MARKET SNAPSHOT
Futures markets drop
Sellers still in charge?
By Julie Rannazzisi, CBS MarketWatch
Last Update: 7:44 AM ET May 19, 2000 Market Pulse
Bond Report
NEW YORK (CBS.MW) -- The U.S. equity markets are poised for a soggy open Friday with tech stocks looking to add on to Thursday's losses.
June S&P 500 futures slipped 10.50 points and were trading roughly 11.80 points below fair value, according to HL Camp & Co. Nasdaq futures dropped 79.00 points, or 2.3 percent.
In the bond market, prices lost more ground, with long-dated issues again leading on the downside. The 10-year Treasury note edged down 1/32 to yield 6.55 percent and the 30-year bond dropped 9/32 to yield 6.26 percent.
On the economic front, Friday will see the release of the March trade numbers, expected to show a deficit of $29.4 billion. See economic calendar and forecasts and historical economic data.
In currency markets, dollar/yen fell 0.7 percent from the previous close to 107.80 while euro/dollar lost 0.9 percent to 0.8865.
Thursday's market activity
A late-afternoon bout of selling took the Nasdaq Composite sharply lower and erased the brunt of the Dow Industrials' earlier gains. The session was spent in a tight range with most of the buying interest concentrated in the bank, retail and utility sectors.
Inside the broad market, biotech, oil service and transportation sharers led on the downside. In the tech arena, Internet and computer software stocks were the hardest hit, with most of the profit-taking hitting the market in the final hour of trading.
Thursday's rally in utility, bank and retail issues suggests the market increasingly believes the Fed can achieve a soft landing of the U.S. economy with its rate hikes, said Clark Yingst, a market analyst at Prudential Securities.
"We've seen some remarkable strength in the utility averages and the strength is broad-based, [affecting] the gas and electric utilities alike," Yingst remarked. This strength, coupled with the gains in financial stocks, he continued, seems to suggest that bond yields are getting close to their peak.
At the same time, Yingst added, the swift shifts from sector to sector indicate that investors remain uncertain about the interest rate outlook. "There are a lot of cross-currents out there."
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Intl' Indexes
The Dow Industrials inched up 7.54 points, or 0.1 percent, to 10,777.28 after rising as much as 95 points in intra-day trading.
Shares of General Motors, Wal-Mart, Coca-Cola, Honeywell and Johnson & Johnson paced the Dow's advance while AT&T, Philip Morris and Caterpillar emerged as downside leaders.
The Dow's financial components -- American Express, J.P. Morgan and Citigroup -- ended with nice gains.
John Waterman, managing director of investments at Rittenhouse Financial, said market participants may be looking beyond the direction of interest rates over the short term and realizing that yields will be lower six to 12 months down the road.
Further, Waterman added, there's bottom fishing taking place in the financial arena as many stocks -- particularly among the regional banks -- have been hit hard in recent months and look cheap relative to earnings.
People are lightening up on their technology positions and hedging their exposure to the market by looking at other sectors, Waterman said. "Many fund managers must be fully invested and [as they decrease their tech positions] they need to park their money in alternative areas of the market."
The Nasdaq Composite ended at session lows, losing 106.25 points, or 2.9 percent, to 3,538.71 while the Nasdaq 100 index dropped 124.15 points, or 3.5 percent, to 3,426.35.
Some technicians believe the market has more work to do on the downside before engaging in a sustainable upward move.
"I believe tech stocks will get weaker before they get better," said Robin Griffiths, chief technical analyst at HSBC Securities. He expects another tech shakeout that will represent a great buying opportunity in many quality names and lay the foundation for a convincing climb.
The Standard & Poor's 500 Index edged down 0.7 percent while the Russell 2000 Index of small-capitalization stocks lost 1.7 percent.
Trading volume was again thin, coming in at 809 million on the NYSE and at 1.25 billion on the Nasdaq Stock Market. Breadth turned negative with losers beating winners by 16 to 13 on the NYSE and by 24 to 15 on the Nasdaq.
In specific sectors, the Philadelphia Utilities Index ($UTY: news, msgs) rose 1.7 percent while the CBOE Bank Index ($BIX: news, msgs) added 1.6 percent. (See 6-month chart of indexes.)
Specific issues
Dow-component Microsoft (MSFT: news, msgs) edged down 1 3/16 to 66 1/2. In a reply to last week's remedy filing by Microsoft, the government reiterated Wednesday its call to break the software behemoth into two separate companies. See full story.
