==8/12/99== U.S. Stocks Decline, Led by Computer-Related Shares; DJIA Ekes Out Gain
U.S. Stocks Decline, Led by Computer Shares; DJIA Ekes Out Gain
New York, Aug. 12 (Bloomberg) -- U.S. stocks declined, led
by computer-related shares including Dell Computer Corp. and
Hewlett-Packard Co., on concern that falling prices for personal
computers will cut into profits.
Stocks erased early gains as bonds dropped before the
release tomorrow of a key inflation report. The report, on
wholesale prices, could provide a clue about whether the Federal
Reserve will raise interest rates more than once this year.
The Nasdaq Composite Index fell 15.49, or 0.6 percent, to
2549.49. The Standard & Poor's 500 Index dropped 3.77, or 0.3
percent, to 1298.16. The Dow Jones Industrial average eked out a
gain of 1.59 to 10,789.39, led by United Technologies Corp.
Sixteen stocks fell for every 15 that rose on the New York Stock
Exchange.
Stocks retreated after 1:30 p.m. New York time, when bond
prices slid and yields rose in response to the Treasury's auction
of $10 billion in 30-year bonds. The yield on the existing 30-
year bond rose 6 basis points to 6.27 percent. The Labor
Department reports the producer price index at 8:30 a.m.
tomorrow. In the past year, the S&P 500 fell eight times on the day
before the PPI report, with an average loss of 1.3 percent.
Computer Shares
Personal-computer shares declined after a Merrill Lynch &
Co. analyst said profits in coming years will suffer as selling
prices drop. Dell Corp. fell 2 to 40 1/4, International Business
Machines Corp. lost 2 3/16 to 121 1/8 and Hewlett-Packard sank 6
5/16 to 103 1/16.
''The influx of low-cost and super-low-cost PCs over the
next couple of years could have an overwhelmingly depressive
effect on average unit prices,'' Merrill Lynch analyst Steven
Fortuna said in a report.
Applied Materials Inc., the No. 1 maker of semiconductor
equipment, fell as much as 6 percent amid concern that customers
are ordering its products at slower rates. Applied fell 5 1/8 to
72 5/8. The company is scheduled to report fiscal third-quarter
earnings, along with orders and sales, on Tuesday.
Chipmakers are slowing the pace of new-equipment orders
after buying aggressively early in the year, analysts said.
United Technologies
United Technologies rose 3 3/16 to 66 3/8. The company's
Pratt & Whitney unit, one of the world's three largest jet-engine
makers, said it will cut at least 1,500 more jobs and move its
military jet-engine work to Connecticut from Florida to reduce
costs.
Caterpillar Inc. gained 1 15/16 to 61 3/16 after Goldman,
Sachs & Co. analyst Joanna Shatney said the company would benefit
from rebounding world economies. Shatney raised her rating on the
world's largest maker of construction equipment to ''recommend
list'' from ''market perform.''
This year may prove disappointing, though earnings could
take off in 2000 if key markets continue to improve, she said.
''A better global economy should support moderate price increases
after a year of discounting,'' Shatney wrote.
Nextel Communications Inc. jumped 5 1/8 to 53 1/8, after the
wireless phone-service company got approval from U.S. regulators
to pursue radio spectrum now entangled in bankruptcy proceedings.
The spectrum, which was awarded to NextWave Personal
Communications Inc. in an FCC auction in 1996, would give Nextel
flexibility to further build and enhance its network as well as
provide more advanced communications services, the company said.
Drugs
Drug stocks rallied as investors snapped up stocks that have
lagged behind the overall market this year. Bristol-Myers Squibb
Co. rose 2 5/16 to 67 3/16 and Pfizer Inc. rallied 1 to 34. The
S&P Drugs Index has fallen 18 percent this year versus a 5.6
percent rise in the S&P 500.
Some 742 million shares changed hands on the Big Board,
above the three-month daily average of 733 million.
Online brokerage stocks, which slumped in recent weeks, were
among the biggest gainers. Charles Schwab Corp. rose 2 3/4 to 41
and E*Trade Group Inc. rallied 15/16 to 24 3/8.
Merrill Lynch & Co., the biggest U.S. securities firm by
number of brokers, rose 4 3/8 to 71 3/8. The surprise retirement
of President Herbert Allison in July has revived speculation that
Merrill may again be looking into merging with Chase Manhattan
Corp. or American International Group Inc., the Wall Street
Journal said in its ''Heard on the Street'' column.
Clorox Co. tumbled 16 13/16 to 86 7/16 after the largest
U.S. maker of laundry bleach said sales unexpectedly fell 2.6
percent in its fiscal fourth-quarter. Analysts expected an
increase of about 1 percent. Profit rose 5.8 percent, matching
analyst estimates, on lower costs from integrating Clorox's First
Brands Corp. acquisition.
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July Retail Sales Increase and Tight Job Market Point to Economic Growth
By Noam Neusner, Vince Golle and John Cranford
U.S. Economy: July Retail Sales Up as Jobs Plentiful (Update2)
(Adds closing market activity.)
