MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY JUNE 23, 1998 (2)
MARKET OVERVIEW, Con't
Tuesday's Markets In U.S.
Technology stocks led a broad rally on Wall Street as it appeared investors were less concerned over weaker earnings prospects for the sector.
The Dow Jones Industrial Average ($INDUA) jumped 117 points, or 1.35%, to 8,828.46, with strong gains in IBM Corp. (IBM) and Hewlett-Packard Co. (HWP) leading the way.
The technology-laden Nasdaq Composite (COMP) surged 38.75 points, or 2.15%, to 1,844.57.
The S&P 500 (SPX) climbed 16.28 to finish at 1,119.49. The Russell 2000 index ($IUX) of small-cap stocks had a hike of 5.77 points, ending at 447.42.
On the New York Stock Exchange, advancing issues led declines by almost a 2-to-1 margin on moderate volume of 634 million shares.
The benchmark 30-year Treasury bond gained 8/32 of a point, and its yield, which moves in the opposite direction, fell to 5.65% from 5.66%.
Technology stocks
Software giant Microsoft (MSFT) stoked the surge in tech issues, rising 4 15/16 to 100 3/4. The U.S. Court of Appeals overturned an injunction that prevented Microsoft from requiring computer makers who use its operating system to also use its Internet browser. In a broad ruling, the appeals court decided 2-1 that a lower court made both procedural and substantive errors in imposing the injunction. [Microsoft is the publisher of Investor.]
The news rippled through most of the sector, with the Morgan Stanley High Tech Index (MSH) rising 18.60 to 584.96. Both of the Dow's tech components, IBM (IBM) and Hewlett-Packard (HWP), were among the blue-chip index's top gainers. IBM was up 3 9/16 to 111 11/16 and H-P gained 2 1/8 to 59 3/8. H-P's gain was fueled by a Wall Street Journal report that the computer maker is selling home computers at a brisk rate on a "momentum effect," with no decline expected this year.
Other software makers joined in Microsoft's party. Computer Associates (CA) rose 2 to 58 15/16, Parametric Technology (PMTC) gained 2 9/16 to 34 3/8, Symantec (SYMC) climbed 1 1/8 to 26, and BMS Software (BMCS) rose 1 3/4 to 51 7/16.
E-commerce software company Sterling Commerce Inc. (SE) rose11/16 to 44 3/16 after it said it bought U.K.-based Electronic Data Exchange Service, Ltd. for an undisclosed cash sum.
Internet companies saw their shares surge for a second straight day amid growing speculation that Web-based firms are prime acquisition targets, inspired by Walt Disney Co.'s (DIS) investment in Infoseek Corp. (SEEK) last week. The AMEX Internet Index (IIX) was up 10.39 to 363.60.
Yahoo! Inc. (YHOO) shot up again 8 1/2 to 148 1/16, following Monday's10 5/16-point climb; Lycos Inc. (LCOS) rose 4 1/4 to 68 3/4; and Excite Inc. (XCIT) gained 3 1/4 to 82 3/4.
America Online Inc. (AOL) jumped 5 3/8 to 106 1/2 a day after the largest Internet-service provider won a U.S. Supreme Court fight to kill a defamation lawsuit over comments posted by a subscriber to AOL's online service.
Networking stocks were boosted by merger talk, with the AMEX Networking Index (NWX) up 6.38 to 372.28. Leading the way were ADC Telecommunications (ADCT), up 1 5/16 to 32 5/8, and Tellabs (TLB), which rose 3 3/8 to 69 3/8.
Sector leader Cisco Systems Inc. (CSCO) jumped 2 1/4 to 86 7/8 after the New York Times reported that it will remain an independent maker of telecommunications networking equipment after the company acknowledged that it tried and failed to create partnerships with Lucent Technologies (LU) and Northern Telecom Ltd. (NT). Lucent shares rose 3 13/16 to 78 9/16, while Northern Telecom was off 3/16 to 533/4.
Cabletron Systems (CS) dropped 1 7/8 to 12 7/16 after it said it would buy networking company NetVantage Inc. (NETVA) for about $100 million in stock. Cabletron also reported first-quarter results that fell below Wall Street estimates by 2 cents per share. NetVantage shares gained 1 1/4 to 6 3/4.
Intel Corp. (INTC) rose for a second day, up 1 3/8 to 75 1/4 on speculation that the world's largest chip maker won't issue a warning about profits in the second quarter. Intel also led other chip shares higher on signs that orders for the company are rebounding following a recent price cut. The Philadelphia Semiconductor Index (SOX) gained 6.87 to 253.15.
