MARKET SNAPSHOT
Dollar jumps against euro
U.S. shares may slip at the open
By Julie Rannazzisi, CBS MarketWatch
Last Update: 8:04 AM ET May 3, 2000 Market Pulse
Bond Report
NEW YORK (CBS.MW) -- The broad market is poised for a soggy open Wednesday while the dollar surges and the bond market slips.
June S&P 500 futures fell 1.00 point, or 0.1 percent, and were trading roughly 5.60 points below fair value, according to HL Camp & Co. Nasdaq futures rose 7.00 points, or 0.2 percent.
In shares trading before the official start of trading, Novell slid 5 9/16, or 32 percent, to 12 in Instinet. After the close Tuesday, the company (NOVL: news, msgs) warned of significant revenue and earnings shortfalls for its second quarter. The company expects second-quarter earnings of 8 cents per share, well behind the First Call estimate of 16 cents a share. See full story.
In the bond market, prices were a touch lower, extending Tuesday's losses, as investors maintained a cautious stance ahead of Friday's employment report.
On the economic docket, Wednesday will see the release of March factory orders, expected to rise by 1.3 percent, the April NAPM non-manufacturing index, and the Fed's Beige Book report on economic conditions. View economic calendar and forecasts and historical economic data.
The 10-year Treasury note lost 1/8 to yield 6.32 percent and the 30-year bond fell 7/32 to yield 6.03 percent.
In currency markets, the dollar strengthened significantly against the euro, which fell to new record lows. Euro/dollar was off 2.0 percent to 0.8912 while dollar/yen gained 0.8 percent to 109.29.
Tuesday's trading activity
The Nasdaq succumbed to a bout of profit-taking Tuesday, with the greatest weakness detected in the software and Internet sectors. And a tumble in shares of AT&T kept the Dow Industrials in negative territory throughout most of the session.
Weakness in Microsoft shares kept computer software shares deep in the red and put a damper on the entire tech sector. Also lower were Internet and chip stocks. The latter came under pressure late in the day, with the Philadelphia Semiconductor Index off 4.8 percent.
In the broader market, oil service, paper and bank issues rose while biotech, brokerage and transportation stocks lost ground. Safe-haven gold stocks surged, with the CBOE Gold Index up a heady 10.5 percent.
"The market reminds me of a hamster wheel -- it's just running in place with participants spinning from sector to sector," remarked Richard Babson, chairman and president of Babson-United. "Short-term players are looking for momentum and finding that there's very little cover."
"This market is looking for direction, which explains the continued volatility. Unfortunately the catalyst [for Tuesday's move] was AT&T," said Peter Coolidge, senior equity trader at Brean Murray & Co.
Coolidge believes it will be difficult to build on the market's recent gains with the possibility of a 50 basis point rate hike in a couple of weeks.
The Dow Industrials lost 80.66 points, or 0.7 percent, to 10,731.12, led lower by shares of AT&T, Microsoft, Intel and SBC Communications.
Upside leaders included DuPont, Philip Morris, International Paper and Merck.
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Shares of AT&T (T: news, msgs) dropped 7 1/16, or 14.4 percent, to 41 15/16 after the company guided analysts to lower their earnings estimates for the year during a conference call following the company's earnings release.
Ma Bell said it downwardly revised 2000 operating earnings to $1.80 to $1.85 a share from the previous $1.89 to $1.94. First Call had expected earnings per share of $2.08 in 2000. Further, AT&T said its pro forma revenue for 2000 would increase approximately 7 to 8 percent rather than the previously estimated 8 to 9 percent.
Meanwhile, AT&T reported first-quarter earnings of 53 cents a share Tuesday, matching the First Call estimate. See full story.
Microsoft (MSFT: news, msgs) shares lost 3 9/16 to 69 7/8. On Monday, shares of the software behemoth rose 3 11/16 to 73 7/16, shrugging off news of a breakup proposal. (See 6-month chart of MSFT.)
The Nasdaq Composite tumbled 172.63 points, or 4.4 percent, to 3,785.45 -- its tenth largest point decrease in history.
Tuesday's tech sell-off hobbled small and large- cap stocks alike. The Nasdaq 100 index, which brings together the largest Nasdaq stocks by market capitalization, lost 202.53 points, or 5.3 percent, to 3,627.31.
The Standard & Poor's 500 Index lost 1.5 percent while the Russell 2000 Index of small-capitalization stocks shed 2.6 percent.
Volume checked in at 1.01 billion on the Big Board and at a light 1.43 billion on the Nasdaq Stock Market. Losers outpaced losers by 17 to 13 on the NYSE and by 26 to 15 on the Nasdaq.
Waiting for the Fed
With investors waiting for more information on the state of the labor market on Friday and productivity figures due out on Thursday, market watchers believe that equity trading will remain cautious.
