MARKET WRAP - 2 / Ending Friday 11/27/98
Nasdaq index tops its July record as bonds advance
NEW YORK -- The Nasdaq Composite Index rallied to its first record since July in an abbreviated session on Friday, as Internet stocks soared. Bonds and the dollar climbed.
The Dow Jones Industrial Average rose 18.80, or 0.2%, to 9,333.08, finishing short of Monday's record close of 9,374.27. Trading wrapped up early on the New York Stock Exchange, at 1 p.m. EST, following Thursday's Thanksgiving Day holiday.
The technology-laden Nasdaq Composite Index jumped 31.23, or 1.57%, to 2,016.44, rising above the 2,000 milestone for the first time since July 20, when the index closed at a record 2,014.25.
The Standard & Poor's 500-stock index rose 5.42 to 1,192.33, eclipsing Monday's record close of 1,188.21. The New York Stock Exchange Composite Index climbed 1.96 to 583.
The industrials now are up 18% for the year. If the blue-chip average rises 20% or more in 1998, it would mark an unprecedented fourth consecutive year of such gains, and be particularly remarkable in light of the turbulence that visited the market this summer. The industrials dropped nearly 20% from their high at worst during the market's late-summer swoon.
"We're in a post Thanksgiving Day market and there's plenty (for investors) to be thankful for," said Alan Ackerman, senior vice president of Fahnestock & Co. "Consumer confidence is considerably better than it was some months ago when the markets were beaten down."
Oil stocks helped lead the market higher on talk of further consolidation in the industry after Exxon (XON) and Mobil (MOB) confirmed they are talking about a possible merger that would create the world's largest oil company. After jumping Wednesday amid speculation that a takeover bid might be imminent, shares of Mobil rallied 7 5/8 to 86 on Friday. Exxon's shares rose 1 11/16 to 74 3/8. The merger talks cap a week that has been rife with multibillion dollar merger and acquisition deals.
Meanwhile, the retail sector was also in focus on the day after Thanksgiving, traditionally the busiest shopping day of the year. Internet retailers, which have surged in recent weeks amid anticipation that consumers will be doing much of their holiday shopping online, again posted stellar gains.
"There's a tug of war going on right now between those who'll be shopping online and those who will be standing on line at the malls," said Mr. Ackerman. "With 20% of households now on the Web, many believe it's likely that numbers for e-commerce players will be impressive."
Volume was typically thin for a post-holiday session, with just 256.9 million shares exchanged on the Big Board as trading came to an early close at 1 p.m. EST.
Activity was also extremely light in the bond market, which exaggerated price movements. Thursday's Thanksgiving holiday and shortened trading sessions Wednesday and Friday encouraged many market participants to take a long holiday weekend.
Traders were looking ahead optimistically to next week's batch of economic indicators, particularly the purchasing managers' index and the monthly nonfarm payroll numbers, for further confirmation that inflation remains no threat. High inflation eats into the returns that bondholders receive, undermining the value of their investment.
Technology stocks
Friday brought more strong gains, led by the seemingly helium-fueled Books-A-Million (BAMM), which followed Wednesday's 196% leap with a gain of 193%, or 24 15/16, to 38 15/16. The American Stock Exchange Internet index jumped 4% to 535.71.
Merger partners CDNow (CDNW) and N2K (NTKI) continued to show strength, as CDNow climbed 9 7/8, or 58%, to 26 7/8 and N2K shot up 6 11/16, or 50%, to 20 1/16. Onsale rose 37 5/8, or 63%, to 97 5/8; Egghead.com rose 10 3/16, or 48%, to 31 5/8; Preview Travel (PTVL)rose 6 15/16, or 41%, to 24; Digital River (DRIV)advanced 8 3/8, or 39%, to 30 1/8; and electronic-commerce software maker Open Market (OMKT) rose 8 5/16, or 67%, to 20 3/4. Among the e-commerce giants, Amazon rose 6 5/16 to 216 5/8, while eBay (EBAY) climbed 4 9/16 to 201 3/8. One of the day's few losers was Cyberian Outpost, which skidded 6 3/8, or 16%, to 33 1/8. All of those stocks change hands on the Nasdaq Stock Market.
