember everything we said yesterday about the upcoming
Federal Open Market Committee
meeting being a "total nonevent" and inflation jitters going
poof!
bye-bye? Forget it.
No matter how the major stock indices close today's session -- traders can't comment enough on this market's resiliency -- it's safe to say folks are deeply worried that the
Fed
will adopt a bias toward raising interest rates Tuesday after this morning's release of inflation-heralding
Consumer Price Index
figures.
The April CPI gained 0.7%, well above the 0.4% expected by economists. The core, which excludes the often volatile food and energy sectors, tacked on 0.4% -- above an expected 0.2% gain. Bonds weren't taking it well -- to put it mildly -- and a 6% yield on the long bond doesn't seem that far off. The 30-year Treasury was collapsing 2 12/32 to 90 18/32, lifting its yield to 5.93%. (For more on the fixed-income market, see today's early
Bond Focus.)
Stocks also were making a broad move southward, but salespeople are used to seeing 100-plus action these days.
"It feels like we've stabilized, and for the last half-hour buyers have felt comfortable coming back in," said Jim Herrick, managing director of trading at
Robert W. Baird
in Milwaukee, around 11 a.m. EDT. "They're getting their convictions back, their confidence back. ... There's no real nervousness -- I don't see it. It's calm. Hey, it's Friday in the summer -- you're gonna start losing some volume sometime soon."
Herrick noted the stock market's recent pliability, saying that "nothing surprises me anymore" and that it's possible the buy-on-the-dippers will make an afternoon appearance. The trader doesn't expect the Fed to make a move next week, he said, because "
Robert
Rubin
wouldn't have picked this time to resign if they were gonna make a move. They'll keep things quiet." But Herrick admitted that if the long-bond's yield hits the psychologically important 6%, "people are going to get nervous."
As for the CPI numbers, the trader said recent economic data provide more of a mixed picture than investors may realize.
Yesterday's friendly
Producer Price Index
data are "higher on the food chain" than today's CPI data, he said. "Plus, tobacco and oil had a lot to do with this. I think people will start to break down the numbers eventually."
The
Dow Jones Industrial Average
lately was falling 161, or 1.5%, to 10,946, above its intraday low of 10,908.16. Financials, not surprisingly, were getting whacked the hardest, with
American Express
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,
Citigroup
(C) - Get Citigroup Inc. Report
and
J.P. Morgan
(JPM) - Get JPMorgan Chase & Co. (JPM) Report
each down about 4%.
Those among the gilded 30 basking in green light were
Alcoa
,
Caterpillar
(CAT) - Get Caterpillar Inc. Report
,
Disney
(DIS) - Get Walt Disney Company Report
,
International Paper
(IP) - Get International Paper Company (IP) Report
,
Procter & Gamble
(PG) - Get Procter & Gamble Company Report
and
Union Carbide
(UK)
. Strength in such economically sensitive companies lends credence to the idea that the cyclical rally hasn't run its full course yet. But the
Morgan Stanley Cyclical Index
was off 0.1%.
The broader
S&P 500
was off 24, or 1.8%, to 1343, and the smallish-cap
Russell 2000
was off 7, or 1.5%, to 444.
Along with Herrick, Gary Kaltbaum, chief technical analyst at
J.W. Genesis Securities
in Boca Raton, Fla., also wasn't astonished that stocks weren't down more.
"The technicals of this
stock market still look good," he said. "It's the bond market that's completely broken down. It'll take a lot more than this to crack the stock market into a good correction. The average stock has been holding up very well. Enough stocks in enough sectors on heavy volume have been doing well that it'll take more than one day to crack 'em."
Techs weren't doing much better than blue-chips, and the
Nasdaq Composite Index
was losing 32, or 1.2%, to 2550, above its session low of 2529.96. Here,
MCI WorldCom
(WCOM)
and
Oracle
(ORCL) - Get Oracle Corporation Report
were among the few enjoying gains at midday.
TheStreet.com Internet Sector
index was down 10, or 1.5%, to 632.
Market internals were decidedly in the dumps. On the
New York Stock Exchange
, decliners were leading advancers 2,314 to 608 on 424 million shares. And the downs had the ups 2,323 to 1,360 on 535 million shares in
Nasdaq Stock Market
activity. New 52-week lows were leading new highs 56 to 14 on the NYSE, but highs were ahead of lows 29 to 22 on the Nasdaq.
Kaltbaum is calling for
Greenspan & Co.
to hoist rates a quarter-point Tuesday.
"Greenspan is behind the curve and needs to catch up," he said. "They need to show that the Fed is ahead of the game, that they're on top of things, not sitting idly by. Just a little tinkering to say, 'Hey, we're standing by, making sure everything's OK.' I mean, we're at 5.93% now
on the long-bond yield -- the next stop is 6.1%. The momentum has been put into place even to go to 6 1/2. And short rates are going higher. A lot of people that forgot about the word inflation have to start remembering again."
"But look," the strategist continued, "interest rates are going higher because the economy is very strong -- earnings are good, there's reflation around the world. That's not the worst thing in the world."
