==Thurs. 8/26/99,,U.S. Stocks Fall for 1st Time in Five Days, Led by Oil Shares
By Nick Olivari
U.S. Stocks Fall for 1st Time in Five Days, Led by Oil Shares
New York, Aug. 26 (Bloomberg) -- U.S. stocks fell for the
first time in five days, led by oil producers including Royal
Dutch Petroleum Co. and Chevron Corp. after an analyst said
declining crude prices will depress oil stocks in coming months.
The Dow Jones Industrial Average lost 127.59, or 1.1
percent, to 11,198.45, retreating from yesterday's record close.
The Standard & Poor's 500 Index dropped 19.78, or 1.4 percent, to
1362.01, its worst performance in a month. The Nasdaq Composite
Index declined 30.98, or 1.1 percent, to 2774.62. Three stocks
fell for every two that rose on the New York Stock Exchange.
''The Dow is near record highs and other benchmarks are
closing in on record highs, which implies a lot of stocks are
fully valued,'' said Charles Crane, chief market strategist at
Key Asset Management Inc., which oversees $75 billion. ''In the
context of strong gains in a short time, it is not unnatural for
investors to take a breather.''
In the prior four sessions, the Nasdaq gained 7 percent. The
S&P 500 added 4.4 percent after falling 10 percent from July 16
through Aug. 10. The Dow average rose 3.3 percent in that time.
Oil stocks led the S&P 500 to its worst day since July 29.
Royal Dutch fell 2 5/8 to 61 11/16 after analyst Steve Turner at
HSBC Securities in London cut his rating on the company to
''reduce'' from ''add.''
''Oil is trading at the top end of its range,'' he said,
''Even if it did go up a bit, we would question whether stocks in
oil companies would move much higher.'' Crude for October
delivery rose for the first time in five days, gaining 37 cents
to $20.95 a barrel.
Chevron fell 2 3/8 to 92 11/16 and Exxon Corp. slipped 1
15/16 to 80 5/16.
S&P Futures
S&P 500 September futures, which trade for 15 minutes after
the NYSE closes, settled at 1367.80, little changed in the last
quarter hour. That's 0.2 percent above ''fair value'' taking into
account, dividends, cost of money and days until expiration.
''We're down today but that does not necessarily signify the
beginning of a trend,'' said Brad Benshop, vice president of
equities for J.P. Morgan Futures Inc. at the CME. ''There was no
panic at the close that the fall will continue.''
Drug stocks fell for the first time in six days as the U.S.
dollar rose against the Japanese yen, reducing expectations for
drug companies' profits. The S&P drugs index fell 1 percent after
rising for the last five days.
An advancing dollar ''makes our drugs more expensive
overseas,'' lowering demand, said Alan Day, who helps manage more
than $4 billion for Stratevest Group in Burlington, Vermont. If
the dollar continues to rise, ''that would not help our health-
care stocks.'' A rising dollar also reduces the amount companies
receive from sales of their products in non-U.S. markets. The
dollar rose against the Japanese yen for a second day and
recently traded at 111.56, up 0.47 yen from yesterday's close.
Bristol-Myers Squibb Co. fell 2 11/16 to 73 1/4, Johnson &
Johnson slid 1 5/16 to 104 7/16 and American Home Products Corp.
lost 1 13/16 to 46.
Prince's View
Billionaire Saudi Prince Alwaleed Bin Talal, the largest
shareholder of Citigroup Inc. and Apple Computer Inc., said U.S.
stocks are so expensive that he won't make any new investments
for the foreseeable future.
''I'm very hesitant about investing in this market right
now,'' Alwaleed told Bloomberg News. ''The market is
overvalued.''
Stocks that trade at 40 times earnings or higher are
trouble, he said. The S&P 500 trades at 22 times estimated 2000
earnings, according to First Call/Thomson Financial.
Alwaleed, 42, who estimates his fortune at $14.5 billion,
said he expects a ''major correction'' in stocks and will wait
until it occurs before buying a large stake in another company.