Active issues
Oil shares fueled much of the Dow's rise, with the AMEX Oil Index (XOI) gaining 5.45 to 469.84. OPEC producers meeting in Vienna signaled their willingness to severely cut oil output in order to revive prices, which have dropped dramatically in recent weeks amid excess supply.
Big oil companies motored ahead, with Chevron (CHV/NYSE) rising 2 5/16 to 84 1/16, Exxon (XON) up 1 3/16 to 71 13/16, Amoco (AN) ahead1/8 to 41 3/4 and Mobil Corp. (MOB/NYSE) gained 13/16 to US$77 7/16
TransCoastal Marine Services Inc. (TCMS) fell 9/16 to 5 5/8 after announcing that second-quarter earnings will meet or slightly exceed analysts' estimates of 29 cents per share.
Diamond Offshore Drilling (DO) rose 11/16 to 43 1/2, Schlumberger (SLB) 5/8 to 68 and drilling equipment maker Dresser Industries Inc. (DI/NYSE) climbed US$1 1/16 to US$44 1/16. Global Marine (GLM) fell 1/16 to 19 1/2.
Shares of major U.S. tobacco companies initially rose on word of the reversal of a verdict against the industry in a smoking-related lawsuit, but later declined as traders came to view the ruling as having minimal impact. The decision by a Florida appeals court Monday overturned a 1996 ruling against Brown & Williamson Tobacco Corp. in a lawsuit brought on behalf of a sick smoker.
The largest tobacco maker, RJR Nabisco (RN), fell 1/4 to 24 11/16, Loews (LTR) fell 1 to 87, and Philip Morris Cos. (MO) dropped 1/8 to 39 9/16. Brown & Williamson's parent company, B.A.T. Industries (BTI) gained 3/4 to 19 3/4.
Drug companies also registered solid gains, driving the AMEX Pharmaceutical Index (DRG) up 4.58 to 664.54. Amgen (AMGN) was the leading gainer in the sector, rising 2 9/16 to 62 11/16, while Bristol-Myers Squibb (BMY) gained 2 5/8 to 114 1/2, Johnson Johnson (JNJ) climbed 1 1/2 to 76 1/4, and Merck & Co. (MRK) rose 1 9/16 to 127 3/8.
MGM Grand Inc. (MGG) gained 5 9/16 to 32 3/16. The company warned that its second-quarter earnings would fall short of expectations but also announced a stock buyback plan covering up to 20% of its shares at prices ranging up to $35 a share.
Robert Mondavi Corp. (MOND) fell 2 1/2 to 29 9/16 after the wine maker warned that it expects fourth-quarter earnings to be as much as 1 cents below analysts' estimates, which the company said were 54 cents per share for the quarter and $1.98 for the full fiscal year.
America West Holdings Corp. (AWA) gained 1/8 to 28 1/8 despite a Wall Street Journal report that the Federal Aviation Administration is seeking to impose at least $1 million in civil penalties against America West Holdings for failing to properly oversee the work of outside against America West Holdings for failing to properly oversee the work of outside maintenance contractors on its airliners.
After the bell
FSI International Inc. (FSII) reported a larger-than-expected third-quarter loss, and warned that fourth-quarter sales would fall below those of the third. The computer chip-equipment maker reported a loss of 9 cents per diluted share, 2 cents wider than consensus estimates.
Global pharmaceutical company Rhone-Poulenc SA (RP) reported that its breast cancer drug Taxotere received full and expanded approval by the U.S. Food and Drug Administration. The drug is available for first line treatment of metastatic breast cancer in patients whose disease has recurred despite therapy, or failed previous chemotherapy.
Brunswick Corp. (BC) said it acquired Playdrome America's chain of seven bowling centers in New Jersey. Terms of the deal were not disclosed. The acquisition adds 226 lanes and two brew pubs to Brunswick's portfolio.
Cannondale Corp. (BIKE) warned that fourth-quarter earnings will be about 20 cents below analysts' estimates because of higher expenses related to the development of a motorcycle. The maker of high performance bicycles was expected to earn 36 cents a share.
Sitel Corp. (SWW) said it expects to take a second-quarter restructuring charge of $6.5 million. Excluding the charge, the direct-marketing company expects to break even for the quarter. Analyst estimates called for the company to earn 4 cents per share in the period.
