MARKET SNAPSHOT
Earnings deluge
Markets poised for lower open
Bonds climb
By Julie Rannazzisi, CBS MarketWatch
Last Update: 7:48 AM ET Apr 18, 2000 Bond Report
NEW YORK (CBS.MW) -- The U.S. equity market doesn't appear ready to extend Monday's mammoth gains when it opens for trading on Tuesday.
Uncertainty still looms large in the market, as does apprehension regarding future Fed rate hikes. This has produced wild gyrations between sectors in the broader market as well as within technology.
June S&P 500 futures fell 3.90 points, or 0.3 percent, and were trading roughly 5.90 points below fair value, according to HL Camp & Co. Nasdaq futures, meanwhile, lost 27.50 points, or 0.8 percent.
In shares trading before the opening bell, Texas Instruments dipped to 148 1/2 from its NYSE close of 157 in Instinet dealings. See Indications. The company (TXN: news, msgs) posted first-quarter earnings of 55 cents a share late Monday compared to First Call's 53-cent per share projection. See full story.
In the bond market, prices turned higher across the board after Monday's selling spree, which was prompted by the stock market's stellar performance. While stock watching remains the bond market's favorite sport, expectations that Treasury will soon announce -- perhaps as soon as this week -- another leg of its buyback program is underpinning the market Tuesday.
The 10-year Treasury note added 1/4 to yield 6.02 percent and the 30-year bond tacked on 1/2 to yield 5.90 percent. See Bond Report.
Tuesday will see the release of March housing starts, expected at 1.70 million, and building permits, seen at 1.65 million.View economic calendar and forecasts and historical economic data.
In currency markets, dollar/yen was recently trading at 104.17, off 0.3 percent from the previous close, while euro/dollar dipped 0.2 percent to 0.9497.
Monday's trading activity
The Nasdaq staged an impressive comeback Monday, enjoying its largest point increase in history after suffering its largest point setback on Friday. Bargain hunting in large-cap tech stocks was responsible for the mammoth gains.
The market witnessed volatility throughout the session, underscoring investors' nervousness following last week's drubbing. But after being absent for weeks, dip buyers finally emerged to scoop up stocks.
Still, investors were very selective in their buying, preferring shares of big-cap companies to second- and third-tier names. In fact, internals remained extremely negative, signaling that only a handful of stocks participated in the rally. And the Russell 2000's underperformance Monday was a clear indication of the market's preference for the big names.
"We're seeing a flight-to-quality into the big-name stocks. That was Monday's theme," said Donald Selkin, chief market strategist at Joseph Gunnar. "People are playing it safe. They're apprehensive about jumping into the previous high-fliers."
Inside the market, semiconducto, computer software and hardware issues witnessed the largest gains. The Philadelphia Semiconductor Index shot up a whopping 13.2 percent. The broader market saw losses in biotech, gold, retail and airline stocks. On the upside were utility, bank and drug stocks.
The Dow Industrials surged 276.74 points, or 2.7 percent, to 10,582.51, led by Intel, Hewlett-Packard, Procter & Gamble, Johnson & Johnson and United Technologies. Downside leaders were AT&T, Home Depot and Alcoa. (See 3-month chart of Dow and Nasdaq.)
The Nasdaq Composite added 217.87 points, or 6.6 percent, to 3,539.16.
"I'd view the large-cap, quality growth stocks like the Intels and the Apples and IBMs as a buying opportunity. But the smaller names will continue to be volatile and probably have a negative bias," said John Shaughnessy, chief market strategist at Advest.
Selkin said that while he believes the Nasdaq's not out of the woods yet, it's encouraging that the buy-the-dip mentality finally re-emerged in the quality-name stocks.
Among the blue-chip tech stocks witnessing smashing gains Monday, Sun Microsystems (SUNW: news, msgs) -- which reported record quarterly results late last week -- climbed 8 3/8 to 84 7/8, Intel (INTC: news, msgs) put on 12 1/2 to 123, Oracle (ORCL: news, msgs) rose 12 5/16 to 74 13/16 and Cisco Systems (CSCO: news, msgs) put on 9 1/2 to 66 1/2.
ABN Amro upgraded both Intel and Texas Instruments to a "buy" rating from an "outperform" Monday.
Meanwhile, though observers said Monday's rally was reassuring, uncertainties remain.
Richard McCabe, Merrill Lynch's chief market analyst, said in a note to clients that interim rallies may begin, but such a move would not necessarily mean that the new economy stocks are home free.
"We think that further downside tests are likely to develop before a major advance takes shape. By contrast, despite renewed volatility, the old
economy/value-style stocks are in what looks to be a bottoming process," McCabe continued.
