Monday 5/22 Market Summary from Bloomberg:
quote.bloomberg.com
Top Financial News
Tue, 23 May 2000, 12:21am EDT
U.S. Stocks Fall, Led by GE, Oracle; GM Drags Down Dow Average
By Chelsea Emery
New York, May 22 (Bloomberg) -- U.S. stocks fell, led by
General Electric Co. and Oracle Corp., on concern higher interest
rates will slow the economy, even as a late rally wiped out more
than four-fifths of the Nasdaq Composite Index's loss.
``The Fed's going to keep raising interest rates until they
see signs that inflationary pressure is easing, and it will take
the belief that the Fed has stopped raising rates for stocks to
turn around,'' said Gil Knight, principal with Allied Investment
Advisers, which manages $13 billion in Baltimore.
General Motors Corp. fell 11 percent, its biggest decline
since the 1987 stock-market crash. The No. 1 auto maker, which
makes up 4 percent of the Dow Jones Industrial Average, led the
average lower after saying it will accept fewer shares than
holders sought to swap for stock in its Hughes Electronics Corp.
unit. That prompted arbitragers, who had scooped up GM to trade
for Hughes, to unload their GM holdings.
The Nasdaq fell 26.19, or 0.8 percent, to 3364.21, paring a
6.4 percent loss. The Dow average fell 84.30, or 0.8 percent, to
10,542.55, after being down as much as 250 points. The Standard &
Poor's 500 Index slid 6.23, or 0.4 percent, to 1400.72.
Three stocks fell for every two that rose on the New York
Stock Exchange, and more than 863 million shares changed hands on
the Big Board, down about 18 percent from the three-month daily
average.
Stocks extended declines that began last week after the
Federal reserve raised short-term interest rates for the sixth
time in 11 months.
With rates now at their highest level since 1991, and the
central bank promising more increases to keep inflation in check,
investors are now betting the economy will slow and companies
won't have as much money to invest in new technology.
88 Percent
The Nasdaq soared 88 percent between the first rate increase,
on June 30, and the index's record close on March 10 as investors
bet rising rates wouldn't slow technology spending as companies
sought to become more efficient and cut costs.
``Earlier in the year there was a sense the Fed was going to
be gradual and wouldn't raise rates so much,'' said Kevin Logan,
chief market economist for Dresdner Kleinwort Benson. ``Now
there's a perception underlying economic growth requires much
higher interest rates to slow things down.''
Logan said he expects the Nasdaq to slip to 3000 or lower
within the next few weeks. The index has fallen 33 percent from
its record, 9.5 percent over the last four sessions.
GE, the largest U.S. company by market value, fell for a
fourth day, losing 1 7/8 to 50, after being down as much as 6
percent. The shares have lost 7.8 percent during that streak.
Oracle fell 2 1/4 to 67 13/16. Dell Computer Corp. slid 1 to
45 15/16.
GM lost 9 9/16 to 77 3/8, its biggest loss since the 1987
crash, when it fell 21 percent in one day. The world's largest
automaker said shareholders who tendered their shares for GM's
Hughes Electronics unit will get one share for every four offered.
Arbitragers controlled as many as 100 million GM shares by
Friday, on expectations the exchange ratio would be higher,
Barron's reported. Shares of the automaker surged 32 percent in
the 12 months ended Friday, partly in anticipation it would spin
off part or all of Hughes. The announced offer left those
investors holding GM stock they had expected to trade for Hughes.
Hughes surged 6 7/8 to 96 3/4. Shares have gained more than
65 percent over the last year.
Rally
Stocks began their rebound about 2 p.m. as investors snapped
up some large technology companies, including Cisco Systems Inc.,
which was the most-active stock for a sixth day, and Intel Corp.
``There's been fishing in good names, companies with good
earnings, like Cisco and Intel,'' said Tim Heekin, head of
trading at Thomas Weisel Partners LLC in San Francisco.
Cisco rose 1 13/16 to 55 1/4 after falling as much as 6.4
percent to 50. Intel erased a 5.5 percent loss, closing with a
gain of 1/2 to 118 3/8.
The American Stock Exchange Biotechnology Index fell 4.2
percent, its biggest one-day drop in almost two weeks, and all but
two of the index's 17 members declined. Protein Design Labs Inc.
slid 6 15/16 to 125 11/16 and Idec Pharmaceuticals Corp. slid 7
15/16 to 61 15/16, leading the index's declines.
Schlumberger Falls
Schlumberger Ltd. fell 5 5/8 to 73 9/16. The oilfield
services company is trading at a premium to the biggest oil
stocks, while this year it should earn only about half what it did
in 1981, Barron's reported.
Schlumberger trades at 65 times this year's expected profit,
while Exxon Mobil Corp., the world's largest oil company, trades
at 25 times, and Texaco Inc., the No. 2 U.S. company, trades at 14
times projected profit.
Performance Technologies Inc. plunged 16 13/16, or 60
percent, to 11 7/16 after the maker of communications equipment
said late Friday it will likely report second-quarter earnings
that will miss estimates due to lower-than-expected orders.
Peco Energy Corp. and Unicom Corp. were among stocks in the
Dow Jones Utilities Average that gained. The average rose for a
third day. Peco gained 1 3/4 to 45 3/16, and Unicom rose 1 7/16 to
42 13/16.
Utility companies offer consistent earnings growth and
relatively high dividend yield. Peco has a dividend yield of 2.2
percent, almost double that of the S&P 500's 1.2 percent.
Investors anticipate that power demand is less likely to decline,
even if the economy slows.
Allied's Knight said he's been selling technology stocks
including Microcell Telecommunications Inc. and buying shares of
utility companies such as Vintage Petroleum Inc.
Vignette, WebMethods Plunge
Vignette Corp. and WebMethods Inc. plunged after agreeing to
buy other companies.
Vignette, a maker of customer-service software for American
Express Co., among others, sank 8 15/16 to 34 7/8 after saying it
would buy OnDisplay Inc. for about $1.7 billion in stock.
OnDisplay gained 7/8 to 54 1/8.
WebMethods, which makes software that links online buyers and
sellers, fell 15 to 72 after saying it agreed to buy Active
Software Inc. for about $1.3 billion in stock. Active Software
fell 15/16 to 32 1/16.
Banc of America Securities LLC equity strategist Thomas
McManus recommended investors reduce their stock holdings and buy
more bonds for the second time in four weeks.
McManus recommended investors reduce the amount of their
portfolios invested in U.S. stocks to 70 percent from 75 percent
and raise the amount in bonds to 30 percent from 25 percent.
He also lowered his year-end target for the S&P 500 to 1550,
from 1600, amid expectations that earnings growth will slow as the
Fed raises rates to rein in the economy.
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