Earthlink (ELNK) soared 19 1/2, or 37%, to 71 7/8 on the Nasdaq Stock Market. The Pasadena, Calif., Internet service provider was highlighted in the "Inside Wall Street" column in the Dec. 7 issue of Business Week. The column mentioned that Sprint (FON) owns 29% of Earthlink and that some investors expect Sprint to buy the rest. In addition, Robin West, of the New Mexico State Investment Council, was cited as valuing Earthlink at $4.8 billion, or $120 a share, based on a projected subscriber count of 4 million in two years.
Other Internet stocks also surged. On Nasdaq, shares of MindSpring (MSPG) jumped 14, or 24%, to 72 1/8 while Excite (XCIT) rose 4 to 53 1/8 and Yahoo (YHOO) advanced 7 1/16 to 216 15/16. Among small stocks, shares of Internet retailers rocketed again.
Shares of America Online (AOL) improved 2 5/8 to 94 7/8, while shares of Netscape Communications (NSCP), its prospective merger partner, inched up 1/2 to 39 15/16 on Nasdaq.
Multimedia Games, a Tulsa, Okla., provider of linked and high-stake bingo games, added 1 1/8, or 22%, to 6 1/4. A California court granted a summary judgment ruling that Multimedia's MegaMania electronically linked bingo game is a lawful Class II game under the Indian Gaming Regulatory Act. The company said the ruling dismisses the government's contention that the electronic player stations are "gambling devices' within the scope of the Johnson Act.
Active issues
Other oil stocks also improved dramatically, including Chevron (CHV), which rose 5 1/4 to 85 5/8. The contributions of its two energy stocks, Exxon and Chevron, helped the Dow Jones Industrial Average finished modestly higher for the session, despite setbacks for several growth stocks.
Imperial Oil (IMO) rallied 1 7/8 to 18 1/2. One of Canada's biggest oil and gas companies, Imperial Oil is expected to benefit from a merger between U.S. oil giants Exxon and Mobil. Analysts say that a merger between Exxon and Mobil would result in Imperial Oil, of which Exxon owns about 70%, acquiring rival Mobil Canada, because their businesses are highly complementary.
Shares of Boeing (BA) fell 1 5/16 to 41 7/16. Antitrust regulators in Europe and the U.S. are separately investigating whether Airbus Industrie (F.ABI) and the Seattle aircraft maker cooperated in setting prices for their aircraft, according to Friday's edition of The Wall Street Journal.
UST (UST) added 7/16 to 35. The Greenwich, Conn., maker of smokeless tobacco products late Wednesday unveiled plans to repurchase up to 18 million of its common shares.
Laidlaw (LDW) fell 7/16 to 10. Greyhound Lines (BUS)investors complained that the acquisition offer of $6.50 a share from Laidlaw, a Canadian transit services concern, is inadequate. Shares of Greyhound inched up 1/16 to 6.
Enron (ENE) slipped 1/2 to 54 3/16. Imperial Chemical Industries (ICI)agreed to sell its United Kingdom utilities and services unit to the Houston energy concern for about $498 million. ICI's American depositary receipts slipped 1/16 to 38 15/16.
Small-cap stocks
Shares of Biomira were the big winners Friday, soaring 2 13/16, or 141%, to 4 13/16, having hit a high of 17 1/8 intraday. A story in Business Week magazine said the company's Theratope breast cancer vaccine, produced in partnership with Chiron (CHIR), will soon begin Phase III trials. Biomira, based in Canada, develops vaccines and diagnostic tests for cancer.
AG Associates (AGIA) , a San Jose, Calif., supplier of rapid thermal processing equipment to the semiconductor industry, jumped 9/16, or 13.4%, to 4 3/4. The company late Wednesday said it is in talks to be acquired by Steag Electronic Systems. AG Associates said terms and conditions haven't been finalized but expects the deal would value the company in excess of $30 million. The stock hit a 12-month high of 6 3/4 intraday.
Big Entertainment (BIGE) said its bige.com Internet studio store officially opened for business, helping send the stock up 5 5/16, or 69.1%, to 13. Bige.com is a merchandise store for usatoday.com and Film.com, RealNetworks's Web site for film reviews, trailers and short films. Big Entertainment shares climbed to a new 52-week high of 14 3/4 intraday.
