RR--I saved this one for when you came on!!!!!!!!THE BULLS ARE BACK
Slowing economy sparks rally
By Julie Rannazzisi CBS MarketWatch
Last Update: 7:29 PM ET Jun 2, 2000
Market Pulse
Bond Report
NEW YORK (CBS.MW) -- Fresh signs that the U.S. economy is slowing was a welcome event on Wall Street, helping the Nasdaq score its best weekly gain ever.
The market had waited for weeks for evidence that the red-hot U.S. economy is cooling. It finally happened, with a string of numbers -- culminating with Friday's all-important jobs report -- pointing to softer growth in the labor, housing and manufacturing areas of the economy.
"The data [released earlier] this week were all leaning in the same direction -- slower growth," said Joe Liro, equity strategist at Stone & McCarthy Research Associates. "And the mother of all economic releases, the employment report, confirmed that direction."
"The jobs number was just what the doctor ordered and it worked on all fronts," Liro added, referring to Friday's broad-based rally. The market's improvement early in the week initially lifted the big-cap quality names. But the buying spread to the second- and third-tier names by week's end.
Fund managers, Liro continued, are sitting on large piles of cash and are beginning to put that money to work in the market. "They have the wherewithal to push this market higher."
Friday's improvement in volume suggests that there's finally some commitment out there.
"You're waking up areas of the market -- like the business-to-business sector -- that were so beaten-down," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum. "That's impressive. [We're seeing] real buying."
Market observers believe the week's massive upward move in technology marks the start of a crucial shift in market psychology.
"Psychology has shifted with the assumption that the Fed's close to being done on the [tightening front]. This is the beginning of an important turn," Hyman remarked.
The climb in the financial sector is also seen as a sign that interest rates may be peaking. Hyman believes the good performance in regional banks, which are the most sensitive to interest-rate changes, is a particularly positive sign.
"The market will anticipate the end of the Fed's tightening cycle even if one or two more rate hikes are in store," Liro said.
On the week, the Dow Industrials rose 4.8 percent and is down 6.1 percent on the year. The Nasdaq surged 19 percent this week and is off 6.3 percent for the year and down 24.5 percent from its peak on March 10.
Upcoming events
Aside from Friday's wholesale price inflation data, next week will be a quiet one on the economic front.
Monday: National Association of Purchasing Management's non-manufacturing index and April home completions.
Tuesday: Revision to first-quarter productivity growth and April wholesale inventories.
Wednesday: April consumer credit.
Thursday: Weekly initial claims, May import and export and price indexes.
Friday: May producer price index.
Earnings watch
Next week's earnings calendar will be razor-thin. In the meantime, the final numbers for first-quarter 2000 earnings growth will be a staggering 23.6 percent, First Call said.
The current earnings estimates for the second-, third-, and fourth-quarter of this year are 18.3 percent, 18.6 percent and 16.9 percent respectively, First Call said. Expectations for earnings growth appear to have leveled off in the last few weeks. The real issue will be the impact of the recent and future Fed actions on 2001 earnings, First Call said.
Monday: Bob Evans Farms.
Tuesday: School Specialty, Ashworth, United Natural Foods and Stewart Enterprises.
Wednesday: Tech Data, Vail Resorts, Quiksilver, Smithfield Foods and Vlassic Foods.
Thursday: National Semiconductor, Value City Dept Stores and Albertson's.
Friday: Steelcase.
Weekly recap
Monday: Markets closed for Memorial Day Holiday.
Tuesday: Investors forgot Alan Greenspan for at least one day, re-ignited their love affair with tech stocks, and gave the Nasdaq its best percentage gain ever. Dow up 227.89 points, or 2.2 percent, to 10,527.13 while Nasdaq rises 254.22 points, or 7.9 percent, to 3,459.33.
Wednesday: A late-day sell-off in big-cap technology names put the market on the defensive and pushed the major averages into negative territory in a session characterized by choppy and rangebound trading action. Dow sheds 4.80 points to 10,522.33 while Nasdaq loses 58.57 points, or 1.7 percent, to 3,400.91.
Thursday: Economic data unveiling softer growth helped alleviate interest rate concerns and sent technology stocks sharply higher. The buying was particularly heated in big-cap technology names, giving the Nasdaq a heady 5.3 percent gain. Dow piles on 129.87 points, or 1.2 percent, to 10,652.20 while Nasdaq up 181.59 points, or 5.3 percent, to 3,582.50.