Starwood Hotels & Resorts (HOT) failed to win changes it sought in legislation that would crack down on the tax advantage it currently enjoys, House Ways and Means Committee Chairman Bill Archer said.
Transition Systems Inc. (TSIX) warned that earnings for its third quarter would be 8 cents to 12 cents per share because of "timing issues with several significant deals." The company was expected to earn 21 cents per share.
Ascendant Bulls Keep A Wary Eye On Japan
Reuters and Investor staff
Climbing the Asian "wall of worry" appears to be a fait accompli for Wall Street's traders. Now the question for resurgent bulls will be whether Japan's government will follow suit.
With the Dow soaring 117 points and the Nasdaq enjoying its third largest point gain ever with a 38.75-point rise, some investors believe the worst could be over for Asia as Japan prepares to tackle its ailing economy more effectively.
"Japan is the key here. There's encouragement that there is a rapport with the Japanese and they will take some permanent steps to get their economy revived," said William Barker, chief investment strategist at Dain Rauscher.
Most observers say Tuesday's session was a key to providing a foundation of confidence for the Asian markets. "That takes some pressure off Asia. This market is being led higher by techs and they are the ones most highly impacted by Asia," Barker said.
"Japan has promised a new program within eight days to get its banking system back on track," said Alfred Kugel, senior investment strategist at Stein Roe & Farnham. "And the warnings on second-quarter earnings don't look as serious as people thought, so some of the fear is lifting."
But others were more cautious and doubted if enough has really changed to merit such gains in computer stocks.
"I have a hard time buying that things have changed for the techs," said Paul Lesutis, managing director at Brandywine Asset Management. "Many of the stocks are washed out and I would not be surprised to see a bounce, but I think we are going to see some very bad earnings reports coming out," he added.
Wall Street analysts said poor earnings in the second quarter have been largely factored into the market as the Nasdaq rebounds from its recent 10 percent sell-off. Whether Asia tackles its financial woes or not, cash will still seek a safe-haven in U.S. assets for now, they said.
Bolstering the outlook for technology stocks was Microsoft Corp.'s (MSFT) court victory in its ongoing antitrust battle with the U.S. Justice Department. The software giant's stock was boosted by a federal appeals court ruling that overturned objections to the company's practice of integrating its Internet Explorer browser and Windows 95 operating system. Microsoft hopes this will bolster its case in the current broad antitrust lawsuit that focuses on the new Windows 98 system.
Besides individual sectors, economic data likely will also play a role in moving the markets on Wednesday. Due for release will be figures on the gross domestic product, initial jobless claims and existing home sales.
INTERNATIONAL
European Stocks Rally Strength
Wall Street's Opening Bounce Helps European Markets Shake Off The Blues
Supported by gains on Wall Street and increased optimism among traders, European shares rallied strongly on Tuesday with most major markets closing between 1 and 2 percent higher.
U.S. blue-chip shares were up around 0.9 percent at the close of European business, aided by gains in technology and oil shares, in what traders said was primarily a technical bounce from weakness in the past two sessions.
Early stock trading in London was marked by a lack of direction and influences, but sentiments firmed by mid-session to lead the FTSE 100 up 59.6 points, 1.04 percent, to close at 5,772.
German shares climbed strongly in electronic trade, although trading was meager with few fresh factors to give direction.
The electronic Xetra DAX climbed 100.23 points, 1.77 percent, to 5,748.34 while the floor DAX closed up 63.96 points, 1.13 percent, at 5,718.71.
Traders cited a lack of bad news as one reason behind the Frankfurt market's rise.
"As long as the currency situation remains stable in terms of the relationship between the yen and the dollar we can maintain gains," one trader said.
The market could sink to the 5,500 level, however, he warned, if concerns likely to destabilize the market emerged.
French shares moved ahead 46.4 points, 1.15 percent, to 4,065.04 in steady trade, clearly pushing the CAC-40 index back above the 4,000 threshold it plunged through in the recent Asia-inspired correction, traders said.
Brokers said the advance was boosted by investors taking advantage of the last day of the June trading month to make some large block deals.
Yen, Dow Boost Pac Rim
Movements in the yen joined with an overnight rally on Wall Street to wash Pacific Rim markets with some positive spillover Wednesday, with most Asian markets closing moderately higher.
The yen regained its balance to trade at 140.11 against the dollar after falling to about 140.90, its lowest level in a week.
Its renewed weakness tempted Tokyo funds to snap up high-tech exporters and other blue-chip stocks, dealers said.