Washington, Aug. 12 (Bloomberg) -- U.S. retail sales
accelerated in July, and the number of workers seeking jobless
benefits held near a decade low, suggesting more growth is likely
for the economy in the months ahead, government reports showed.
Sales rose 0.7 percent last month to $248.7 billion, paced
by increased demand for autos, pickup trucks, and building
supplies, Commerce Department figures showed. That more than
reversed a 0.2 percent decline in June.
In addition, the four-week average of the number of U.S.
workers filing state unemployment claims fell to 288,250 last
week, its lowest level since February 1989, the Labor Department
said. That highlights concerns Federal Reserve policy-makers may
raise interest rates to prevent tight labor markets from leading
to outsized wage gains that could trigger higher inflation.
For now, the buoyant job outlook should keep pushing retail
sales higher, said Tim O'Neill, chief economist for Bank of
Montreal and Harris Bank in Toronto. ''The links certainly are
there,'' he said. ''This is still a very strong economy.''
Atlanta-based Home Depot Inc. is one of the main
beneficiaries. The largest retailer of home-improvement products
in the U.S. said a 28 percent rise in sales in its fiscal second
quarter will help boost its profit above analysts' estimates for
the period ended Aug. 1. Nationwide sales of building materials
rose 1 percent in July, the Commerce Department said.
Auto Sales Zoom
Sales at auto dealers rose 2.3 percent in July as consumers
took advantage of price cuts and low-rate financing incentives
offered by Ford Motor Co., DaimlerChrysler AG, and other
automakers. Excluding autos, U.S. retail sales rose 0.3 percent
last month.
Department store sales rose 1 percent in July as summer heat
waves boosted demand for air-conditioners and fans. That number
may be revised higher a month from now when government workers
include detailed reports from retailers on sales in the last half
of the month, That's when temperatures soared in many parts of
the country.
Through July, retail sales are on pace to increase 8.8
percent for 1999. That would be the largest yearly increase since
1984, when they rose 10 percent.
The sales gains increase the odds the Fed may boost
borrowing costs to slow the economy, even as inflation remains
mostly absent from wages and prices, analysts said.
''Growth in sales is still strong, running at about a 6.3
percent (annual) rate in the past three months,'' said
Christopher Low, chief economist at First Tennessee Capital
Markets Inc. in New York. ''The Fed would like to see something
less than 5 percent.''
The Fed's inflation fears may be fanned further by a
regional manufacturing survey released today by the Fed's Atlanta
branch, which showed that prices are rising quickly. The survey's
prices-paid index rose to 23.3. from 2.7.
Import Prices
Prices paid by U.S. businesses in July for imported goods
rose 0.9 percent, largely because of a pickup in crude oil and
building material costs, Labor Department figures showed. Not
including oil, prices paid actually fell 0.1 percent.
Still, for the 12 months ended in July, import prices rose
1.4 percent compared with a 6.3 percent decline for the 12 months
ended in July 1998. That was the first year-over-year increase in
import prices since February 1997.
The reports left intact investors' concern that the Fed will
raise interest rates at its Aug. 24 meeting. The benchmark 30-
year Treasury bond fell 17/32 point, pushing up its yield 4 basis
points to 6.26 percent. Stocks were mixed. The Dow Jones
Industrial Average rose 1.59 points 10,789.392 points, and the
Nasdaq Composite Index fell 15 points to 2549.49.
Gap, Circuit City
Gap Inc., the third-largest U.S. clothing chain, said today
fiscal second-quarter profit rose 43 percent as shoppers scooped
up casual fashions at its fast-growing Old Navy chain. Revenue
jumped 29 percent. Sales jumped 15 percent at Circuit City Group,
the No. 2 consumer-electronics chain.
Still, some economists say that with the gains in retail
sales coming mostly from autos, the economy's growth may be
slowing.
''Relative to earlier in the year, we clearly have seen a
slowdown in consumer spending,'' said Michael Niemira, senior
U.S. economist at Bank of Tokyo-Mitsubishi Ltd. in New York. The
three-month annual average of retail sales growth, before today's
report, was 2.4 percent, down from the 12-month average, which
was 7.1 percent, according to Bank of America Corp.
The National Automobile Dealers Association expects auto
sales this year to total close to last year's 16.5 million units
because ''the wealth genie will always be in the room,'' said
Paul Taylor, the group's chief economist.
''Consumers' buying power will still be firm, even as the
growth rate of the economy slows somewhat and interest rates rise
by as much as a half percent in the coming six months,'' he said.
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PC shares drag tech stocks lower
Chip-equipment makers fall ahead of AMAT report
By Janet Haney, CBS MarketWatch
Last Update: 5:52 PM ET Aug 12, 1999 Silicon Stocks
Join the Discussion Group
NEW YORK (CBS.MW) -- Computer-related stocks lost ground Thursday after Merrill Lynch warned that the race toward low-cost personal computers will put a squeeze on profits, while chip-equipment makers got stomped on during trading.