Friday's trading activity
Buyers came out in force on Wall Street Friday, encouraged by the May jobs report, which revealed a weaker labor market and benign wage inflation. The gains were widespread, lifting almost all sectors in the marketplace.
The Nasdaq had its best week ever -- both on a point and percentage basis. The index, in fact, rose a whopping 19 percent this week -- or 608 points. The second largest percentage gain came during the week ended April 21, when the Nasdaq rose 9.7 percent, according to markethistory.com
Market outlook: Clark Yingst, Prudential
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With the Fed most worried about labor markets, clear signs of a slowdown were applauded by stocks and bonds. The report removes some pressure from the central bank and suggests the six rate hikes since June 1999 have begun to bite into the U.S. economy.
"The rally is a rising tide that is lifting all ships," said Liro of Stone & McCarthy Research Associates. During Tuesday's and Thursday's rally, it was mostly the quality names that benefited, he added. Friday, second-tier names had their day in the sun as well.
The Dow Industrials surged 142.56 points, or 1.3 percent, to 10,794.76. The largest gains came from Home Depot, J.P. Morgan, Hewlett-Packard, Alcoa and Citigroup and American Express.
Weakness was seen in the Dow's drug, oil and consumer components. In fact, downside movers included Merck, Johnson & Johnson, Exxon Mobil and Philip Morris.
The Nasdaq Composite put on 230.88 points, or 6.4 percent, to 3,813.38 -- its third largest point increase and fifth largest percentage increase in history. The Nasdaq 100 index soared 236.69 points, or 6.7 percent, to 3,755.67. (See 3-month chart of Nasdaq.)
The jobs report sent the technology sector flying, adding to Thursday's already impressive gains. The Internet and chip sectors again led the advance with herculean gains. And the Net sector scored its best weekly gain ever.
The broader market saw the largest increases in brokerage, biotech, gold and retail stocks. Drug, utility and oil service were the only areas in the red.
Liro said people are selling the drugs and other defensive areas of the market to fund their renewed purchases in the technology arena. "The financial and technology sectors are the market's natural upside leaders."
"There's a lot of bullish sentiment," said Mike Vogelzang, chief investment officer at Boston Advisors. The rally, fueled primarily by the data, is also a continuation of the bounce from deeply oversold conditions that's taking place this week, he added.
The Standard & Poor's 500 Index advanced 2.0 percent while the Russell 2000 Index of small-capitalization stocks climbed 4.2 percent.
Volume improved substantially, standing at 1.17 billion on the NYSE and at 1.90 billion on the Nasdaq Stock Market. Market breadth was extremely positive, with winners crushing losers by 22 to 9 on the NYSE and by 31 to 10 on the Nasdaq.
Inside the jobs data
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 and view Economic Forecast, economic calendar and forecasts and historical economic data.
Merrill Lynch chief economist Bruce Steinberg said that in light of Friday's jobs report, he believes the Fed will not raise the rates at the June FOMC meeting.
"That does not preclude a further move at the next FOMC meeting in August. There is a chance that they are finished with this tightening cycle, [which] will depend on what the data reveals over the next few months," Steinberg added.
While the jobs numbers were clearly bullish across the board, some economists pointed out that the widespread weakness suggests there may be some quirks in the data.
"The markets have to love this report, as will the members of the FOMC. But before we go dancing into the night thinking that the Fed is done, there appear to be some weird doings in the data," remarked Joel Naroff, chief U.S. economist at Naroff Economic Advisors.
"On the wage side, did the average hourly wage in manufacturing and construction actually fall in May? Probably not. Every once in a while we get a strange report like this. It is often revised quite significantly and if not, the next month the data are unwound. Thus, Mr. Greenspan and the gang will not assume that their work is done -- at least not yet. But they now seem to have the opportunity to sit back and wait until August before they have to make another move and that raises the possibility that they could be nearly done," Naroff added.
"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.
No doubt, 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.
Separately, flows into equity funds have increased over the past week. In fact, 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 $5.4 billion in the prior week.
Sector action
Brokerage stocks were on fire, with the AMEX Securities Broker/Dealer Index ($XBD: news, msgs) -- which closely mirrors the performance of the Nasdaq -- surging a heady 8.7 percent and is up over 11 percent for the year. The Standard & Poor's Bank Index ($BIX: news, msgs) rose 4.8 percent and is up 13.8 percent on the year.
