Stocks Eye Inflation
Dawn Patrol
September 15, 1999
by Loren Fox
How well technology shares fare
Wednesday is a big question mark.
Software bellwether Oracle posted
somewhat disappointing earnings Tuesday
evening. But the broad stock market will
live or die according to the morning's report
of the monthly consumer price index, an
important measure of inflation.
With interest rates on everyone's minds,
Wall Street will be focused on the 8:30 a.m.
EDT report of the August consumer price
index. Economists estimate the CPI rose 0.3
percent, and the core CPI, which excludes
food and energy, rose 0.2 percent. A big
rise in the CPI could be another argument in
favor of the Federal Reserve raising rates to
stave off inflation. And higher rates tend to
be bad for tech stocks.
Behind the scenes, matters are mixed. On
the one hand, the technology-heavy Nasdaq
index rose 0.8 percent Tuesday. However,
the yield on the benchmark 30-year
Treasury bond, which is a proxy for interest
rates, crept up to 6.11 percent.
Inflation Incoming? Persistent worries
about interest rates have been the summer's
biggest annoyance since JarJar Binks. But
how important will Wednesday's CPI data
be in determining whether the Federal
Reserve raises rates? "I'd call it important
but not defining," says Douglas Cliggott,
U.S. equity strategist at J.P. Morgan
Securities. The CPI will be one of the most
important pieces of data between now and
the Fed's Oct. 5 meeting.
Cliggott tells UpsideToday that the era of
deflation is over and that inflation is now on
the rise. So, while there isn't an
overwhelming case to be made either for or
against raising rates Oct. 5, Cliggott believes
rates will eventually go higher. That's the
logic behind his most frightening prediction:
"I think we'll still be asking 'are interest
rates headed higher?' three or four months
from now."
In an inflationary environment, Cliggott
recommends remaining neutral on
technology stocks (including the Internet
stocks). "[Tech] has a lot going for it," he
notes, but the stocks are not cheap. The
area of technology that most excites him is
the semiconductor industry, and his opinion
is shared by many on Wall Street. Cliggott
likes the chip space because it is starting a
cyclical upturn and has great global
exposure. "Semiconductors are like the
industrial sector of technology," he says.
Oracle Deflates: Shares of the leading
database software maker, Oracle Corp.
(ORCL), had risen more than 25 percent
since the start of the month in anticipation of
its first-quarter earnings report. But expect
the stock to deflate in the near future,
because the company's Tuesday Q1
earnings report wasn't strong enough to
support further gains.
Oracle reported first-quarter earnings of 16
cents a share, which was in line with
analysts' estimates but below the "whisper"
estimates of 17 to 18 cents. Revenues rose
13 percent to $1.98 billion, which was on the
low end of expectations. Database revenue
grew by 8 percent. Software licensing
revenue rose just 9 percent, when some
analysts were looking for growth of at least
10 percent.
Within 18 months, Oracle said it expects 80
percent of its total sales to come from its
new Web store and reiterated its belief that
the company can cut $1 billion from its cost
structure. But investors were clearly
displeased. In after-hours trading Tuesday
evening, Oracle shares were down more
than 10 percent, indicating a drop at
Wednesday's open.
What's happening? It may be a case of
overoptimistic expectations. Recently, tech
stocks seem to be priced as though
everything in Q3 will come in okay, says
Kevin Landis, manager of the Technology
Value Fund. Landis tells UpsideToday that
the last time that happened was late July.
Expectations for the Q2 earnings were so
high in midsummer that when results barely
beat analysts' estimates, investors sold tech
stocks. "Maybe we're setting ourselves up
for another one of those. I don't know," he
says.
Other Happenings: Seagate Technology
(SEG), the leading disk-drive maker, said
after Tuesday's bell that it plans to cut 10
percent of its work force, or more than
8,000 workers. Seagate will take a $200
million Q1 charge for the move, but it sees
ongoing savings of $150 million a year from
the job cuts.
Verity Corp. (CS), which makes
data-retrieval software, reported
first-quarter earnings of 32 cents. That blew
past Street estimates of 18 cents. Revenues
rose 50 percent to $19.8 million. In
after-hours trading, Verity stock was higher.
Earnings reports due Wednesday include
one from contract electronics manufacturer
Jabil Circuit (JBL), which reports its fourth
quarter (analysts expect earnings of 30
cents a share); and another from
measurement and imaging company
Tektronix (TEK), which reports its first
quarter (analysts expect earnings 17 cents a
share).
Touched By An Angel: Will online trading
lead to online angel investing? E-Trade
(EGRP) is partnering with Garage.com, a
Web site that uses the Net to match startup
companies with angels (wealthy individuals
investing in early-stage companies).
The online brokerage firm led a $12 million
round of financing for Garage.com, with
other investors including Advanced
Technology Ventures, the Mayfield Fund
and Credit Suisse First Boston. As part of
the arrangement, a select number of
qualified E-Trade customers will be allowed
to invest in deals offered through
Garage.com. Look for more private equity
deals, including angel and venture investing,
to involve the Net.
Loren Fox is finance editor at Upside
Media.
Street Eyes Price Report -- With
tech higher, inflation takes
spotlight....
September 10, 1999
more ...
Dow Jones
Industrial Avg.
10910.33
-120.00
S&P 500
1336.29
-7.84
NYSE Composite
615.11
-5.70
AMEX Composite
801.48
-3.02
NASDAQ
Composite
2868.29
+23.52
Russell 2000
438.24
-1.41
30-year Treasury
Bond
6.11
+0.05
last updated 09/14/1999 14:58
Quotes are delayed at
least 20 mins.
Most Actives
(15 most actively traded stocks on the
NYSE, Nasdaq and AMEX)
Gainers
(15 biggest winners on the NYSE, Nasdaq and
AMEX)
Losers
(15 biggest losers on the NYSE, Nasdaq
and AMEX)
Upgrades/Downgrades
Internet
393.68
+6.90
Telecom Equipment
1066.45
+5.39
Computer Hardware
992.84
-7.16
Computer Networks
1175.11
+9.80
Computer
Peripherals
881.08
+17.93
Computer Services
1713.84
-1.51
Computer Storage
Devices
538.53
-7.29
Semiconductors
1594.99
+59.75
Software &
Programming
1382.63
+11.98
Broadcasting &
Cable TV
1839.44
-20.32
last updated 09/14/1999 14:56
Financial Info
ORCL
quotes
ratings
SEG
quotes
ratings
VRTY
quotes
ratings
JBL
quotes
ratings
TEK
quotes
ratings
EGRP
quotes
ratings
Back to Yahoo
|