The Nikkei 225 average ended up 68.58 points, or 0.46 percent, at 15,123.18. September futures were up 10 at 15,060.
Activity remained muted. A total of 373 million shares changed hands on the first section, down from Tuesday's 421 million.
Japan's high-tech sector also benefited from an overnight rally in New York that pushed tech shares -- as measured by the Nasdaq 100 index of technology issues -- to a record close.
"These stocks are going to have revisions up for the interim period and possibly even the year," said Celia Farnon, a manager at Nomura Securities.
Banking shares were among the most active, with continued confusion over the future of the Long-Term Credit Bank of Japan (LTCB) boosting action.
LTCB, which has denied widespread rumors it would be merged with another institution, fell one yen to 70 on a volume of 22.11 million shares. It was the most actively traded issue.
While uncertainty over plans to rid the banking sector of an estimated 77 trillion yen in problem loans still weighed on the stock market, some dealers said recent comments by leading politicians on the establishment of a "bridge bank" were encouraging.
Hang Seng finds hope
Hong Kong stocks closed firmer on Wednesday in light but choppy trade as investors covered their positions in late afternoon when the yen rebounded, brokers said.
The Hang Seng Index added 77.10 points, or 0.94 percent, to finish at 8,296.77.
"The market is actually directionless but people expected some good news from U.S. President Bill Clinton's China visit due to start later this week," Lai said.
Brokers said the government's stimulus package had failed to boost enthusiasm in the market and sentiment had been further dampened by rating agency Standard & Poor's decision on Monday to place the ratings of Hong Kong on CreditWatch.
"Two thirds of the stocks have not changed price," said Frederick Tsang, strategist at BNP-Prime Peregrine Securities.
Singapore drifts lower
Singapore shares trudged further downhill on the yen's back on Wednesday.
Dealers said there was little activity as most investors stayed on the sidelines, watching the yen and waiting for Japan to come up with firm measures to tackle its economic problems.
"Everybody's closely watching it. The market is just drifting down. Japan is the overriding factor," said a dealer at a local brokerage.
The 30-share Straits Times Industrials Index (STII) closed down 7.40 points at 1,074.85, giving up early gains which took it to an intra-day high of 1,089.20.
Most sector indices finished flat to weaker after starting on a firm note.
Australians nervous but higher
The Australian share market ended a volatile session mixed to higher on Wednesday as concerns over Japan's finance sector made investors prone to take quick profits from early U.S.-led gains.
"People are very nervous about what's happening in Japan, extremely nervous," dealer Peter Struk of Reynolds & Co. said. The All Ordinaries index closed 10.2 points up at 2,592.8 after first rising to 2,603.5 and then briefly going back to square. Turnover was A$1.088 billion (US$658 million). "In a lot of stocks, buyers have just pulled right out . . . and are prepared to sit back and do nothing," Struk said. "The Asian problem is still weighing on people's minds quite heavily, the dollar is holding but it's not racing away," said investment director Tim Horden of Westpac Investment Management.
MORNING UPDATE
Early Whiplash In Europe
London, Frankfurt Open Higher But Dip Sharply As Asia Worries Return To Fore
June 24, 1998: 6:31 a.m. ET
Europe's major bourses took some comfort on Wednesday from Wall Street's 117-point surge overnight before continued turbulence in the currency exchange markets drove stocks back into negative territory, dealers said.
The dollar jumped nearly two yen against the Japanese currency in Tokyo earlier only to give back most of its gains in early European trade to trade at 140.15 against the yen by late morning.
Stock markets in Frankfurt and Paris opened moderately firmer thanks to the Dow Industrial Average's 1.35 percent jump in New York on Tuesday.
However, the advance was thin and short-lived in Germany, where shares fell back after a brief upward flurry as concern about volatility in Asia dampened sentiment.
"After initial gains there were no follow-up orders," one dealer said.
The Xetra DAX dropped 10.71 points to 5,737.63 while the bourse DAX trimmed its opening gains to trade up 25.50 points, 0.45 percent higher at 5,744.21.
Paris stocks continued their morning climb unabated, adding 19.61 points, 0.48 percent, to 4,084.65 by mid-session.
In London, Europe's biggest share market, the benchmark FTSE 100 index opened higher but was 20 points lower after the first 90 minutes of trade as yen weakness against the dollar translated into low volume as many investors stayed away. By late morning, the FTSE was down 39.4 points, 0.68 percent, at 5,732.6.
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