MARKET SNAPSHOT--Markets set to surge on jobs report
Weak numbers to fuel incredible gains
By Julie Rannazzisi CBS MarketWatch
Last Update: 8:59 AM ET Jun 2, 2000
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NEW YORK (CBS.MW) -- The futures markets are pointing to a robust rally in the stock market Friday as the May employment report revealed a weaker labor market and extremely contained wage inflation.
This is welcome news to a market obsessed by the Fed's next interest-rate move. This report removes pressure from the Fed and indicates the central bank's six rate hikes since June 1999 have begun to bite into the U.S. economy. With the Fed most worried about labor markets, clear signs of a slowdown are being applauded by stocks and bonds.
Non-farm payrolls rose by a much-less-than-expected 231,000 in May compared to the expected 370,000. The unemployment rate rose to a surprising 4.1 percent from the previous 3.9 percent. And average hourly earnings edged up only 0.1 percent compared to the expected 0.4 percent rise. Meanwhile, the April payrolls data was upwardly revised to show an increase of 414,000 form the previously reported 340,000. See full story.
"This was clearly a seriously weak headline print -- excluding census workers, payrolls fell by 146,000, the first drop in private sector jobs for five years. Across-the-board weakness in May payrolls is striking: manufacturing, retailing, construction and services ex-education. We have some suspicions about this -- there may be seasonal issues here. But the data will reinforce the markets' mood [with the possibility of] no June rate hike," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
The jobs data will be a crucial piece of the puzzle in determining the Fed's next interest-rate decision at the June 27-28 Federal Open Market Committee meeting.
June S&P 500 futures surged 31.50 points and were trading approximately 30.50 points above fair value, according to HL Camp & Co. Nasdaq futures, meanwhile, jumped 110.00 points, or 3.1 percent.
In shares trading before the opening bell, Motorola (MOT: news, msgs) changed hands at 34 1/2 in Instinet, which corresponds to a split-adjusted gain of 1 1/2 over Thursday's NYSE close of 99. The stock's 3-for-1 stock split takes effect at the start of trading. See Indications.
Separately, Trim Tabs estimated that all equity funds had inflows of $7.6 billion over the week ended May 31 versus outflows of $7.2 billion in the previous week. Equity funds that invest primarily in U.S. stocks had inflows of $5.9 billion compared with outflows of $5.4 billion in the prior week.
In the bond market, prices rallied on the heels of the payrolls data, adding to two sessions of already fabulous gains.
The 10-year Treasury note put on 1 7/32 to yield 6.02 percent while the 30-year bond soared 1 17/32 to yield 5.84 percent -- a level not seen since late April. See Bond Report.
In the currency arena, dollar/yen was near flat levels, trading at 108.55 from the previous level of 108.51. Euro/dollar, meanwhile, added 0.4 percent to 0.9352.
Thursday's market activity
Economic data unveiling softer growth helped alleviate interest rate concerns and sent technology stocks sharply higher Thursday. The buying was particularly heated in big-cap technology names, giving the Nasdaq a heady 5.3 percent gain.
Market participants now sense that the Fed's tightening cycle may be coming to an end and this has awakened the somnolent bulls. The recent slew of data has increased the perception that another 25-basis-point rate hike may conclude the current rate hike cycle, which began in June 1999.
"Softer housing, auto and retail sales numbers are raising hopes that the Fed may not have to do a lot more to slow down the economy," said John Waterman, managing director at Rittenhouse Financial. "But we need another month to see a pattern develop in the data."
"This is what people were banking on. We're [finally] seeing signs that the Fed's six interest rates are having a dampening effect on the economy," said Brian Slater, portfolio manager at Condor Capital Management.
The National Association of Purchasing Management index for May revealed slower growth in the manufacturing sector. The index fell to 53.2 percent compared to April's 54.9 percent and expectations for a 55.2 percent reading. Key subcomponents also revealed a softer manufacturing sector, with the prices paid index at 65.8 percent from the previous 76 percent and the new orders index at 51.1 percent from April's 56.3 percent. See full story.
