U.S. Stocks Are Mixed After Fed Raises Interest Rates
New York, Aug. 24 (Bloomberg) -- The Dow Jones Industrial
Average fell after the Federal Reserve raised short-term interest
rates a quarter percentage point, as expected. The Nasdaq
Composite Index gained, led by Microsoft Corp. after a court
victory in a copyright dispute.
Stocks swung between gains and losses after the Fed's
announcement at 2:15 p.m. New York time, settling about where
they were before.
The Dow average declined 16.46, or 0.2 percent, to 11283.30,
rebounding from a 105-point drop. The average briefly touched a
second straight record within minutes of the Fed's announcement,
then tumbled 172 points in 18 minutes, mirroring a 1.7 percent
drop in Standard & Poor's 500 futures.
''The market's using the Fed's move as a rationale to do
whatever it wants,'' said Dan Mathisson, head stock trader at
D.E. Shaw Securities. ''It's not economics; it's psychology.
Nothing changed in 10 minutes for us to be up 70 points and then
down 90.''
The Nasdaq rose 32.68, or 1.2 percent, to 2752.25. The S&P
500 Index gained 3.27, or 0.2 percent, to 1363.49. Four stocks
fell for every three that rose on the New York Stock Exchange.
Through for Now?
Today's rate increase, the second this year, put the
overnight rate for loans among banks at 5.25 percent. The Fed
signaled it will wait for evidence that inflation is accelerating
in the U.S. before it increases borrowing costs again.
In addition to raising the federal funds rate on overnight
loans among banks for a second time this year, the Fed surprised
investors by increasing the discount rate a quarter-point.
''Raising both of them is a fairly aggressive move, so it signals
they're probably done,'' said Bill O'Hearn, a portfolio manager
at McKinley Capital Management in San Francisco, which has $2.3
billion under management.
Investors have been focused since June 30, when the Fed
raised the fed funds rate 25 basis points to 5 percent, on
whether more increases were in store. Now, strategists said,
attention will shift to corporate profit growth, which bodes for
higher stock prices -- particularly because investors had built
up cash before the Fed meeting.
Growth in operating earnings for the companies in the S&P
500 is expected to average 21.4 percent in the third quarter, the
best since the first quarter of 1995, according to First
Call/Thomson Financial.
''People are wondering, 'Where are you going to put your
money?' They can put it into a mattress or put it in
securities,'' said Doug Myers, vice president of equity trading
at Wachovia Securities Inc., which manages $18.9 billion in
Charlotte, North Carolina. ''Despite the short-term wild
fluctuations, investors are feeling it's OK to get back into the
water.''
Money market funds -- a place where investors typically set
aside cash for short periods -- have seen huge inflows in recent
weeks. AMG Data estimated that $9.5 billion flowed
into money market funds last week, up from $7.1 billion a week
earlier, according to investment strategist Gail Dudack at
Warburg Dillon Read LLC. Inflows to money market funds averaged
$6.1 billion a week for the four weeks ended Aug. 11.
Movers
Microsoft, the No. 1 software maker, rose 5 3/4 to 92 3/16,
after a court victory in a copyright dispute with rival Sun
Microsystems Inc. Sun fell 13/16 to 74.
A U.S. appeals court reversed a November preliminary
injunction blocking Microsoft from using its own version of Sun's
copyrighted computer language software, Java. Microsoft says its
licensing agreement with Sun allows it to modify Java.
Time Warner Inc., the world's largest media company, dropped
5 1/8 to 61 1/16, shaving three-quarters of a point from the S&P
500 Index.
Merrill Lynch & Co. analyst Jessica Reif Cohen cut her 1999
cash-flow estimate for Time Warner because its share of the U.S.
music market is declining. Cohen reduced her estimate to 9
percent to 10 percent growth in cash flow, or earnings before
interest, taxes and amortization, from 13 percent.
Options to sell Time Warner for 55 in December gained 13/16
to 2 1/8 with 5,255 contracts changing hands. Before today's
trades, open interest was reported at 210 contracts on the
December 55 puts.
Oil producers fell with crude, which suffered its biggest
drop of the month, on news Germany will auction almost 32 million
barrels from its reserves. That followed reports that the Royal
Dutch/Shell Group will restart production at its Odidi flow
stations in Nigeria, adding to global supplies.
Exxon Corp. fell 1 3/16 to 81 5/8, Mobil Corp. slid 1 7/16
to 105 1/2 and Texaco Inc. declined 3/4 to 63 15/16.
BioCryst Pharmaceuticals Inc. shares rose 9 1/16 to 32 after
the fledgling biotechnology company reported positive results
from a trial of an influenza drug to be marketed by Johnson &
Johnson.
Procter & Gamble Co., the largest U.S. maker of household
consumer products, rose 2 to 100 1/4 after being raised to
''attractive'' from ''neutral'' by analyst Andrew Shore at
PaineWebber Inc.
''We believe money could find its way into (consumer
product) over the next several months, as relative earnings
growth should be above average,'' Shore said in a report to
clients. Procter & Gamble has the ''best management'' and ''best
brand portfolio'' of U.S. household consumer products, he said.
The stock could reach 120 within 12 months, he said.
Periphonics Corp. gained 2 1/2 to 27 3/4 after Nortel
Networks Corp., North America's No. 2 phone-equipment maker,
agreed to buy Periphonics for US$436 million in stock to gain
equipment that links voice, data and Internet services. Nortel
fell 3/16 to 43 7/16.
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