Two-day winning streak for stocks
But confidence sees biggest 10-year tumble
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:13 PM ET Sep 25, 2001
NEW YORK (CBS.MW) -- Stocks squeaked out a gain Tuesday for a second straight session in the face of a plunge in consumer confidence and an earnings warning from AOL Time Warner. The session was punctuated by extremely choppy dealings.
"Everyone is so focused on the world events, what the U.S. strategy will be, what military actions will be exercised. As these events unfold, the market will react. This is an unusual situation, impossible to predict, and it's overwhelming anything else," remarked Steve Massocca, head of trading and president of Pacific Growth Equities.
In sector action, oil service shares were the hardest hit, along with utility, natural gas, transportation, gold and airline stocks. Among the upside movers: retail, drug, insurance, biotech and financial issues. All tech stocks surrendered early gains and ended lower, with the exception of the chip sector. Check market stats and latest sector performance.
The Dow Jones Industrial Average ($INDU) climbed 56 points, or 0.7 percent, to 8,659. Upside movers included AT&T, Boeing, Eastman Kodak, J.P. Morgan, United Technologies, Wal-Mart, Procter & Gamble and SBC Communications. Among the biggest losers were DuPont, American Express, General Motors, Honeywell, Merck, and Walt Disney.
Coca-Cola (KO) shed 0.1 percent after telling investors that it's on track to meet earnings targets for 2001. Thomson Financial/First Call is forecasting full-year earnings of $1.57 a share and third-quarter earnings of 40 cents per share. The beverage giant said it has seen slower U.S. sales since the Sept. 11 terrorist attacks but added that it's confident it'll deliver "strong growth" worldwide. The stock rose 2.0 percent in recent action.
The Nasdaq Composite ($COMPQ) gained 2 points, or 0.1 percent, to 1,501 while the Nasdaq 100 Index ($NDX) fumbled 3 points, or 0.3 percent, to 1,187.
The Standard & Poor's 500 Index ($SPX) added 0.9 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks edged up 0.6 percent.
Volume came in at 1.58 billion on the NYSE and at 2.15 billion on the Nasdaq Stock Market. Market breadth was mixed, with winners beating losers by 19 to 13 on the NYSE while decliners bested advancers by 19 to 18 on the Nasdaq.
A.G. Edwards raises equity allocation
A.G. Edwards' investment strategy committee Chairman Mark Keller expressed confidence in the equity market, raising his equity allocation to 80 percent from 70 percent and reduced his fixed-income allocation to 20 percent from 30 percent with cash at zero.
"The pessimism that stock prices have reflected in the aftermath of the Sept. 11 attacks remind us of the emotional extremes that have characterized past important market lows -- and highs, for that matter, when the emotional extremes were optimistic," he said in a note to clients.
Keller noted that equity valuations are cheap in most sectors, as stock prices appear to have discounted a deep recession. "Even if we get the deep recession many stock prices seem to be looking for, we doubt that prices will decline much further."
A.G. Edwards said its economic outlook calls for no more than a mild recession.
"This tips the odds of making money in stocks over the next year strongly positive, in our opinion. With virtually every sector of the market at very low valuations, we think it is important to stay diversified," Keller said.
But Stephen Roach, chief economist at Morgan Stanley, cut his global economic growth estimate for 2001 to 1.8 percent from 2.1 percent and for 2002 to 2.1 percent from 3.4 percent.
The economist believes Japan and the U.S. are now in "outright recessions," and expects Europe to follow suit.
The day's data
September consumer confidence plunged even before the horrific terrorist attacks that occurred two weeks ago. The index, in fact, dropped to 97.6 from a revised 114.0 in August -- the biggest one-month drop in the gauge since October 1990 and much lower compared to expectations for a 103.9 reading. and check economic calendar and forecasts.
"This index is merely a reflection of the rising unemployment rate and we would have expected it to fall -- and keep falling -- even without the Sep 11 attacks. At its current level, however, the expectations index is consistent with real consumer spending rising at roughly a 1.50 percent pace -- bad but not a catastrophe," commented Ian Shepherdson, chief economist at High Frequency Economics.
Additionally, existing homes sales rose 5.8 percent to a 5.50 million rate vs. the 5.18 million that had been expected by economists surveyed by CBS MarketWatch.com.
Market not too disturbed by day's warnings
Investors had to digest a high-profile profit warning from AOL Time Warner (AOL) late Monday but the stock managed to stage an advance on Tuesday after hours of choppy trading. AOL rose 1.6 percent.
AOL Time Warner said its 2001 sales and cash flow would come in lower compared to expectations in the aftermath of the horrific Sept. 11 terrorist attacks in the U.S. and the sluggish advertising environment. AOL is expected to report cash flow of about $10.1 billion and revenue of some $38 billion -- both well below earlier estimates.
In the brokerage segment, Lehman Brothers (LEH) added 1.1 percent after announcing that its third-quarter profit fell 32 percent, although the broker still managed to beat Wall Street's profit targets, posting third-quarter earnings of $1.14 a share vs. $1.68 a share in the year-ago period and surpassing the $1.08 estimate.
Drug stocks climbed in the face of a 3.8-percent decline in shares of Merck (MRK), which struggled after the U.S. Food and Drug Administration ordered Merck in a warning letter to stop using certain promotional materials related to its arthritis drug Vioxx.
Airline stocks ($XAL) declined on nagging concerns over revenue following the terrorist attacks two weeks ago. Goldman Sachs analyst Glenn Engel said he now forecasts the airline industry to witness a 40 percent decline in revenue over the next six months as a result of the Sept. 11 events and sees a gradual industry recovery in 2002. But he said the group has fully discounted these losses. Continental shed 1 percent, Delta rose 3 percent and AMR rose over 2 percent.
Read for the latest individual stock market action.
Treasury focus
Treasury prices found decent support across the yield curve.
The 10-year Treasury note was up 7/32 to yield ($TNX) 4.69 percent while the 30-year government bond added 7/32 to yield ($TYX) 5.56 percent.
In the currency sector, the dollar traded mixed, adding 0.1 percent to 117.53 yen while the euro added 0.7 percent to 92.26 cents.
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