The Goldman Sachs Computer Hardware Index fell 3.2 percent.
Merrill Lynch analysts Steven Fortuna and Kumar Cidambi stirred things up in the PC sector by forecasting tough times over the next few years, saying in a research note that low-cost products could have an "overwhelmingly depressive effect on average selling prices."
"The resulting top-line growth could make it increasingly difficult to maintain the operating leverage necessary to sustain the industry's currents profit levels," Fortuna and Cidambi wrote.
The analysts expect unit prices to decline 11.5 percent this year, 12.1 percent next year and 11 percent again in 2001. Compaq, Dell, Gateway, IBM and Hewlett-Packard -- which together owned 41 percent of the worldwide market in 1998 -- are expected to account for more than 59 percent of the total market by 2002, they said.
Fortuna and Cidambi also began coverage of Gateway (GTW: news, msgs) and Micron Electronics (MUEI: news, msgs) with "neutral" ratings, citing unfavorable conditions in the industry. They maintained a "neutral" rating on Dell.
Today on CBS MarketWatch
Stocks cheered by economic update
U.S. wholesale inflation up less than expected
Japan GDP rose faster than previously thought
Gloomy view looms over PC sector
Thom Calandra: There's gold under Net stock tarnish
More top stories...
CBS MarketWatch Columns
Updated:
8/13/99 8:47:02 AM ET
Shares of the computer giants fell, with Compaq (CPQ: news, msgs), dipping 3/16 to 22 3/4 and Dell (DELL: news, msgs) shed 2 to 40 1/4.
Gateway (GTW: news, msgs) came back slightly from earlier losses to close at 82 1/2; Big Blue (IBM: news, msgs) dipped 2 3/16 to 121 1/8, and H-P (HWP: news, msgs) dropped the most, losing 6 5/16 to 103 1/16.
Micron Electronics lost 17/32 to 9 9/16. Apple (AAPL: news, msgs) rose 5/16 to 60.
Ahead of H-P's third-quarter earnings on Monday, and Dell's second-quarter results the day after, Lynda Calkin, portfolio manager at Westwood Management, shed more light on the trading day.
"What happens is early on, you get your third-quarter reports, and then you have a hiatus before you get the rest of them," Calkin told CBS.MarketWatch.com. "And so people start getting nervous again, and they're more likely to take the profits that they've got and to sell the names."
The Philadelphia Semiconductor Index, which tracks 16 chip and chip-equipment makers, fell 2.9 percent.
"We're into the August/September period and if you look at technology over the last few years, it's been horrible during this time period on a trading basis," Calkin added.
Chip-equipment makers also tripped in trading. Applied Materials (AMAT: news, msgs), the No. 1 semiconductor equipment maker, lost 5 1/8 to 72 5/8, ahead of its earnings release on Tuesday. Analysts expect the company to earn 53 cents a share in its third quarter.
While the company has received some negative comments from Wall Street analysts recently, Lehman Brothers analyst Edward White said he believes the company will report "solid" performance next week.
"Several factors point to an expected strong quarter, including market share gains, strong growth at key customers and suppliers, and significant upside operating leverage," he said in a note to clients.
Value Investing Partners agrees with the third-quarter First Call projection for Applied Materials, and also increased its 2000 estimate to $2.45 a share from $2.30. This compares with the Wall Street outlook of $2.75 a share.
KLA-Tencor [s : klac] slipped 3 9/16 to 66 7/16 and Teradyne (TER: news, msgs) dropped 5 7/16 to 72 9/16.
Elsewhere, Motorola (MOT: news, msgs) shares dropped 5 to 87 3/4 after Iridium World Communications, which is 18 percent-owned by Motorola, said late Wednesday it has defaulted on more than $1.5 billion in loans. Iridium (IRID: news, msgs) fell 28 percent at 4 1/4. See Screamers.
Lattice Semiconductor (LSCC: news, msgs) up 2 11/16 to 65 9/16 after the company announced a 2-for-1 stock split.
Meanwhile, analyst Erika Klauer at Deutsche Banc Alex. Brown upped her price target on Texas Instruments to $185 per share form $161. TI (TXN: news, msgs) shares rose 1 to 145 1/4.
Despite some negative comments on AMD, investors have bid up shares of the stock over the past month.
In addition, Klauer lowered her 1999 estimate on Advanced Micro Devices (AMD: news, msgs) to a loss $3.79 from a loss of $2.55 a share. The First Call consensus estimate calls for a loss of $3.27 per share.
"What bright spots there are [for AMD] do not appear to be substantial enough to help the company rebound from its inability to execute properly," she wrote in a research note.
AMD moved lower 3/8 to 18 9/16. Intel (INTC: news, msgs) gained 1/16 to 75 15/16. Intel hit a second straight record intraday high on Thursday, touching 76 3/4.
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