Some 709 million shares changed hands on the Big Board, down
from the three-month daily average of 724 million. Trading may
have been affected by torrential rains in the New York region,
which closed some commuter routes.
Cisco
Cisco Systems Inc., the most-active U.S. stock, rose 5/16 to
68 15/16. The world's No. 1 maker of Internet equipment is buying
Cerent Corp., which makes equipment for routing phone calls and
Internet traffic through fiber-optic lines, for $6.9 billion, and
Monterey Networks Inc., whose technology lets telecommunications
companies add capacity to their networks, for $500 million.
With the purchases of the closely held companies, Cisco is
aiming directly at big phone-equipment makers including Tellabs
Inc., which fell 5 3/16 to 62 9/16 on expectations it will face
tougher competition from Cisco.
The American Stock Exchange Airline Index fell 5.7 percent,
its worst one-day decline since Jan. 20.
U.S. Airways Group Inc. fell 2 7/16 to 33 1/16, contributing
most to the decline after its machinists union rejected further
arbitration in contract talks with the sixth-largest U.S.
airline, a move that will start a 30-day countdown to a possible
strike.
Chemicals
The S&P chemical index suffered its biggest one-day decline
since June 8, falling 2.2 percent, as chemical manufacturers face
high raw-materials costs that will squeeze second-half profits.
DuPont Co. fell 1 7/8 to 68 13/16, Monsanto Co. slid 13/16
to 44 1/16 and Dow Chemical Co. slid 1 11/16 to 118 1/8.
Forest-products companies gained after a string of analysts'
upgrades. Although wood prices have slumped recently, Merrill
Lynch analyst Anna Torma raised Georgia-Pacific Corp. to ''long-
term buy'' from ''long-term accumulate.'' Torma said the stock
could reach 58 in the next 12 to 18 months.
Georgia-Pacific, the No. 2 U.S. paper and lumber company,
will ''benefit from continued positive pricing momentum in
containerboard, pulp and uncoated freesheet,'' she said in a
report. Merrill also reiterated long-term ''buy'' ratings on
Champion International Corp. and International Paper Co.
Georgia-Pacific gained 2 1/2 to 44, International Paper
climbed 1/2 to 51 1/2 and Champion International rose 1 1/4 to 57
1/2.
Bamboo.com IPO
Bamboo.com Inc., which allows people to see real estate
online in three dimensions, jumped 10 9/16 to 17 9/16 in its
first day of trading, giving it a market value of 358 million.
With more than 24 million shares changing hands, it was the
fourth-most-active U.S. stock. The Palo Alto, California-based
company sold 4 million shares at $7 each yesterday, raising $28
million.
===============
U.S. Economic Growth Slowed to 1.8% Rate in 2nd Quarter; Rebound Expected
By Vincent Del Giudice and Monee Fields-White
U.S. Economy: 2nd Quarter Growth Slows, Rebound Seen (Update1)
(Closes markets)
Washington, Aug. 26 (Bloomberg) -- The U.S. economy grew at
a slower pace in the second quarter than first estimated and is
expected to accelerate the rest of the year, keeping it on track
to set a record in January for the nation's longest expansion.
''You're looking at an economy that can continue to grow
and achieve records,'' said William Sullivan, an economist at
Morgan Stanley Dean Witter in New York.
Gross domestic product -- the nation's total output of goods
and services -- rose at a 1.8 percent annual rate in the second
quarter, the Commerce Department reported today. That's more
restrained than the government's previous estimate of a 2.3
percent rate and the first quarter's 4.3 percent gain.
The second-quarter slowdown reflected record imports, which
subtract from growth, and the smallest increase in inventories in
seven years. At the same time, the government increased its
estimate of growth in second-quarter consumer spending to a 4.6
percent rate from 4 percent. Unrelenting consumer demand and the
need for companies to rebuild stockpiles suggest a rebound in
third-quarter growth to around 4 percent, economists said.