Thursday's technology buying was particularly intense in the big-cap names, with shares of Cisco Systems, Sun Microsystems, Oracle and Microsoft registering solid gains.
"All the quality names are coming back in a big way," Slater said.
In the broader market, biotech, bank and brokerage stocks lifted while chip, Internet and computer software issues propelled the tech sector. Oil service, paper and utility shares were the downside movers.
The Dow Industrials tacked on 129.87 points, or 1.2 percent, to 10,652.20.
The Dow is receiving most of its support from its technology components. In fact, Hewlett-Packard, Microsoft and Intel were among the blue-chip barometer's upside leaders. But the Dow's financial components also improved following the release of friendly economic data Thursday morning with gains in Citigroup and J.P. Morgan.
"If we keep up this pace and Friday's jobs data is also benign, people will gain further confidence," Slater said.
The economy's slowing, but it's slowing from a frenzied pace, observed Scott Bleier, chief investment strategist at Prime Charter.
Right now, Bleier said, the market is betting on a soft landing, which the Fed successfully engineered in 1995 -- at the end of its last tightening cycle.
The Nasdaq Composite put on 181.59 points, or 5.3 percent, to 3,582.50 -- its fifth largest point increase in history. It was the Nasdaq's first close above the 3,500 level since May 18. The Nasdaq 100 index, meanwhile, surged 194.90 points, or 5.9 percent, to 3,518.98.
"We're seeing a long overdue bounce with legitimate buying from both individuals and institutions," Bleier said. "It's part of the market's recent volatile action. [It's just] taking us to the upper end of our trading range."
The Standard & Poor's 500 Index advanced 2.0 percent while the Russell 2000 Index of small-capitalization stocks climbed 3.4 percent.
Volume came in at 960 million on the NYSE and at 1.59 billion on the Nasdaq Stock Market. Market breadth was positive, with advancers outnumbering decliners by 21 to 9 on the NYSE and by 27 to 13 on the Nasdaq.
Sector movers
The business-to-business sector is flying Thursday, with Merrill Lynch's B2B Holdrs (BHH: news, msgs) up a heady 10.2 percent. Among the upside movers were PurchasePro (PPRO: news, msgs), up 1 51/64 to 23 1/16. The company has been picked by Hilton Hotels (HLT: news, msgs) to establish a hospitality purchasing exchange.
Shares of other B2B firms moved higher in tandem with the broad market rally. Ariba (ARBA: news, msgs) picked up 12.9 percent, or 6 3/4 to 58 7/8, Internet Capital Group (ICGE: news, msgs) up 3 47/64 to 30 43/64, and Commerce One (CMRC: news, msgs) up 5 7/32 to 41.
The drug sector slipped, erasing earlier gains, with the AMEX Pharmaceutical Index ($DRG: news, msgs) off 0.2 percent. But Pfizer (PFE: news, msgs), up 1 to 45 1/2, bucked the trend. Merrill Lynch named the company a "Focus One" stock and reiterated its "near-term, long-term buy" rating. Merrill said Pfizer is the best-positioned pharma company in the industry.
Shares of retail issues reacted to the relesae of monthly sales data. The S&P Retail Index ($RLX: news, msgs) added 1.1 percent. Best Buy (BBY: news, msgs) put on 6 11/16 to 70 11/16 after reporting that first-quarter sales were up 24 percent -- a record for the period and one that beat out even management?s most optimistic expectations. See related story. Best Buy said it expects earnings per share to reach 34 cents, 6 cents above the First Call estimate.
Kmart's same-stores sales rose 0.9 percent and its shares (KM: news, msgs) added 1/8 to 8 5/8. Shares of Dow-component Wal-Mart (WMT: news, msgs) shed 1/16 to 57 9/16. The company reported a 7.4 percent increase in comparable stores sales.
