WALL ST WEEK AHEAD-Market mood turns cautious
By Cal Mankowski
NEW YORK, Feb 28 (Reuters) - A spike in long-term interest rates and worries about a slump in personal computer sales have
started a caution light flashing on Wall Street.
''We think positive earnings growth will lead to higher stock prices but not to the extent that we saw stock prices increase last
year,'' said Howard Kornblue, senior vice president and senior portfolio manager of the Pilgrim America MagnaCap Fund.
All eyes will be on technology stocks in the coming week after some of the bigger names in the group were hit by a barrage of selling on Friday. Analysts were
debating whether personal computer sales were going into a seasonal slowdown or something more serious was taking place.
Two investment conferences set for New York this week will be closely watched for new clues about where technology is going. Jupiter Communications has a
conference scheduled where many Internet companies will discuss their strategies, while a Morgan Stanley Dean Witter conference will hear presentations from
many computer service companies.
''The overall climate toward technology companies showing powerful earnings is still favorable,'' argued Richard Driehaus, chief investment officer at Driehaus
Capital Management Inc. He noted that the small and mid-cap technology issues that he likes have been volatile recently and may continue to be volatile in the near
term. But he said many or the stocks can be bought on the declines.
He cited the case of Network Solutions Inc. (Nasdaq:NSOL - news), which had dropped to the 142 area two weeks ago but as of Friday's close had recovered
40 points. Network Solutions, which registers names like .com for businesses going on the Internet, finished at 181-1/2 Friday, gaining 4-7/16 on the day.
''This is not really scaring us too much,'' Driehaus said. Referring to Friday's drop in QLogic Corp. (Nasdaq:QLGC - news), he said, ''We would buy it in here.''
QLogic closed at 58-1/8 on Friday, dropping 4-7/8 for the day.
For bigger name technology issues, however, Driehaus said some of them may be making a rolling top in their chart patterns.
International Business Machines Corp. (NYSE:IBM - news) was hit hard on Friday, falling 3-7/8 to 169-3/4, while Dell Computer Corp. (Nasdaq:DELL - news)
fell 1-5/8 to 80-1/8 and Compaq Computer Corp. (NYSE:CPQ - news) fell 6-3/16 to 35-1/4.
Concern about technology issues was not the only issue spooking investors last week. A rise in the yield on the benchmark 30-year Treasury bond to the 5.6
percent area, highest since last August, was blamed for a big sell-off in stocks on Wednesday which had the Dow Jones industrial average dropping 145 points.
Some traders may be hesitant to do anything this week before Friday's report on February payroll employment. Although robust growth is expected, by week's end
the market will have had plenty of time to adjust to the outlook for a stronger economy. In a Reuters survey, non-farm payrolls are seen growing by 245,000 and
the jobless rate is seen steady at 4.3 percent.
Marshall Acuff, equity strategist at Salomon Smith Barney, said long-term interest rates have room to decline from current levels, but he says the more important
point is that 1999 is likely to be the first in some time where rates on a calendar year basis do not decline. He expects stocks to be in a trading range for much of
1999, meandering between 8,000 and 10,000 on the Dow.
''We don't think that the recent spike up in rates is going to stick,'' said Kornblue. But he said for the year stocks may be up 9-12 percent, a respectable showing
by historical standards and lackluster only by comparison with the outsized gains in each of the past four years. Kornblue said he was pleased with fourth-quarter
earnings posted by stocks that he owns such as General Electric Co. (NYSE:GE - news), McDonald's Corp. (NYSE:MCD - news) and Tricon Global Restaurants
Inc. (NYSE:YUM - news).
The Dow index finished Friday at 9,306, dropping 60 points on the day. The Treasury bond rose 31/32 pushing the yield down to 5.58 percent from Thursday's
5.65 percent. |
