MARKET SNAPSHOT
Mild bounce in store for shares
Futures markets point to higher open
By Julie Rannazzisi CBS MarketWatch
Last Update: 8:29 AM ET Jun 1, 2000
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NEW YORK (CBS.MW) -- U.S. stocks are poised for an upside open on Thursday following a see-saw session on Wednesday that saw the market trade drift aimlessly throughout the day.
With evidence emerging that the U.S. economy is slowing, optimism is percolating from the market as investors sense that the Fed's tightening cycle may be coming to an end.
June S&P 500 futures rose 7.70 points, or 0.5 percent, and were trading roughly 5.30 points above fair value, according to HL Camp & Co. Nasdaq futures, meanwhile, added 40.00 points, or 1.2 percent.
Among shares seeing activity before the opening bell, Microsoft (MSFT: news, msgs) inched up 5/16 to 62 7/8 in Instinet dealings. See Indications.
Late Wednesday, Microsoft attorneys labeled a government breakup proposal "defective" in a final effort to persuade a federal judge not to split the software titan. U.S. District Court Judge Thomas Penfield Jackson, however, can now issue a final ruling at any time. A decision is expected no later than next month and could arrive as early as this week. See full story.
In the bond market, prices turned mixed, erasing mild losses registered earlier in the session. A slow trade is expected as market participants keep their powder dry ahead of Friday's jobs report.
The 10-year Treasury note lost 1/32 to yield 6.28 percent while the 30-year bond added 1/32 to yield 6.01 percent.
Thursday's economic docket will see the release of the May National Association of Purchasing Management index, which is expected to show a reading of 55.2 percent. Moreover, April construction spending will be out, expected to show a 0.1 percent increase.
In the meantime, weekly initial claims rose 1,000 to 286,000. See Economic Forecast, economic calendar and forecasts and historical economic data.
In the currency arena, dollar/yen continued its ascent, gaining 1.2 percent to 108.93, its highest level since mid-May. The greenback reached a peak of 109.05 in early trading Thursday. Euro/dollar, meanwhile, lost 0.4 percent to 0.9328.
Lending some support to the dollar was news that Japan's Financial Supervisory Agency ordered Daihyaku Mutual Life Insurance to suspend some of its operations. Daihyaku is the third life insurer to fail in Japan after Nissan Mutual Life Insurance in 1997 and Toho Mutual Life Insurance in 1999, according to the Nihon Keizai Shimbun. The news, while expected, was nonetheless viewed as a reason dump yen.
Daihyaku's failure is a good example of how a sharp drop in equity prices -- with the Nikkei 225 index off 20 percent since mid-April -- can snowball into a death spiral, according to Carl Weinberg, chief economist at High Frequency Economics. "Daihyaku's problem is that unrealized losses on the equities in its portfolio drove the net asset value of the company negative."
Wednesday's trading activity
A late-day sell-off in big-cap technology names put the market on the defensive Wednesday and pushed the major averages into negative territory in a session characterized by choppy and rangebound trading action.
The debate on Wall Street continues to center on whether the Fed will manage to engineer a soft landing of the U.S. economy like it did in 1995, when the previous tightening cycle ended. That year was also the start of a splendid bull run for the market.
"A tug-of-war is currently taking place in the market," said Peter Boockvar, equity strategist at Miller, Tabak & Co.
On one side, Boockvar said, the softer-than-expected economic numbers Wednesday morning increased the market's expectation that the Fed's next rate hike may be the last. The data lifted interest-rate sensitive areas of the market such as retail and financials issues.
But a softer economy means that the growth rate of corporate earnings will slow as well, which is keeping the bulls skeptical, Boockvar said. Only upcoming data, including Friday's all-important jobs report for May, will reveal whether the central bank needs to be more aggressive than expected going forward.
Within technology, all sectors turned lower in late afternoon dealings while the broader market saw gains in financial, oil service, retail and utility shares. Airline, gold and biotech issues slipped.
The Dow Industrials shed 4.80 points to 10,522.33. (See 6-month chart.)
Strong gains in the Dow's retail and financial components capped the blue-chip barometer's losses with Wal-Mart, Home Depot, American Express and Citigroup leading on the upside. Shares of Hewlett-Packard, IBM, McDonald's and Eastman Kodak saw the largest losses.
