By Marjorie Olster
NEW YORK, July 26 (Reuters) - Investors may be looking for
bargains next week and telecommunications stocks will likely be
highlighted, following the announcement of AT&T Corp.'s <T.N>
$10 billion alliance with British Telecommunications Plc
<BT.L>.
Bargains will beckon after the blue-chip Dow Jones
industrial average was beaten down 400 points last week, the
highest weekly loss ever in points.
"Down 400 points is one of the stiffest one-week declines
in points we have ever had so I wouldn't be surprised if we saw
some folks come in and do some bargain hunting," said Charlie
Crane, chief market strategist at Key Asset Management.
A potent cocktail of negative earnings news and
disappointment that Federal Reserve Chairman Alan Greenspan did
not hint at a rate cut in his Congressional testimony made the
market woozy.
The Fed chief also jangled investors' nerves with his
reminder that a correction is inevitable and current stock
valuations are at levels difficult to sustain.
Thomas Galvin, chief investment officer at Donaldson Lufkin
& Jenrette, said he expects the Dow to grind in a range of
between 8,800 and 9,400 until the end of summer now that the
majority of second-quarter earnings are out and no significant
new data on profits will be coming until September.
"We are going into an information void period. We will have
lagging statistics on production and GDP which will be full of
downer news from the GM (General Motors Corp.) strike and
Asia," Galvin said.
The AT&T pact could bolster the company's stock price,
which has languished over recent weeks over concern about costs
and earnings dilution from its $48 billion agreement to buy
Tele-Communications Inc., one analyst said. The deal will also
highlight other telecom shares as companies will continue to
seek international partnerships to remain competitive.
Howewever, Michael Metz, a managing director at CIBC
Oppenheimer & Corp., does not think that the AT&T transaction
will have much bearing on the overall market.
"The deal will be received well, but I don't think it will
have a major impact on the overall market," Metz said.
Metz also does not think that news out of Washington -- the
resignation of White House spokesman Mike McCurry, or
Independent Counsel Kenneth Starr's subpoena of President Bill
Clinton to testify before the grand jury probing whether the
president committed perjury -- will affect the market either.
"No one is depending on this administration doing anything
in particular," he said, referring to investors.
With the earnings season winding down, the market will
closely scrutinize a few key economic reports this week.
At the top of the list is the Employment Cost Index (ECI),
the most comprehensive measure of labor costs and an indicator
which Greenspan has said he pays close attention to. That is
due out on Thursday.
Greenspan made clear in his Humphrey-Hawkins testimony
that inflation remains a concern in light of the tight labor
market which puts upward pressure on wages and also because of
strong domestic demand.
"The employment cost index is the only indicator of concern
to me," said Galvin. "It includes health benefits costs and ...
at some point that is going to bubble up."
Economists polled by Reuters predicted on average an 0.8
percent rise in second-quarter ECI, up from an 0.7 percent gain
in the previous quarter.
On Friday, the government's initial estimate of
second-quarter gross domestic product will be released.
There is heightened interest in that number after several
prominent Wall Street investment firms predicted a contraction
in GDP after the last batch of international trade figures.
According to the Reuters poll, GDP is expected to be flat
compared with growth of 5.4 percent in the first quarter.
"I think there will be a fair amount of scrutiny of the
composition of the number -- what were final sales, what was
consumption?" saidCrane.
"Consumption remains fairy robust but we are fighting
against the stream of a tough trade situation as well as an
inventory correction. But you can't take those things away.
They are real."
Earnings shortfalls from some major companies like Merck &
Co. <MRK.N> and Boeing Co. <BA.N> played a big role in the
sell-off last week. Coupled with poor market breadth, some
predicted a downturn was imminent.
"Given the sorry state of the market's breadth and the
deterioration of earnings momentum, there is a great risk that
we are witnessing the end of the bull market," Cantor
Fitzgerald chief market analyst Bill Meehan said in a market
commentary.
"But I don't believe that we have seen the final round of
exuberance."
Prudential Securities' chief investment strategist Greg
Smith cut stock allocations in his model portfolio Friday to 50
percent from 65 percent and raised bond allocations to 50
percent from 25 percent.
REUTERS
Rtr 18:42 07-26-98
Copyright 1998, Reuters News Service |
