MARKET WRAP -2 / U.S. & International Market Activity Ending 12/11/98
Coke's Warning Aggravates Fears About Weak Earnings
The Dow Jones Industrial Average fell for a fifth straight day, after a profit warning from Coca-Cola (KO) compounded fears about slowing earnings growth at U.S. multinationals. But the Nasdaq Composite Index advanced amid a rally in the technology sector.
The industrial average slipped 19.82, or 0.2%, to close at 8,821.76, recovering from an earlier tumble of more than 100 points. The rebound was led by technology issues, with International Business Machines (IBM) surging 3 1/4 to 168 1/4 and Hewlett-Packard (HWP) adding 1 5/8 to 65 7/16.
For the week, the industrials finished down 194.38, down 2.15%.
The Standard & Poor's 500-stock index rose 1.71 to 1,166.73 and the New York Stock Exchange Composite Index lost 1.26 to 564.82.
The Nasdaq Composite Index posted the strongest performance, closing up 13.35 to 2,029.31. The composite was led higher by the resilient technology sector as surprising signs of strength in the retailing boosted demand for Internet stocks. Computer-related stocks also received a boost from a better-than-expected profit report from Oracle (ORCL).
With the exception of a brief stumble Thursday, the technology sector has managed to avoid the profit-taking pressure in the broader market over the past week. Internet stocks in particular have posted strong gains amid optimism about the prospects for strong holiday shopping sales. The American Stock Exchange Internet index jumped 9.97 to 531.88 and the Morgan Stanley high-technology index gained 7.99 to 777.28.
But apart from the tech sector, stocks remained under pressure. News that Coke was hastily organizing an analysts meeting for early Friday sent ripples through Wall Street Thursday, as speculation grew that the soft-drink company would soon join a growing list of blue-chip companies that have lowered their earnings forecasts for the fourth quarter due to the economic instability in the global markets.
Those instincts proved correct. Coke warned early Friday that its fourth quarter results will fall far short of expectations because of economic weakness in many of its key markets and volatility in the currency markets. Its shares tumbled 3 3/16 to 62 7/8 -- every one-point move in an industrial-average component's price moves the index about four points.
Transportation stocks were also hammered by earnings jitters. Shares of AMR (AMR) plunged 4 1/4 to 58 1/4 after four brokerage firms cut their fourth quarter expectations, citing weaker U.S. revenues. The Dow Jones Transportation Average tumbled 83.04, or 2.76%, to 2,929.51.
Interest-rate sensitive financial stocks posted sharp losses. The likelihood for further rate reductions appeared to dim following the release of the retail-sales report that shows the U.S. economy continues to flex considerable muscle. The Keefe Bruyette & Woods bank-stock index dropped 9.51 to 759.96.
November retail sales were greater than expected, following on the heels of October's surprising strength. The report reinforced the view among analysts that the Federal Reserve will opt against another rate cut when policy makers next meet on Dec. 22.
"This is a period of real concern over the impeachment process, corporate earnings shortfalls and the possibility that the Fed, based on the current retail-sales report, may not move to lower rates in the immediate future," said Alan Ackerman, senior vice president of Fahnestock & Co.
Active Issues
Energy stocks also closed mostly higher. Shares of Chevron (CHV) advanced 1 5/16 to 85 15/16, Exxon (XON) gained 7/8 to 74 5/8 and Mobil (MOB) inched up 5/8 to 88 7/8, despite another session of declines in commodity prices.
Consumer stocks that had suffered earlier in the week when investors grew cautious about earnings also finished modestly better. Philip Morris (MO) gained 1 1/8 to 52 15/16. Procter & Gamble (PG), which had made some cautious comments earlier this week about its sales totals in its fiscal second quarter, recovered 1 5/16 to 85 1/16. Bristol-Myers Squibb (BMY), which fell sharply Thursday, moved up 2 1/8 to 125 1/8.