Friday's Midday Movers
By
Thomas Lepri
Staff Reporter
@Home
(ATHM) - Get Autohome, Inc. Sponsored ADR Class A Report
was swimming upstream amid a broad growth stock slump, lately up 2 13/16 to 152 1/16 after it last night set a pact with
Microsoft
(MSFT) - Get Microsoft Corporation (MSFT) Report
to speed up the deployment of broadband Internet services. @Home filed today with the
Securities and Exchange Commission
a secondary shelf registration for as much as $437 million in convertible subordinated debt, including about 2.8 million series A common shares issuable upon conversion of those securities.
TheStreet Recommends
But it was the inflation-unfriendly data coming out of the
Labor Department
that was really moving most stocks today. The agency's Consumer Price Index unleashed several cans of whupass on the financials. Dow component J.P. Morgan was down 5 7/16 to 141 5/16, giving back gains from yesterday's run-up on rumors that the bank may be on the takeover list for the likes of
Goldman Sachs
(GS) - Get Goldman Sachs Group, Inc. (GS) Report
and
Chase
(CMB)
; American Express was down 4 3.8 to 120 3/8;
Morgan Stanley Dean Witter
(MWD)
was down 6 5/16, or 5.8%, to 101 11/16; and
Merrill Lynch
(MER)
was off 4 3/4, or 5.5%, to 81 1/2.
In other news:
Adtran
(ADTN) - Get ADTRAN, Inc. Report
, which makes products for high-speed data transmission, was up 3 1/16, or 14.4%, to 24 5/16 after
Hambrecht & Quist
initiated coverage with a buy.
Networking gear maker
3Com
(COMS)
was up 2 5/16, or 8.7%, to 28 15/16 on rumors that it is a takeover target -- a rumor started in Gene Marcial's oft-mistaken "Inside Wall Street" column in
Business Week
. The magazine identified possible bidders as
Ericsson
(ERICY)
, lately off 1 to 27, and
Lucent
(LU)
, down 2 1/8 to 58 7/8.
Wrought-iron furniture manufacturer
Meadowcraft
(MWI)
was up 1 15/16, or 20.1%, to 11 9/16 after it agreed last night to a $53.2 million buyout by controlling shareholder and Chairman
Samuel Blount
. Blount, who already owns about 73% of Meadowcraft's common stock, is paying $10 a share in cash.
Shares of Web credit card processor
NextCard
(NXCD:Nasdaq) are soaring in their first day of trading, lately up 15, or 75%, to 35. NextCard was priced last night at $20 a share by lead underwriter
Donaldson Lufkin & Jenrette
, outside its revised pricing range of $17 to $19.
International telecom carrier
Pacific Gateway Exchange
(PGEX)
was up 4 7/16, or 12%, to 41 3/8 after it last night reported first-quarter earnings of 22 cents a share, a penny below the 11-analyst forecast and a repeat of the year-ago figure.
Investors aren't reacting well to life and health insurer
Provident American's
(PAMC)
Internet
Houdini
act. Provident was down 3 1/8, or 8.1%, to 35 1/4 after setting plans to merge itself into its majority-owned subsidiary, online health insurance marketer
HealthAxis.com
.
Silknet Software
(SILK) - Get Silk Road Medical, Inc. Report
was up 6 7/8, or 19%, to 40 3/8 two days after
priceline.com
(PCLN)
agreed to use its Silknet eCommerce and Silknet eService products on its Web site.
Seagram
(VO) - Get Vanguard Mid-Cap ETF Report
was sinking 3 1/8, or 5.3%, to 55 7/16 on news of some impending dilution. Seagram filed with the SEC to offer $2.3 billion in common stock.
Tut Systems
(TUTS)
was giving back yesterday's gains from
Lehman Brothers'
upgrading of the stock to buy from neutral. Tut was down 5 3/16, or 9.8%, to 47 3/4.
Retail store operator
Venator
(Z) - Get Zillow Group, Inc. Class C Report
was up 1 15/16, or 20.1%, to 11 9/16 after Morgan Stanley Dean Witter upgraded it to near-term buy from neutral.
Baby Bell
U S West
(USW)
is lifting a bit after
CNBC
reported that it has held merger talks with undersea fiber-optics firm
Global Crossing
(GBLX)
. U S West lately was up 5/16 to 60 5/16, while Global Crossing had dropped 1 5/16 to 58 7/8.
Earnings/revenue movers
Retailer
Nordstrom
(NOBE)
was down 3 3/16, or 9%, to 32 1/2 after it last night reported first-quarter earnings of 22 cents a share, missing the 20-analyst
First Call
forecast by 2 cents and above the year-ago 21 cents. The retailer also said same-store sales fell 2.6% from a year earlier.
Canadian auto parts company
Magna International
(MGA) - Get Magna International Inc. Report
was up 1 7/16 to 61 1/2 after reporting first quarter earnings of $1.22 a share, 6 cents over the 11-analyst call and down from last-year's $1.33.
Customer service software maker
PegaSystems
(PEGA) - Get Pegasystems Inc. Report
was up 2, or 40.5%, to 6 15/16 after it last night announced a deal to work on
America Online's
(AOL)
Member Services division. The deal was timely, as last night PegaSystems posted a first-quarter loss of 29 cents a share, wider than the four-analyst estimate of 13 cents and down from the restated penny earned a year ago.
