MARKET SNAPSHOT
Will merger news help?
A bounce may be in the cards
By Julie Rannazzisi, CBS MarketWatch
Last Update: 8:33 AM ET May 24, 2000 Market Pulse
Bond Report
NEW YORK (CBS.MW) -- An open in the plus column appears to be in store for the equity market Wednesday with mergers news perhaps to provide some support to the overall market.
UAL, the operator of United Air Lines, said it's purchasing US Airways Group (U: news, msgs) for $4.3 billion in cash and is assuming $1.5 billion in debt and $5.8 billion in aircraft leases. See full story. UAL (UAL: news, msgs) said it'll pay $60 for each share of US Airways -- a premium of more than 130 percent from the Tuesday closing price.
US Airways soared 23 11/16, or 91 percent above its NYSE close, to 49 5/8 in Instinet dealings while UAL eased 2 3/8 to 58 according to Madoff Investment Securities in London. See Indications.
On Tuesday, the airline sector rose in the face of a sell off in the broader market as transportation stocks were boosted by expectations of better-than-expected earnings going forward.
In the meantime, the futures markets pointed to a higher open in the overall market. June S&P 500 futures gained 3.90 points, or 0.3 percent, and were trading roughly 7.00 points above fair value, according to figures provided HL Camp & Co. Nasdaq futures, meanwhile, added 27.50 points, or 0.9 percent.
In shares seeing activity before the official start of trading, Novell (NOVL: news, msgs) shed 1/2 to 9 1/4. Late Tuesday, the company said it made a profit from operations of 2 cents a share in its second quarter compared to the First Call estimate of 1 cent a share. Last year, Novell earned 11 cents a share. The company blamed sluggish demand for its packaged software products for the diminished profit compared to a year ago. Read the story.
In the bond market, prices were modestly lower across the board. Market participants are waiting for another buyback announcement from the Treasury. In addition, a total of $10 billion in 2-year notes will be sold Wednesday afternoon.
The 10-year Treasury note slipped 3/32 to yield 6.45 percent and the 30-year bond lost 7/32 to yield 6.17 percent. See Bond Report.
There's no economic news on tap until Thursday, when the revision to first-quarter productivity will be released. See economic calendar and forecasts and historical economic data.
In currency markets, the dollar traded mixed against the yen and the euro. Dollar/yen added 0.7 percent to 107.19 while euro/dollar rose 0.3 percent to 0.9098.
Tuesday's trading activity
A plunge in Internet and big-name technology stocks produced a bruising 6 percent drop in the Nasdaq Composite Tuesday, sending the index to its lows of the year.
With no catalyst to inspire buyers and investors worried that higher interest rates will take a big bite out of earnings growth going forward, the market continues to spiral lower on light volume.
"The volatility reflects people's confusion. We're currently in a news vacuum -- which isn't helping," said Peter Boockvar, equity strategist at Miller, Tabak & Co. The market, he added, must wait for next week's stream of economic news to begin the debate on how the Fed will act at the June 27-28 Federal Open Market Committee meeting.
David Powers, senior technology analyst at Edward Jones, said this kind of market action will continue until there's evidence that the economy is slowing and that the Fed is done tightening.
In the broader market, paper stocks fell -- extending Monday's losses -- on the heels of numerous downgrades from a brokerage. Also lower were biotech, utility and retail stocks. Bucking the trend were shares of oil service, bank and airline shares. The tech sector saw the greatest carnage in Internet and chip stocks.
The Dow Industrials slipped 120.28 points, or 1.1 percent, to 10,422.27.
Downside movers included Intel, International Paper, General Motors and Alcoa. Moving on the upside were shares of Boeing, American Express, Merck and Eastman Kodak.
The Nasdaq Composite tumbled 199.66 points, or 5.9 percent, to 3,164.55, easily breaching Monday's intra-day low of 3,172.
The Nasdaq 100 index, which encompasses the largest Nasdaq stocks by market capitalization, fell 241.29 points, or 7.4 percent, to 3,023.42. The tech market's kingpins continue to deteriorate, keeping buying interest at a standstill.
Boockvar said he's closely monitoring the performance of Cisco Systems and Sun Microsystems.
On Monday, the market recovered late in the session because these two tech bellwethers managed to hold their 200-day moving averages on the downside, Boockvar observed. "It's important [for the overall market's health] that these levels hold," he added.
"We're operating in a very unusual environment. We're trapped by the Fed's rate hikes [and] a lot of churning and distribution [is] taking place. It's hard to identify leadership," remarked Bill Schneider, head of block trading at UBS Warburg.
"[And] the illiquidity is exasperating the market's moves. I don't see an easy end to this," he continued.
The Standard & Poor's 500 Index subtracted 1.9 percent while the Russell 2000 Index of small-capitalization stocks dropped 2.7 percent.