The Nasdaq Composite lost 58.57 points, or 1.7 percent, to 3,400.91 while the Nasdaq 100 index fell 89.95 points, or 2.6 percent, to 3,324.08.
Todd Gold, technical strategist at Gruntal, said follow-through buying -- which failed to emerge Wednesday -- is needed to validate Tuesday's climb.
"If we do not see this follow-through to resistance at 3,600 on the Nasdaq, Tuesday's action may be viewed as nothing more than another selling opportunity," Gold said. The Nasdaq rose to an intra-day high of 3,501.51 on Wednesday.
"The Nasdaq's bounce Tuesday came from deeply oversold levels. Last week's bottoming action set the market up for [that] rally," Boockvar said. But in the short-term, he believes volatility will remain the name of the game as the market continues to ponder the interest rate outlook.
Thursday is likely to see a lot of cautious trading as investors await Friday's news on the state of the labor market, echoed Jay Suskind, director of trading at Ryan Beck & Co.
The Standard & Poor's 500 Index edged down 0.1 percent while the Russell 2000 Index of small-capitalization stocks lost 0.1 percent.
Volume was relatively light, coming in at 951 million on the NYSE and at 1.53 billion on the Nasdaq Stock Market. Market breadth was mixed with advancers beating decliners by 17 to 13 on the NYSE while losers outpaced winners by 21 to 19 on the Nasdaq.
Watching the leaders
Market observers are watching the market action in the Nasdaq's leaders to determine the bulls' resolve to take the index higher on a sustained basis.
Gold notes that the charge in the semiconductor group Tuesday helped push Intel above its short-term downtrend line. But other large Nasdaq components -- such as Oracle, Cisco Systems and Sun Microsystems -- have yet to take out their short-term downtrend lines, he continued. "Until they do, we maintain our negative bias on the COMP."
On Wednesday, the Philadelphia Semiconductor Index ($SOX: news, msgs) shed 1.2 percent, relinquishing earlier gains, which were driven primarily by strength in LSI Logic (LSI: news, msgs). The stock rose 6.5 percent, or 3 1/4 to 53 1/4, on the heels of positive comments from Morgan Stanley Dean Witter. See Silicon Stocks.
Morgan Stanley analyst Mark Edelstone believes LSI Logic's business conditions remain very strong with orders -- driven by communications -- running at record levels. The analyst believes LSI has the ability to show an acceleration in revenue growth in the second-half of 2000 as the industry begins to decelerate.
Morgan Stanley also has positive comments on Atmel (ATML: news, msgs), which added 2 1/8 to 38 3/16. "With pricing power and rising demand across the board, we believe Atmel needs only to demonstrate the ability to execute," the brokerage said.
Technology market leaders lost ground late in the session, with Cisco Systems (CSCO: news, msgs) off 2 15/16 to 56 15/16, Sun (SUNW: news, msgs) down 3 3/8 to 76 5/8, Intel (INTC: news, msgs) down 1 1/16 to 124 11/16 and Oracle (ORCL: news, msgs) off 2 5/16 to 71 7/8.
Shares of Dow-component Microsoft (MSFT: news, msgs) erased 13/16 to 62 9/16. Microsoft attorneys are slated to file their final brief Wednesday afternoon -- clearing the way for a remedy ruling. It's a widely foregone conclusion that U.S. District Court Judge Thomas Penfield Jackson will order a breakup of the software titan. Read the story.
Shares of Dow-component Hewlett-Packard (HWP: news, msgs) shed 4 3/8 to 120 1/8. H-P said Amazon.com will become one of its top five customers under a new deal to supply 90 percent of the company's (AMZN: news, msgs) technology infrastructure, including Internet servers and storage. Amazon founder and Chief Executive Officer Jeff Bezos and H-P Chief Executive Officer Carly Fiorina made the announcement at an analyst meeting Wednesday morning. See full story. Amazon lost 3 7/16 to 48 5/16.
Sector movers
Financial stocks rose, taking heart in the Treasury market's rally on the heels of the morning's batch of economic data.
The Standard & Poor's Bank Index ($BIX: news, msgs) rose 0.6 percent while the AMEX Securities Broker/Dealer Index ($XBD: news, msgs) climbed 2.2 percent.