Technology Stocks
Ciena (CIEN) lost 1 3/4 to 15 5/8 on Nasdaq. Several analysts cut ratings on the stock after the company posted fiscal fourth-quarter results Thursday that showed lower revenue and pricing pressures led to a loss for the period. The loss was a little more modest than analysts were anticipating.
SAP's (SAP) American depositary receipts lost 1 3/8 to 35 7/16. Lehman Brothers cut its rating on the German software developer to "neutral" from "buy."
Oracle climbed 2 5/16 to 37 1/4. Analysts at several firms raised their ratings on the stock, after the Redwood City, Calif., software developer posted fiscal second-quarter results Thursday that beat Wall Street's forecasts.
Small Capitalization Stocks
Telxon (TLXN) plunged 12 1/4, or 45%, to 15. The company will restate its second-quarter results to an operating loss of 5 cents a diluted share from operating net of 22 cents. Telxon, an Akron, Ohio, software maker, will also restate its sales in the quarter to $110 million from $124 million, citing the timing of revenue recognition.
Three-Five Systems (TFS), traded on the New York Stock Exchange, added 1 5/16, or 13.2%, to 11 1/4. Needham & Co. started coverage of the Phoenix designer of user interface devices with a "buy" rating.
Capstead Mortgage (CMO), Dallas, agreed to sell its mortgage banking operations to two affiliates of GMAC Mortgage for $550 million, and sees a modest gain from the sale in the 1998 fourth quarter. The stock jumped 1, or 33%, to 4.
Inspire Insurance (NSPR) shed 13 3/16, or 42.8%, to 17 5/8. NationsBanc Montgomery Securities lowered its rating to "hold" from "buy," and said Inspire has been guiding 1999 earnings estimates downward. Inspire, based in Fort Worth, Texas, provides claims administration and computer services to property casualty insurance companies.
International Stocks
ASIA
Tokyo, Hong Kong plunge Nikkei and Hang Seng dive 3 percent as Singapore sheds 2 percent
Hong Kong led the major Asian markets into the red Friday, as a sharply lower close on Wall Street and local bad news also sent Japan and Singapore into a tailspin.
Hong Kong plunged 3.5 percent, taking the index back through the crucial 10,000 point barrier. Japan dived 2.7 percent, while Singapore closed off 2 percent.
With Wall Street shedding almost 2 percent and European bourses drifting down Thursday, Asia found the going tough from the start.
Australia finished 1.2 percent lower while Taiwan closed 1.5 percent down. Korea ended 2.2 percent off.
But there were some bright spots. Malaysia rallied to end 1.6 percent higher while the Philippines added 0.7 percent on the day. Thailand and Indonesia inched ahead by the time they closed.
Hong Kong took a drubbing, dragged down by the fall on Wall Street and traders' reluctance to take big positions ahead of Christmas.
The Hang Seng index closed 363.44 points off at 9,952. After a roller-coaster five days the index was little changed on the week.
Blue chips across the board were hit and while China-related stocks held up a little better, they too closed in the red.
"It was very much Wall Street that did it," said South China Brokerage vice-chairman Howard Gorges. "There weren't any local factors at work.
"When it dropped below 10,000 people got a bearish. Now it is below 10,000 I think quite a lot of institutions could do a bit of buying but it depends what Wall Street does."
Index heavyweight HSBC Holdings lost HK$8 to HK$189 despite the U.K. base rate cut. HSBC owns British retail bank Midland but traders said the stock had already discounted the cut.
Property developers were also hurt with Cheung Kong losing HK$2.5 to HK$53.75.
Hong Kong Telecom was hit, losing 45 cents to 13.6. Local analysts played down the impact of the announcement that highly-regarded chairman Dick Brown is leaving, instead blaming the general market slide.
The market mood in Japan was thick with bad news, sending the benchmark Nikkei average down 402.16 points to close at 14,405.64. It was more than 200 points down on the week, almost 2 percent.
The specter of Wall Street hung heavily over the market but local problems made a bad situation worse.