"We're likely to remain rangebound until the Fed meets," said Bill Schneider, head of block trading at Warburg Dillon Read. "Earnings have supported this market. [And] prices have been able to cling on to piece of good news. But it's difficult to be overly bullish in this kind of environment -- though it's easier to be constructive compared to two weeks ago."
Babson believes the market hasn't fully priced in the possibility of a rate hike of 50 basis points and hasn't taken into account the fact that more increases in short-term rates will be necessary to cool off the hot U.S. economy.
Coolidge believes the market has factored in a 1/2 percent rate increase at the next FOMC meeting but agrees that market participants may perceive a more aggressive move at the May Fed meeting as the Fed's last one. That, he added, would be a mistake.
Brian Slater, portfolio manager at Condor Capital Management, believes the market is already bracing for a strong jobs report given the strength in last week's employment cost index.
Even a larger-than-expected drop in the unemployment rate, Slater said, isn't likely to catch the market off guard. The stock market, he added, is already pricing in the possibility of a 50 basis point move by the Fed on May 16.
Fed funds futures, which gauge tightening expectations, are fully pricing in a 50 basis point move by the end of June and a roughly 50 percent probability of another 25 basis point rate hike.
Tuesday's economic data reinforced the perception that the Fed still has lots of work to do on the tightening front in order to soften the U.S. economy.
March new homes sales, in fact, rose 4.5 percent to 966,000 compared to the expected 902,000 -- its highest level since Nov. 1998. See full story.
"Once again, the housing market is approaching record sales and that makes it clear that higher interest rates are doing nothing to slow consumer spending," said Joel Naroff, chief U.S. economist at Naroff Economic Advisors.
"The members of the FOMC are probably shell-shocked by the continued strength in the so-called interest sensitive sectors such as housing. The appearance of pricing power is not something that the Fed wants to see and now that it is here, the [Fed] will have to do something about it," Naroff continued.
Sector watch
The online brokerage sector came under some pressure following a downgrade of Ameritrade [a: amtd] to a "neutral" from "outperform" by Lehman Brothers. Read The Ratings Game. Ameritrade lost 1 5/16 to 15, E-Trade shed 1 3/16 to 19 5/8 and DLJ Direct inched down 9/16 to 10 1/2.
Moreover, Lehman Brothers initiated coverage on Charles Schwab, Goldman Sachs and Morgan Stanley Dean Witter with only a "neutral" rating. And Lehman began coverage on Merrill Lynch with an "outperform" rating.
Shares of Goldman Sachs fell 4 to 93, Schwab shed 7/8 to 44 3/4, Merrill lost 4 1/16 to 103 13/16 while Morgan Stanley eased 4 to 75 3/4.
Merrill Lynch's Internet Infrastructure Index (IIH: news, msgs) fell 5.4 percent, losing ground in afternoon trading following a 3.3 percent increase earlier in the session. A climb in BroadVision (BVSN: news, msgs) -- which ended up 3 7/8, or 9 percent, to 46 15/16 -- was behind the upward move in the Holdrs. BroadVision benefited from an upgrade to Goldman Sachs' recommended list from a "market outperform" and from an upgrade by CS First Boston to a "strong buy" from a "buy."
Biotech shares retreated after two consecutive sessions of steep gains. Merrill's Biotech Holdrs (BBH: news, msgs) lost 5.2 percent, led lower by Millennium Pharmaceuticals, off 14 3/8 to 78 1/8, and Celera Genomics, down 12 5/8 to 86 3/8.
Turning to earnings news, Barnesandnoble.com (BNBN: news, msgs) registered a first-quarter loss of 19 cents a share late Monday, matching the First Call estimate. Shares shed 9/16 to 10 3/8. See full story.
Expedia (EXPE: news, msgs) checked in with a third-quarter loss of 40 cents per share late Monday. That was well ahead of the First Call projection of a loss of 57 cents a share. The stock rose 1 5/16 to 20 13/16.
Shares of Starbucks added 1 to 31 15/16. The company (SBUX: news, msgs) was upgraded by Morgan Stanley Dean Witter to a "strong buy" from an "outperform." See Rating Revisions.
Late Tuesday, Perot Systems (PER: news, msgs) registered first-quarter earnings of 17 cents a share, a penny ahead of the First Call estimate. The stock ended up 7/8 to 19 1/8 ahead of the news.
In the bond market, prices lost ground, with losses concentrated in the long end of the yield curve. The 10-year Treasury note lost 5/32 to yield 6.30 percent and the 30-year bond fell 11/32 to yield 6.01 percent. See Bond Report.
In other economic news, March leading economic indicators inched up 0.1 percent compared to an expected flat reading.
In currency markets, dollar/yen inched down 0.3 percent to 108.41 but remained at levels not seen in about two months. Euro/dollar was off 0.6 percent to 0.9097.
In the commodity arena, June crude jumped $1.02 cents to $26.89 while the Bridge CRB index rose 1.01 to 216.85. View latest commodity prices.
Julie Rannazzisi is markets editor for CBS MarketWatch. |