Volume came in at 868 million on the NYSE and at 1.32 billion on the Nasdaq Stock Market. Decliners outpaced advancers by 16 to 13 on the NYSE and by 27 to 13 on the Nasdaq.
Specific movers
MedQuist surged 3 3/4 to 42 7/8. Royal Philips Electronics (PHG: news, msgs) -- the largest electronics company in Europe -- said it'll purchase a 60 percent stake in the company (MEDQ: news, msgs) for approximately $1.2 billion in cash, or $51 per share. See full story. Royal Philips fell 7/16 to 38 3/4. Robertson Stephens downgraded the company to a "long-term attractive" from a "buy."
Shares of Global Crossing shed 4 25/64 to 23 5/8. The company (GBLX: news, msgs) said late Monday that it's seeking more than $1 billion in a lawsuit against Tyco Submarine Systems -- a unit of Tyco International (TYC: news, msgs) -- for damages stemming from a dispute involving fiber optic installation. See related story. Tyco lost 1 15/16 to 42 1/16.
Veritas Software (VRTS: news, msgs) fell 9 5/8 to 93 1/4. Veritas, Oracle (ORCL: news, msgs) and Sun Microsystems (SUNW: news, msgs) announced a three-way strategic alliance to provide a single-source of coordinated support and problem resolution that will enable customers to rapidly build more robust e-business infrastructures.
Sun shares tumbled 8, or 10 percent, to 71 7/8 while Oracle lost 5 3/16 to 62 5/8.
Shares of J.D. Edwards lost 1/2 to 12. Late Monday, the company (JDEC: news, msgs) said it will cut 800 jobs worldwide as part of a company-wide cost-cutting effort. J.D. Edwards plans to cut its workforce by 13 percent and use the Internet to lower procurement costs. See full story. Earlier this month, the company warned that it expected second-quarter results to show an operating loss of between $20 million and $25 million. First Call had expected a profit of 2 cents a share.
Shares of Zany Brainy eased 13/32 to 2 17/32. The company (ZANY: news, msgs) checked in with a first quarter loss of 23 cents a share, matching the First Call estimate. The company lost 6 cents a share in the year-ago period.
Read the story.
Oneida (OCQ: news, msgs) shares added 1/8 to 18 11/16. The company reported first-quarter earnings of 45 cents a share, in line with the First Call estimate. The company made 40 cents a share in the year-ago period.
See full story.
The brokerage sector lost ground, with the AMEX Securities Broker/Dealer Index ($XBD: news, msgs) off 0.9 percent. Shares of many online brokerages continued to struggle, adding to Monday's losses.
E-Trade (EGRP: news, msgs) shed 3/4 to 15 3/4. Prudential cut its price target on the stock to $45 from $62 but reiterated its "strong buy" recommendation. See Rating Revisions. Ameritrade (AMTD: news, msgs) lost 51/64 to 11 49/64.
The Philadelphia Forest Paper Products Index ($FPP: news, msgs) shed 4.3 percent -- extending Monday's losses -- and is down a heady 18.4 percent on the year.
Deutsche Banc Alex. Brown lowered its rating on a plethora of paper companies Tuesday, including Georgia Pacific (GP: news, msgs), which was downgraded to a "market perform" from a "buy," International Paper (IP: news, msgs), lowered to a "buy" from a strong buy," and Weyerhaeuser (WY: news, msgs), which was cut to a "market perform" from a "buy."
International Paper lost 1 5/16 to 36 7/8, Georgia Pacific fell 3 9/16 to 34 1/8 while Weyerhaeuser lost 3 1/8 to 48 3/4.
Shares of Dow component Gillette (G: news, msgs) fell 2 9/16 to 35 3/16. Merrill Lynch dropped its $1.25 earnings-per-share estimate for 2000 to $1.23, citing, among others, challenges from a soft euro and rising interest rates.
Dow component General Motors (GM: news, msgs) lost 3 1/16 to 74 15/16 following a bruising sell off on Monday. The automaker completed an offer to grant investors shares in its Hughes Electronics affiliate in exchange for shares of GM common stock. Hughes (GMH: news, msgs) gained 1 1/16 to 97 13/16 after GM said the exchange offer was significantly oversubscribed. See full story.
See After Hours for post-market trading activity.
Treasury focus
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North America
Europe
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ADR Report
Currency rates
Intl' Indexes
Government prices turned higher late in the session in response to the bloodbath in the equity market, which generated safe-haven flows.
The 10-year Treasury note advanced 3/32 to yield 6.44 percent and the 30-year bond was up 13/32 to yield 6.16 percent. See Bond Report.
In the commodity market, July crude rose 5 cents to $28.78 while the Bridge CRB index gained 0.42 to 224.08. View latest commodity prices.
Julie Rannazzisi is markets editor for CBS MarketWatch.
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