Rival (RIVL) fell 15/16 to 9 15/16. The Kansas City, Mo., manufacturer of small household appliances, hired NationsBanc Montgomery Securities to assist it in discussions regarding an unsolicited offer for the possible sale of the company. In a press release, Rival declined to identify the other parties to the discussions.
International trading
Asian-Pacific equities market closed mostly lower Friday as the holiday in the U.S. left investors searching for direction, but Philippine shares bucked the region's trend, gaining 2.8% on the back of encouraging economic data. Tokyo's Nikkei 225 average edged lower, slipping 138.38 to 15,069.39 on heavy domestic selling, but shares wavered without Wall Street's lead. U.S. markets were closed Thursday for Thanksgiving.
European stocks rose from early losses Friday, as merger news, a steady dollar, and a stronger opening on Wall Street boosted markets late in the session. German, French, Swedish, and Dutch stocks ended higher, buoyed by New York's advance. British stocks were also higher, as the U.S.'s gain enabled market participants to shake off jitters about Barclays Bank (BCS), following a profit warning and the resignation of Chief Executive Martin Taylor announced earlier in the session.
Dow Open Could Be A Dud Monday
Despite Deutsche Banks' $10B buyout of BT, investors are wary
November 30, 1998: 7:24 a.m. ET
Mammoth mergers and would-be mergers in the oil and banking sectors may give U.S. markets some support Monday. But worries about soaring valuations of many stocks, especially in the internet sector, could prompt an early morning bout of profit-taking.
Deutsche Bank's announcement Monday that it plans to buy Bankers Trust, the eighth largest U.S. Bank, in a $10.1 billion cash deal failed to galvanize trading in Europe, where most bourses had already digested news of the deal.
Despite earlier declines in Hong Kong and Tokyo, where the Nikkei Average lost more than 3 percent amid confusion about government tax cut plans, the Dow Jones industrial average appeared determined to fend off a flop Monday.
The Dow, already up 23 percent this year, is just 41.19 points under its most recent record of a week ago, having notched up 0.20 percent, to 9.333.08, in quiet trading Friday. The latest levels mark a giddy return to the roaring days of July, before a Russian default on debt caused emerging markets to crater and triggered an investor stampede away from any investment seen as even moderately risky.
Now, some argue, those doldrums are fast becoming receding memories, though wariness remains. On the Globex trading system, S&P 500 futures contracts were down 1.40 in price at 1192.80, pointing to a fairly flat opening on the Dow. Bonds continued to show resilience, rising 7/32 in price to push the yield back to 5.15 percent.
The renewed merger activity - including a $50 billion flurry of roughly a dozen deals last week - appear to signal renewed confidence in the markets, analysts say.
Last week was capped with news of what could be the largest corporate merger in history. Exxon Corp. and Mobil Corp. confirmed they were in talks to combine operations in a deal that would create an oil colossus with market capitalization of nearly $240 billion. A formal proposal could be unveiled as early as Tuesday.
Exxon (XON) stock jumped 1-11/16 to 74-3/8 Friday on the New York Stock Exchange, while Mobil (MOB) shares surged 7-5/8 to close at 86.
As with any Mobil-Exxon marriage, analysts cautioned that Deutsche Bank and bankers Trust would have to do the yeoman's work of integration and cost-cutting to make their link-up work.
"This is going top be a major challenge because there are going to be significant challenges in Europe and here," said Jim McDermott, the chairman and chief executive officer of Keefe, Bruyette & Woods. "So Deutsche has its work cut out for them…Deutsche has been spending a lot of time trying to build its global strategy, and time's a wasting."
McDermott added that the Deutsche deal was a signal to rivals that all banks are potentially up for grabs in the new climate of consolidation.
"Banking companies that stumble in this environment are vulnerable and the bar has been raised," McDermott said.
GE Capital Corp., a unit of General Electric Co., is reportedly in talks to purchase a $7 billion portfolio of assets from Japan Leasing Corp., an affiliate of the defunct Long-Term Credit Bank of Japan Ltd. Japan Leasing filed for bankruptcy in September.
Shares of General Electric (GE) slipped 7/8 to 92-5/16 Friday.
Monday A.M. World Markets
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