The special quotation settlement for December futures and options contracts meant the market opened weakly, while warnings from the Bank of Japan that the economy would fail to recover next year depressed traders further.
"People tend to believe the Bank of Japan governor rather than ministers," said HSBC strategist Garry Evans.
Traders were also selling ahead of publication of key business sentiment figures due Monday, said Evans. "Everyone is expecting it to be quite negative," he added.
It emerged that the government's much touted tax cuts would only benefit top earners, with 80 percent of salarymen actually worse off after the cuts.
As if this were not bad enough, exporters were also hurt by the yen, which strengthened to 117 against the dollar. Oil, real estate and auto stocks were all down more than 3 percent, with banks 1.65 percent lower.
Sumitomo Bank dived 3.39 percent to 1,338 yen while Honda plunged 4.12 percent to 4,190 yen.
Wall Street took its toll on Singapore, too. The Straits Times index closed down 28.61 points at 1,411.27, though it was 4 percent higher for the week.
Multi-media group Creative Technology lost S$1.2 to S$26.5 while heavyweight Singapore Press Holdings lost 20 cents S$17.8. Banks and property-related stocks were mixed.
Australia closed 1.2 percent lower while Korea lost 2.2 percent. Nevertheless, Seoul stocks were almost 20 percent up on the week. Taiwan closed off 1.54 percent.
The Philippines ended up 0.73 percent while Malaysia advanced 1.58 percent. Thailand and Indonesia moved out of the red and into the black in the afternoon though both finished less than 0.5 percent higher.
EUROPE
Europe dives on Dow, dollar
European markets take flight spooked by fears of a weak dollar
Profit warnings, tumbling global markets and the possible impeachment of U.S. President Bill Clinton unsettled European traders Friday, wiping two percent off leading shares.
Falls on Wall Street and in Tokyo, Hong Kong and Singapore depressed the markets. Traders were also growing wary about the likelihood that the House of Representatives Judiciary Committee would vote later Friday to impeach Clinton.
London's FTSE 100 dived 2.05 percent or 116.1 points to 5,544.2.
Germany's benchmark Xetra DAX index extended its five-session slide. It fell 2.31 percent or 107.57 points to 4,542.73.
France's CAC 40 was 2 percent or 75.06 points lower at 3,671.91.
Switzerland's SMI lost 1.33 percent or 88.8 points to 6,610.3.
Thursday's profit warning from Sweden's Ericsson, which said its 1998 and 1999 earnings would be hit hard by the Asian crisis, weighed on technology stocks worldwide.
Ericsson shares fell 5.3 percent after losing almost a quarter of their value on Thursday. Rival Nokia dropped 1.8 percent in Finland.
Britain's Cable & Wireless was another big loser in the telecommunications sector, falling four percent as the departure of Group Chief Executive Richard Brown raised questions over its strategic outlook.
London stocks were supported by a 6.2 percent rise in drinks and beverages giant Cadbury Schweppes (CBRY) after it announced it was selling its soft drinks brands outside the United States to Coca-Cola (KO )for $1.85 billion.
A weaker dollar hurt European exporters. The greenback took a further hit from slumping prices for commodities including oil, which remained under pressure after falling to a 12-year low on Thursday.
In Germany car stocks such as DaimlerChrysler were hit. It was down 3.25 marks at 148.75 marks. Lufthansa (FLHA) posted bigger falls, diving 4.2 percent to 34 marks.
BMW (FBMW) was down 0.5 percent at 1,065 marks. The company denied rumors, based on a newspaper report, that the firm was considering some form of cooperation with Ford (F ).
In France Renault (PRNO) fell 4.33 percent to 236.2 francs.
Analysts said sectors like pharmaceuticals, where merger rumors are rife, would survive the day better than most.
Schering (FCHE) fell only 0.2 percent to 212.80 marks. Degussa (FDGS) managed a 0.3 percent gain to 81 marks.
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