The signs of strength in the GDP release, as well as a Labor
Department report suggesting the job market shows no sign of
easing, caused U.S. bonds to fall for the first time in a week.
The Treasury's benchmark 30-year bond fell 19/32 point, pushing
up its yield 4 basis points to 5.89 percent.
The expansion, which began in 1991, is already the longest
in peacetime record. The only longer expansion, between 1961 and
1969, coincided with the Vietnam War, and is expected to be
surpassed in January.
Jobless Claims
The number of workers filing for state unemployment benefits
fell last week to 283,000, the fifth straight week of claims
below 300,000, while the less-volatile four-week average stayed
close to a 26-year low, the Labor Department said today. That
suggests workers are having little problem finding jobs,
economists said.
Today's GDP report also showed that after-tax corporate
profits rose 1.7 percent in the second quarter after rising 6.2
percent in the first quarter. The smaller gain was attributed to
higher energy costs.
All in all, ''we had really good increase in the first
quarter,'' said Suzanne Rizzo, chief U.S. economist at Maria
Fiorini Ramirez Inc. in New York. ''So together, the two quarters
show pretty good profit growth.''
Stocks fell in afternoon trading. The Dow Jones Industrial
Average fell 128 points, or 1.1 percent, to close at 11198.45,
and the Nasdaq Composite Index fell 31 points, or 1.1 percent, to
2774.69.
The Commerce Department releases three estimates of each
quarter's GDP as more information becomes available to its
analysts. The third report for the second quarter will be
released Sept. 30.
Third-Quarter Growth
Economists expect the third-quarter's growth rate to rebound
to 3.8 percent, according to a Bloomberg News survey released
yesterday. That forecast also calls for consumer spending to rise
at a slower 3.7 percent annual rate, indicating much of the
increase in overall growth could come from inventory rebuilding.
Second-quarter inventories grew by $12 billion in the second
quarter, the smallest gain since a $6.4 billion increase in
fourth-quarter 1992, and businesses will have to boost production
to meet growing demand, analysts said.
For example, Dell Computer Corp., International Business
Machines Corp. and other computer manufacturers are encountering
trouble meeting demand for notebook computers because of a parts
shortage during the back-to-school season.
Also, U.S. automakers are extending their record run of car
and light truck sales this month, with model year-end discounts
forecast to push the annual selling rate above 16 million for the
seventh straight month.
Automakers
General Motors Corp., the world's largest automaker,
offering consumers incentives and interest free loans, is
forecast to boost sales 50 percent from a year earlier Rivals
DaimlerChrysler AG and Ford Motor Co. also raised incentives and
are forecast to report higher August sales.
Accelerating growth has issue of concern for Federal Reserve
policy-makers trying to guard against an increase in inflation.
The Fed on Tuesday raised the overnight bank lending rate a
quarter point for the second time this year, bringing it to 5.25
percent. The FOMC also signaled it may refrain from further
action this year because the June and August rate increases
''should markedly diminish'' the risk of accelerating inflation.
The GDP report also showed that inflation continued to be
restrained. The GDP price deflator, a measure of price increases
followed by many investors, grew at a 1.5 percent pace in the
second quarter, previously reported as a 1.6 percent gain.
The bulk of the additional drag on the economy in the second
quarter came from the U.S. trade deficit, which was a record
$24.6 billion in June.
Second-quarter imports were $13.9 billion higher than
previously estimated and exports were $500 million more than in
the last report. That left a net trade deficit of $337.4 billion,
up from the previous estimate of $323 billion.
Adjusted for inflation, GDP totaled $7.794 trillion in the
second quarter when measured at an inflation-adjusted annual
rate. That compares with $7.760 trillion in the first quarter.
Before adjusting for inflation, GDP totaled $8.882 trillion in
the second quarter, when measured at an annual rate, compared
with $8.809 trillion in the first quarter.
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