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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Clint E. who wrote (22430)	7/30/1999 7:58:00 PM
From: Clint E.	Read Replies (1) \| Respond to of 70302

Stocks in U.S. Fall for a Second Day on Concern Interest Rates Will Rise By Phil Serafino U.S. Stocks Fall a Second Day on Concern Rates Will Rise New York, July 30 (Bloomberg) -- U.S. stocks fell, ending a second week of losses, on concern inflation will pick up and prompt the Federal Reserve to raise interest rates. General Motors Corp. and Ford Motor Co. slumped, making auto stocks the biggest losers in the Standard & Poor's 500 Index. ''Ultimately earnings drive stock performance, but in the short term stocks have proven to be more dependent on the direction of interest rates,'' said Charles Crane, chief market strategist at Key Asset Management Inc., which oversees $75 billion. The Dow Jones Industrial Average fell 136.14, or 1.3 percent, to 10,655.15, led by American Express Co. The S&P 500 lost 12.31, or 0.9 percent, to 1328.72. The Nasdaq Composite Index dropped 1.52, or 0.1 percent, to 2638.49. American Express Economic reports this week heightened concern the Fed will raise interest rates soon. Higher rates reduce demand for loans and cut into the value of bonds owned by banks and brokers. J.P. Morgan & Co. gets 40 percent of its revenue from trading stocks and bonds, and its shares dropped 2 3/4 to 127 7/8. American Express, which derived one third of its profit in the latest quarter from money management and securities brokerage, lost 6 13/16 to 131 3/4. Some 721 million shares changed hands on the Big Board, below the three-month daily average of 747 million. The 30-stock Dow average ended July with a loss of 2.8 percent, the S&P 500 3.1 percent and the Nasdaq 1.8 percent. The declines came in the last two weeks since all three set record highs July 16. For the week, the Dow industrials lost 2.3 percent, the S&P 500 2.1 percent and the Nasdaq 2 percent. Stocks posted a second consecutive weekly loss for the first time since the last two weeks of May. Two economic reports indicated stronger-than-expected growth today, bolstering the view the Fed may raise short-term interest rates at its Aug. 24 meeting. The Chicago branch of the National Association of Purchasing Management said its monthly index of regional manufacturing unexpectedly rose in June, and the Commerce Department said new home sales increased faster than expected last month. On Watch The yield on the 30-year Treasury bond rose 4 basis points to 6.11 percent after briefly reaching 6.13 percent. ''We're seeing a shift from earnings to Fed watch,'' said Bryan Piskorowski, a market strategist at Prudential Securities Inc. ''Every economic indicator will be under the microscope from here on.'' Stocks usually fall when rates rise as investors demand higher earnings to justify the risk of owning stocks. Stocks initially rallied today on reports of better-than- expected profits from Lam Research Corp. and BMC Software Inc. and on optimism that declines yesterday were overdone. Those gains fizzled as investors pushed bond yields to a one-month high. ''People are willing to sell any rally that might show up,'' said Bill Schneider, head of listed stock trading at Warburg Dillon Read LLC in Stamford, Connecticut. ''In the absence of any real news, people are going to sell off.'' Lam Research Lam Research rose 9 to 55 3/8. The maker of equipment used to build circuits on computer chips said net income for the fiscal fourth quarter was 28 cents a share, beating the 12-cent average estimate of analysts surveyed by First Call Corp. BMC Software gained 5 1/2 to 53 7/8 The company said its fiscal first-quarter profit rose 34 percent, more than expected, on higher corporate purchases of its software that helps computer systems manage data more efficiently. ''The stock is cheap for the growth you're getting,'' said Christian Koch, senior technology analyst at Fifth Third Bancorp., which manages $20 billion and owns BMC shares. BMC sells for about 25 times this fiscal year's expected earnings per share, according to First Call, yet profits are forecast to grow 25 percent a year or more. Investors snapped up oil, oilfield service and natural gas stocks amid increasing confidence that economic growth around the world is picking up, lifting demand for energy. S&P Earnings Companies in the S&P 500 are expected to post a 14.7 percent growth in profit from operations for the second quarter, according to First Call, the best growth since the first quarter of 1997. Investors shifted money out relatively richly valued large stocks and into small- and mid-sized companies, which are much cheaper. The S&P MidCap 400 rose 1.83 to 407.46 and the Russell 2000 gained 3.19 to 444.77. The companies in the S&P 500 sell for 24.4 times the expected earnings for the next four quarters, near the highest in 50 years, according to First Call, which tracks analysts' earnings forecasts. The companies in the S&P MidCap 400 Index, in contrast, sells for 18.5 times expected earnings, the firm said. =======--------=========---------========= Top Financial News Fri, 30 Jul 1999, 8:01pm EDT U.S. Personal Incomes, New Home Sales Rise More Than Expected in June By Noam Neusner, Vincent Del Giudice and Liz Enochs U.S. Economy: Rising Incomes in June Boost Home Sales (Update2) (Closes markets.) Washington, July 30 (Bloomberg) -- U.S. personal incomes rose more than expected and new homes sold at a stepped-up pace in June, signs of economic strength that renewed investors' inflation concerns. Incomes