All of the Dow's financial stocks rose, with Citigroup (C: news, msgs) up 1 7/8 to 62 3/16, American Express (AXP: news, msgs) up 3 3/8 to 54 and J.P. Morgan (JPM: news, msgs) up 9/16 to 128 3/4. Among the brokerage stocks witnessing sharp gains, Charles Schwab (SCH: news, msgs) tacked on 2 3/8, or 9 percent, to 28 3/4, Merrill Lynch (MER: news, msgs) rose 4 1/4 to 98 7/8 while Goldman Sachs (GS: news, msgs) added 1 9/16 to 73 9/16.
Chemical companies struggled following a number of downgrades from Goldman Sachs. The CBOE Chemical Index ($CEX: news, msgs) shed 1.2 percent, despite the fact that only two of its components, Great Lakes Chemical (GLK: news, msgs) and Eastman Chemical (EMN: news, msgs), were among the stocks that saw their ratings lowered by Goldman. See Rating Revisions. Eastman Chemical fell 3 1/16 to 45 9/16 while Great Lakes Chemical lost 1 1/4 to 27 7/8.
The sector was also hurt by comments from Donaldson Lufkin & Jenrette, which reiterated its "underperformance" rating on the group.
Specific issues
In merger news, Lucent Technologies confirmed Wednesday it's buying privately-held Chromatis Networks in a stock deal valued at $4.5 billion. The purchase will boost Lucent's optical networking business. The deal, announced in press reports earlier this week, was widely expected. See full story. The acquisition is expected to dilute Lucent's pro forma earnings per share for ongoing operations by about two cents in fiscal 2000 and roughly five cents in fiscal 2001. Lucent's stock shed 1/2 to 57 1/4.
In other specific issues, Fatbrain jumped 1 5/16, or 25 percent, to 6 9/16. Fatbrain (FATB: news, msgs) said late Tuesday that it expects first-quarter revenue to come in between $13.5 to $14 million, ahead of Wall Street's consensus estimate of $13.5 million. The company said strong growth in its B2B corporate programs was behind the better-than-expected sales figures. See related story.
Motorola (MOT: news, msgs) has agreed to outsource about $30 billion of electronics manufacturing to Singapore-based Flextronics International (FLEX: news, msgs) over the next five years. Motorola will also buy an equity instrument at a discount for an initial payment of $100 million. The instrument is convertible over time into 11 million shares of Flextronics' stock. See full story. Flextronics surged 4 3/8, or about 8.7 percent, to 54 7/16 while Motorola shed 2 11/16 to 93 3/4.
Intimate Brands reported Wednesday that May same-store sales rose 11 percent. Total sales for the four weeks ended May 27 rose to $362.7 million from $318 million in the same period a year earlier. The stock (IBI: news, msgs) added 7/16 to 23 9/16.
Ask Jeeves (ASKJ: news, msgs) announced Wednesday that its president Ted Briscoe has resigned to become chief executive of privately-held Play Streaming Media Group. Read the story. The stock fell 1 5/8 to 20.
See After Hours for post-market trading activity.
Treasury focus
Bond prices saw nifty gains, garnering momentum from the spate of market-friendly economic data. The brunt of the gains were clustered in the long end of the curve.
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The 10-year Treasury note tacked on 24/32 to yield 6.27 percent while the 30-year bond rallied 1 3/32 to yield 6.01 percent. See Bond Report.
On the economic front, April new homes sales fell 5.8 percent to a 909,000 pace, less than the expected 935,000 rate. See full story.
Also released Wednesday were April leading economic indicators, which edged up 0.1 percent, and the Chicago Purchasing Managers index for May, which came in at 53.9 percent, lower compared to April's 56.5 percent reading. The prices paid index, meanwhile, fell to 64.4 percent from the previous 69.4 percent.
In the currency sector, dollar/yen gained 1.1 percent to 107.71 while euro/dollar gained 0.9 percent to 0.9372.
In the commodity market, July crude plunged $1.34 to $29.01 while the Bridge CRB index dropped 1.34 to 222.27. See related story and view latest commodity prices.
Julie Rannazzisi is markets editor for CBS MarketWatch.
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