Lycos put on 4 45/64, or 8.2 percent, to 62 5/16 following a 15 1/64 drop on Wednesday. After the close Wednesday, the company (LCOS: news, msgs) posted third-quarter earnings of 7 cents a share, beating the First Call estimate by 2 cents. Lycos lost a penny a share in the same period last year.
Shares of WorldCom (WCOM: news, msgs) shed 2 7/16 to 39 9/16. A panel of Justice Department investigators has recommend it block the proposed purchase of Sprint (FON: news, msgs) by WorldCom because it would violate antitrust laws. The Justice Department's concern is that the two companies would dominate Internet switching services. See full story. Sprint lost 1 5/16 to 56 11/16.
Other telecom stocks feel in tandem with shares of Dow-component AT&T (T: news, msgs) off 1 1/4 to 36 7/8. On Thursday Lehman Brothers reiterated its "buy" recommendation on the stock with a $80 price target. See Rating Revisions. Merrill Lynch's Telecom Holdrs (TTH: news, msgs), a basket of 20 telecom stocks, shed 2.2 percent.
Shares of Legato Systems erased 4 1/16 to 11 15/16. Late Wednesday, the company (LGTOE: news, msgs) registered a first-quarter profit of $425,000, or break-even per share, compared to the First Call estimate of a 6-cent-per-share profit. The company earned 4 cents per share a year ago.
In earnings news, AnnTaylor Stores (ANN: news, msgs) reported a first-quarter profit from operations of 55 cents a share, beating the First Call estimate by 2 cents. The stock shed 3/8 to 25 1/4.
Barnes & Noble (BKS: news, msgs) checked in with a pro forma break-even first-quarter compared to First Call's estimate of a 2-cent-per-share loss. The stock added 3/16 to 18.
Hewlett-Packard (HWP: news, msgs) inched up 1 5/8 to 131 3/4 following Wednesday's bruising sell off that took place even as the company checked in with better-than-expected results.
Earthlink dropped 1 11/16 to 19 3/4 after the company disclosed in a government filing that it expects to record a higher loss in 2000 compared to a year ago. The company (ELNK: news, msgs) projects to lose between $170 to $215 million, before transaction costs, which compares to First Call's projection of a loss of $1.72 a share for the year. See full story.
National Discount Brokers (NDB: news, msgs) powered ahead 3 1/2, or 14.3 percent, to 28. Deutsche Bank confirmed details of its purchase of a stake in NDB. The finalization of the agreement calls for Deutsche to buy 3 million shares of NDB for $45.31 a share, bringing its stake in the online broker to 16 percent. Further, the deal allows Deutsche to buy another 3.3 percent of the company. See Market Pulse.
Over in the IPO arena, New Focus (NUFO: news, msgs) surged 31, or 155 percent, to 51 in its first day of trading. Shares of the fiber-optics specialist was offered at $20 a share. See IPO Report.
See After Hours for post-market trading activity.
Treasury focus
Long-term bond prices erased early gains and extended Wednesday's losses. The 10-year Treasury note fell 11/32 to yield 6.55 percent and the 30-year bond lost 24/32 to yield 6.24 percent.
On the economic front, weekly initial claims fell 21,000 to 276,000 while the Philadelphia Fed index for May rose to 20.2 from April's 12.8. The index was expected to come in at 14.0. The prices paid component edged down to 31.4 from the previous reading of 33.5.
In other news, minutes of the March 21 Federal Open Market Committee meeting revealed that central bank members were unanimous in their vote to raise short-term rates by 25 basis points, though some members expressed a preference for raising rates by 50 basis points. Read the full story.
In March, the FOMC said it saw "little evidence to date of any acceleration in core inflation." However, the minutes revealed that "members expressed concern about indications of a less benign inflation climate."
In the meantime, Treasury executed its fifth buyback operation, accepting $2 billion in par amount of long-dated issue with maturities ranging between Feb. 2015 and August 2019. The government received offers totaling $9.117 billion and reclaimed 10 of the 12 eligible securities. See Bond Report.
The long end failed to rise on the news and some analysts reported market disappointment the buyback was trimmed to $2 billion from the $3 billion bought at the last buyback operation.
In currency markets, dollar/yen fell 0.4 percent from the previous close to 108.73 while euro/dollar edged up 0.1 percent to 0.8949.
In the commodity market, June crude advanced $1.01 to $30.33, after rising to an intra-day high of $30.52, while the Bridge CRB index put on 1.35 to 222.01. View latest commodity prices.
Julie Rannazzisi is markets editor for CBS MarketWatch.
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