rose 0.7 percent in June, after growing 0.3 percent in May, the Commerce Department said. Spending rose 0.3 percent in June, following a 0.6 percent gain in May. New home sales rose 3.1 percent to a seasonally adjusted annual rate of 929,000, keeping them on track to beat last year's record of 886,000. Bonds fell as rising incomes and still-high consumer confidence heightened investor fears that Federal Reserve policy- makers will raise interest rates to keep inflation at bay. Such a move could cool consumer demand, which has surged amid the best job market in three decades. ''Certainly the economy is helping drive our business,'' said Richard Ruegger, chief financial officer at Playcore Inc., one of the nation's largest makers of playground equipment. Janesville, Wisconsin-based Playcore said second-quarter earnings rose 30 percent, helped by sales to schools and homes. The economy is ''on fire,'' said Tom Schwartzbeck, president of Duron Inc., a paint company based in Beltsville, Maryland, of the market for construction supplies. Consumer confidence shined through in the University of Michigan's national index of consumer sentiment for July. Although it fell to 106 this month from 107.3 in June, it has remained above 100 for nine consecutive months. Consumer spending rose at a 4 percent annual rate in the second quarter of this year, the Commerce Department said in its report yesterday on gross domestic product. Spending has risen at that pace, or better, for the last 18 months, the longest such stretch in more than a quarter century. Bonds Fall, Stocks Mixed Still, continued economic vigor, combined with signs of higher wages and prices, fueled expectations that central bankers will push interest rates higher -- perhaps as early as August. The benchmark 30-year U.S. Treasury bond fell 3/8, pushing up its yield 3 basis to 6.10 percent. The Dow Jones Industrial Average fell 136.14, or 1.3 percent, to 10,655.15, while the Nasdaq Composite Index dropped 1.52, or 0.1 percent, to 2638.49. Manufacturing businesses also gave off signs of strength. The National Association of Purchasing Management - Chicago's regional factory index rose to 60.5 this month from 60 in June. June's increase in personal incomes was the largest since a 0.9 percent gain in November 1998. The monthly increase in spending, restrained by a seasonal pause in the growth of auto sales, was the smallest since last November, the Commerce Department said. Farmers were among those to see an income boost in today's report from Commerce. Farm proprietors' income rose $14.5 billion after a previous decline of $3.3 billion. Government subsidy checks accounted for the rise. Without the farmer payments, incomes probably rose 0.5 percent. Wages Rising The report follows others suggesting increased spending power. Yesterday, the Labor Department reported that wages, salaries and benefits grew 1.1 percent in the second quarter, the largest rise in employment costs since 1991. Earlier this month, the department reported that workers' average weekly earnings rose 0.7 percent in June after adjusting for inflation. It was the largest gain in 17 months and more than double the 0.3 percent increase in May. While those gains trouble investors who don't want inflation creeping into the nation's economy, they're good for companies dependent on consumers. Sears, Roebuck & Co. reported double-digit sales gains in air-conditioners in June. Teen clothing retailer Gadzooks Inc. said demand for swimsuits drove its 11 percent sales gain for the five weeks that ended July 3. Home Sales Gain Concerns about what action the Fed may take has led to higher interest rates on mortgages as well, which some economists say is having a short-term positive impact on home sales. June's increase followed a 4 percent decline in May. Mortgage rates are surging. The average rate on a 30-year fixed loan rose to more than 7.6 percent in July from less than 7.2 percent in May, according to No. 2 mortgage buyer Freddie Mac. Moreover, mortgage applications have declined in six of the last eight weeks, the Mortgage Bankers Association reported. That suggests new home sales won't stay at the higher level. Current sales reflect an earlier increase in mortgage applications, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ''When these people have bought their homes, activity will drop sharply, but it will not happen overnight,'' he said. For the housing sector, which accounts for 14 percent of the nation's economy, such a decline would follow a record-setting growth spurt. Sales of previously owned homes set a record in June of 5.53 million at an annual rate, according to the National Association of Realtors. Builders, Suppliers The housing market's strength is leading to extra profits to home builders such as Pulte Corp., retailers such as Wal-Mart Stores Inc. and building products companies, such as USG Corp., the world's largest maker of gypsum wallboard. Second-quarter earnings at Chicago-based USG rose 27 percent. And Shaw Industries Inc., the No. 1 U.S. carpet maker, said its fiscal second-quarter earnings nearly tripled. The six largest builders have all exceeded analysts' earnings estimates for the past six quarters. Pulte, the largest U.S. home builder, said second-quarter earnings rose 57 percent compared with the year-earlier period. Earnings at Los Angeles-based Kaufman & Broad Home Corp., the second-largest builder, rose by two-thirds for the quarter ended May 31. ''Orders are strong across the board,'' said Bruce Karatz, Kaufman & Broad's chairman and chief executive, in an earnings statement.