Market Snapshot!
Dow, Nasdaq suffer setbacks
Investors nervous ahead of ECI, GDP
By Julie Rannazzisi, CBS MarketWatch
Last Update: 4:12 PM ET Apr 26, 2000 Market Pulse
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NEW YORK (CBS.MW) -- Cautious investors, nervous due to upcoming economic data, dumped Dow stocks Wednesday, with weakness concentrated in financial, consumer and industrial stocks.
The Nasdaq also declined, remaining in a razor-thin range throughout the trading session, underscoring investors' skittishness ahead of the first-quarter employment cost index -- an economic indicator closely watched by Fed Chief Alan Greenspan -- and the advance reading of first-quarter gross domestic product.
"Thursday's numbers will be disappointing. The question is how the market takes them," said Joseph Barthel, chief investment strategist at Fahnestock & Co. Once the dust settles following the releases, he believes the Dow Industrials and the S&P 500 will be in a better position to rally because they have successfully formed a bottom over the past few weeks.
"The Nasdaq, however, needs more work. It's still in the early stages of putting in a bottom. It will take months to establish a base," Barthel added.
In specific sectors, computer software issues lost their earlier luster as Microsoft relinquished earlier gains. Networking and semiconductor issues rose. The broader market saw additional gains in the paper sector while weakness was detected in the drug, airline bank and brokerage areas.
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The Dow Industrials declined 179 points, or 1.6 percent, to 10,945. Leaders on the downside were also among Tuesday's big losers: Procter & Gamble, DuPont and 3M. United Technologies also suffered sharp losses. Upside movers were Walt Disney, General Motors and Home Depot.
The Nasdaq Composite fell 81 points, or 2.2 percent, to 3,630.
The Standard & Poor's 500 Index fell 1.1 percent while the Russell 2000 Index of small-capitalization stocks lost 1.0 percent.
Looking for answers
Rotation among different sectors in the broader market continued Wednesday as investors seek leadership.
Financial stocks weakened as market participants remain fearful that Thursday's GDP and ECI numbers will show inflationary pressures are building.
"Thursday's numbers could change the lay of the land -- and not for the better," said Joe Liro, equity strategist at Stone & McCarthy Research Associates. His firm predicts GDP growth to come in at a sizzling 7 percent -- higher than most forecasts -- with a 0.9 percent rise in the ECI.
Liro believes the market will struggle even if the numbers match consensus estimates. He believes stocks could easily fall below their recent lows if the data show more upside pressure on inflation.
While market breadth has improved and Tuesday's and Wednesday's price action in the technology arena is very constructive, Bryan Piskorowksi, a market analyst at Prudential Securities, said he doesn't see a clear path for the market until Thursday's economic data hurdle is eliminated.
"Will we see GDP growth of 6 percent or will it top 7 percent? These are questions that need to be answered," Piskorowksi said.
The market got an inflation scare on April 14, producing a market massacre. Investors are still licking their wounds and the fear of inflation and a more aggressive Fed going forward remain the market's chief concern.
Inflation jitters
The ECI, the broadest measure of wage inflation, will give the market and the central bank a better indication of whether tight labor markets are putting upward pressure on workers' compensation. The GDP price deflator, another inflation measure, will also be in the limelight.
Trading is tepid, Piskorowski said, and the light volume underscores the market's skittishness to step up to the plate before having a more complete picture on the inflation front.
"Tuesday's 6.5 percent gain on the Nasdaq accompanied by a respectable 2 to 1 advance/decline ratio appears to be part of a near-term bottoming pattern for the [technology] market," said Merrill Lynch's chief market analyst Richard McCabe. In addition, short to medium-term momentum indicators have been oversold and could offer some near-term support, he continued.
But breadth and volume numbers, McCabe said, will give the best clues as to whether the Nasdaq has enough strength to hold above its recent lows. He still expects additional re-tests of those lows.
Volume stood at 986 million on the Big Board and at 1.58 billion on the Nasdaq Stock Market. Losers beat winners by 16 to 14 on the NYSE and by 23 to 18 on the Nasdaq.
Potential supply overhang
As the market faces inflation jitters, it must also contend with a boatload of supply as AT&T prepares to launch its AT&T Wireless Group (AWE: news, msgs) tracking stock. The new IPO -- the largest in the U.S. -- will begin trading Thursday morning.
If the deal doesn't break to the upside, Liro said, there will be an ugly overhang in the market.
The current price range of the AT&T wireless IPO is $26 to $32 per share. Where the huge, 360 million-share, approximately $11.5 billion deal ends up pricing will be determined after the bell Wednesday. See IPO Report.
Earnings parade
JDS Uniphase added 2 1/2 to 95 13/16. Late Tuesday, the company (JDSU: news, msgs) reported third-quarter earnings of 11 cents a share, a penny ahead of the Wall Street consensus estimate. See Earnings Surprises.
Shares of Compaq (CPQ: news, msgs) inched down 1/2 to 29 3/4. The company announced a first-quarter profit from operations of 16 cents a share, in line with First Call expectations. Read story.
EBay (EBAY: news, msgs) posted a first-quarter profit from operations of 6 cents a share after the close, 3 cents ahead of the First Call estimate. The company also set a 2-for-1 stock spilt. The stock fell 2 1/2 to 151 1/16, erasing earlier gains. See full story.
Amgen (AMGN: news, msgs) shares rose 5 3/16 to 59 1/2, giving up earlier losses. The company posted after the close Tuesday a first-quarter profit of 25 cents a share, matching the First Call estimate. View the story.
BMC Software rose 4 5/8 to 45 7/16. After the close, the company (BMCS: news, msgs) said it made 49 cents a share in the fourth quarter, 2 pennies ahead of the First Call estimate. Shares rose 2 7/8 to 40 13/16 ahead of the news. Moreover, BMC Software announced plans to repurchase up to $500 million in common stock. The company said it will buy stock on the open market depending on market conditions.
Nortel Networks (NT: news, msgs) rose 4 5/8 to 117 1/18. The company's first-quarter earnings came in at 23 cents a share, well ahead of the 18 cents a share expected by First Call.
LSI Logic made 26 cents a share in the first quarter, a penny ahead of the First Call estimate. The stock (LSI: news, msgs) added 1/4 to 57 1/4.
Nextel Communications (NXTL: news, msgs) posted a first-quarter loss from operations of 83 cents a share after payment of preferred dividends. That was well aheaed of the First Call estimate predicting a loss of 95 cents a share. See full story. Shares fell 1 9/16 to 110.
In the bond market, prices slipped in afternoon trading, abandoning earlier gains.
On the economic front, March durable goods orders rose a heady 2.6 percent compared to the expected 1.0 percent rise. Excluding transportation, durables rose 2.8 percent. See full story and view economic calendar and forecasts and historical economic data.
The 10-year Treasury note inched up 5/32 to yield 6.10 percent and the 30-year bond added 12/32 to yield 5.91 percent. See Bond Report.
In currency markets, dollar/yen was recently changing hands at 106.30, up 0.1 percent from the previous close, while euro/dollar added 0.2 percent to 0.9229 following a 1.9 percent plunge on Tuesday.
In the commodity arena, June crude lost 66 cents to $24.67 while the Bridge CRB index fell 1.33 to 210.62. View latest commodity prices.
Julie Rannazzisi is Markets Editor for CBS MarketWatch.
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