The market's impressive performance is increasing expectations that volume numbers -- which dwindled last month -- will improve going forward. This helped the e-brokers, with E-Trade (EGRP: news, msgs) up 2, or 12.2 percent, to 18 3/8 and Ameritrade (AMTD: news, msgs) up 1 13/16, or 15.3 percent, to 13 5/8. And Goldman Sachs (GS: news, msgs) climbed 10 1/2 to 86 7/8 while Morgan Stanley Dean Witter added 7 5/16 to 82 9/16. The stock (MWD: news, msgs) was upgraded by Deutsche Banc Alex. Brown to a "buy" from a "market perform." See Rating Revisions.
Two of the Dow's financial components -- American Express and Citigroup -- reached fresh 52-week highs Friday. And regional banks -- the most sensitive to interest rate movements -- posted nifty gains across the board.
In the chip arena, shares of Micron Technology (MU: news, msgs) piled on 6 1/2 to 80. Salomon Smith Barney upped the company to a "buy" from an "outperform" rating. The gains added to the impressive performance of the Philadelphia Semiconductor Index ($SOX: news, msgs), which added 8.5 percent on the day and is up a heady 63 percent on the year.
Merrill Lynch also raised its price objective on Micron to $100 from $75, saying that the last few weeks have seen the beginning of a change in the shortage-plagued environment that kept a lid on DRAM pricing.
Among other upside movers on the SOX index, Motorola (MOT: news, msgs) rose a split-adjusted 3 3/8 to 37. The stock's 3-for-1 stock split took effect at the start of trading Friday. Chip behemoth Intel (INTC: news, msgs) added 4 1/2 to 134 3/16 while Rambus climbed 19 15/16 to 217 3/8.
Also buttressing chip stocks was a report from the Semiconductor Industry Association revealing that worldwide sales of semiconductors reached an all-time high of $15.2 billion in April 2000, up 35.6 percent from April 1999.
"Coupled with strong PC sales, industry growth is being driven by an explosion of worldwide demand for cellular phones, and the wireless communications infrastructure. While PC's and consumer electronics have strong seasonal demand trends, cellular phones are in demand year round," said George Scalise, SIA President.
The Goldman Sachs Internet Index ($GIN: news, msgs) put on 12.6 percent Friday. The Net sector was propelled by big wins among shares of business-to-business enablers and infrastructure companies.
And airline stocks lifted on merger speculation news, with AMEX Airline Index ($XAL: news, msgs) by 3.5 percent. The index is up 7.8 percent on the year.
Northwest Airlines (NWAC: news, msgs) tacked on 6 3/8, or 21.9 percent, to 35 7/16. Officials of AMR Corp. (AMR: news, msgs), the parent of American Airlines, have talked with Northwest about a possible bid to acquire it, KSTP-TV reported Thursday night. See full story. AMR lost to 1 1/8 to 28 5/16.
In specific issues, shares of Microsoft (MSFT: news, msgs) added 1 3/4 to 66 5/16. Canada is encouraging Microsoft to move its operations to British Columbia, the British Broadcasting Corp. reported Friday. An agreement could hurt the government's efforts to split the company up into two or three parts. But according to the BBC, Microsoft denied it is discussing the matter with the British Columbian authorities. See full story and related story.
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Currency rates
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Treasury focus
Government prices rose on the heels of the payrolls data, climbing for the third straight session. But the market came well off session highs in afternoon trading as equities extended their gains.
The 10-year Treasury note added 7/32 to yield 6.16 percent while the 30-year bond rose 6/32 to yield 5.93 percent. Earlier in the day, the 30-year's yield fell to levels not seen since late April. See Bond Report.
In the currency arena, the dollar slumped, even as asset markets rallied. John Canavan, Treasury analyst at Stone & McCarthy Research Associates, said growing expectations that the Fed's tightening cycle is coming to an end is weighing on the dollar. Rate hikes benefit the dollar as they render U.S. investments more attractive compared to overseas assets.
Dollar/yen fell 0.5 percent to 107.98 while euro/dollar jumped 1.5 percent to 0.9458.
In the commodity market, July crude added 21 cents to $30.35 while the Bridge CRB index climbed 1.92 to 225.48. View latest commodity prices.
Julie Rannazzisi is markets editor for CBS MarketWatch. |