"One of the technical conditions that concerns us in the current stock market environment is that sentiment indicators have reflected only moderate concern about downside risk in contrast to the usual extreme pessimism or caution at a convincing market bottom," McCabe said.
The Standard & Poor's 500 Index rose 3.3 percent while the Russell 2000 Index of small-capitalization stocks rose 1.2 percent.
"There's been a huge swing in relative tech valuation from overvalued to undervalued. Typically, once a stock or industry becomes overvalued, it shoots through fair value to undervaluation before stabilizing. That's what we think is in the process of happening, at least to most of these big cap tech stocks," said Lehman Brother's Jeffrey Applegate in a note to clients.
"All this begs the question of whether this tech correction in over. Given the enormous swing in tech relative valuation, the modest improvement in tech relative to expected earnings-per-share growth and very robust local and global final demand environments for tech products, we think that the worst is over," Applegate continued.
Separately, Donaldson, Lufkin & Jenrette's Tom Galvin changed his asset allocation in a model portfolio, raising the stock portion to 90 percent from 80 percent. The cash portion was raised to 10 percent from 5 percent while the 15 percent previously allocated to bonds was taken out.
Volume was heavy, standing at 1.20 billion on the NYSE and at 2.5 billion on the Nasdaq Stock Market. Market breadth remained negative despite the market's nifty advance. Decliners outnumbering advancers by 17 to 13 on the Big Board and by 26 to 17 on the Nasdaq.
In the meantime, a barrage of corporate earnings poured in Monday. Last week, solid quarterly reports couldn't keep the equity market afloat. The most compelling question for the market this week is whether good earnings will make a difference and attract lasting buying.
In earnings news Monday, Dow stock Eastman Kodak (EK: news, msgs) checked in with a first-quarter profit from operations of 95 cents a share, 2 cents ahead of the First Call estimate. The stock was up 5/16 to 61 13/16.
Ford Motor (F: news, msgs) registered a first-quarter profit of $1.70 a share, easily beating the First Call estimate of $1.58 a share. The stock rose 4 13/16 to 57 1/16. See full story. Dain Rauscher Wessels lowered its price target to $80 from $87 but reiterated its "strong buy" recommendation. See Rating Revisions.
Meanwhile, quarterly results from the banks and brokerages were nothing short of stellar.
Dow component Citigroup handily beat expectations, posting a first-quarter profit from operations of $1.04 per share compared to the First Call forecast of 78 cents a share. See full story. The stock (C: news, msgs) rose 1 1/4 to 59 1/4.
Merrill Lynch (MER: news, msgs) registered a first-quarter profit of $2.38 a share, well ahead of the First Call estimate of $1.83 a share. The stock inched up 1/4 to 90 1/4.
Charles Schwab (SCH: news, msgs) posted earnings of 33 cents per share compared to the First Call estimate of 32 cents a share. The stock rose 1 1/2 to 42.
See full story.
Bank of America (BAC: news, msgs), meanwhile, registered first-quarter earnings of $1.33 per share, beating the First Call estimate of $1.24 per share. The stock added 3/8 to 50 5/16.
The Bank of New York unleashed earnings per share of 46 cents in the first quarter, a penny ahead of the First Call estimate. Shares (BK: news, msgs) added 1/8 to 39 9/16.
Eli Lilly (LLY: news, msgs) shares added 2 9/16 to 70. The company posted first-quarter earnings of 63 cents per share, two pennies ahead of the First Call estimate. See story.
Sears shares rose 3/16 to 36 3/4. The company (S: news, msgs) posted a first-quarter profit of 65 cents a share, in line with the First Call estimate. See full story.
Johnson & Johnson (JNJ: news, msgs) shares tacked on 4 71/6 to 77 3/4. The drug giant received an upgrade to a "buy" from "attractive" from Bear Stearns and an upgrade to "top pick" from a "buy" from DLJ.
In the bond market, prices retreated with a vengeance as U.S. shares recovered. Treasurys have taken their cues from the stock market's moves over the past weeks.
There were no economic releases on tap for Monday. The week will be a quiet one on that front, with little news to provide direction.
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The 10-year Treasury note dropped 1 7/32 to yield 6.04 percent and the 30-year bond plunged 2 1/32 to yield 5.93 percent. See Bond Report.
In currency markets, dollar/yen was recently changing hands at 104.55, up 0.3 percent from the previous close, while euro/dollar lost 1.3 percent to 0.9525.
In the commodity arena, May crude added 32 cents to $25.89 while the Bridge CRB index rose 0.89 to 212.00. See full story and view latest commodity prices.
Julie Rannazzisi is Markets Editor for CBS MarketWatch. |