Chip stocks continued to surge, with the Philadelphia Semiconductor index ($SOX: news, msgs) up 6.9 percent. The index is up 17.4 percent this week and up a whopping 51.6 percent on the year. Among the upside movers: Intel (INTC: news, msgs) climbed 5 to 129 11/16, Rambus (RMBS: news, msgs) put on 21 3/16 to 197 7/16 while KLA-Tencor (KLAC: news, msgs) rose 5 5/16 to 54 7/8.
Individual issues
Microsoft (MSFT: news, msgs) rose 2 to 64 9/16. (See 6-month chart.) Late Wednesday, Microsoft attorneys labeled a government breakup proposal "defective" in a final effort to persuade a federal judge not to split the company. U.S. District Court Judge Thomas Penfield Jackson said the U.S. government will have until Monday to respond to Microsoft. On its part, Microsoft will have until Wednesday to file a response to the government brief. Goldman Sachs made positive comments on Microsoft earlier in the session, saying the bad news was already factored in, which contributed to the rally. See full story.
Shares of Qualcomm (QCOM: news, msgs) gained 2 5/8 to 69. China Unicom said that plans to build a wireless communications network based on CDMA technology was still on track, according to a report in the China Daily, which cited an unnamed company spokesperson. On Tuesday, reports surfaced that China Unicom told analysts it would not adopt CDMA, causing a 13 percent drop in shares of Qualcomm. See Market Pulse.
Hewlett-Packard (HWP: news, msgs) saw its shares jump 12.3 percent, or 14 3/4 to 134 15/16, and was the Dow's upside leader. Banc Of America upped H-P's rating to a "strong buy" from a "buy." On Wednesday, 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.
Motorola (MOT: news, msgs) put on 6 3/8 to 100 1/8. ABN Amro upped the company to a "buy" from an "outperform."
Over in the IPO arena, shares of optical networking firm ONI Systems tripled in its first day of trading. ONI Systems (ONIS: news, msgs) closed at 82 9/16 for a first-day gain of about 230 percent. See IPO Report.
Shares of ExciteAtHome jumped 10.8 percent, or 2 to 20 1/2. Late Wednesday, ExciteAtHome (ATHM: news, msgs) announced a strategic alliance with Akamai Technologies (AKAM: news, msgs) to improve the content and applications delivery over ExciteAtHome's network. Akamai put on 7 1/8 to 73 7/8.
Shares of Net2Phone (NTOP: news, msgs) surged 3 5/16 to 32 13/16. After the close Wednesday, the company posted a net loss of 21 cents a share, narrower than the 22 cents a share expected by First Call. In the year-ago period, the company lost 3 cents a share. Dain Rauscher Wessels upped the stock to a "strong buy" rating from a "buy" and raised its price target to $81 from $77.
Verio (VRIO: news, msgs) lost 2 3/16 to 54 11/16 following a downgrade by Donaldson Lufkin & Jenrette to an "underperformance" from a "buy" rating. See Rating Revisions.
See After Hours for post-market trading activity.
Treasury focus
Bond prices jumped for the second straight session on the heels of a string of positive economic data, erasing the mild losses registered right out of the gate.
The 10-year Treasury note climbed 21/32 to yield 6.19 percent while the 30-year bond shot up 29/32 to yield 5.95 percent. The 30-year's yield dipped below 6 percent for the fist time since May 2.
In other economic news Thursday, April construction spending fell 0.6 percent compared to expectations for a 0.1 percent increase. And 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 0.8 percent to 108.51, its highest level since mid-May. The greenback reached a peak of 109.05 in early trading Thursday. Euro/dollar, meanwhile, lost 0.7 percent to 0.9309.
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.
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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," Weinberg said.
In the commodity market, July crude surged $1.13 to $30.14 after plunging $1.34 to $29.01 on Wednesday. The Bridge CRB index edged up 0.25 to 223.50. View latest commodity prices.
Julie Rannazzisi is markets editor for CBS MarketWatch. |
