MARKET SNAPSHOT
Markets remain on Fed watch
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 7:55 AM ET Jun 28, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) -- Stock prices were bracing for an open on the plus side Wednesday, with some buyers willing to step up to the plate ahead of the conclusion of the Federal Reserve?s two-day interest-rate meeting.
The Fed?s announcement on short-term rates is expected to hit the market at around 2:15 p.m. The consensus on Wall Street is that the central bank will leave the fed funds rate target unchanged at 6 1/2 percent and that the Fed will continue to say the balance of risks for the U.S. economy remain tilted toward inflation.
September S&P 500 futures rose 4.50 points, or 0.3 percent, and were trading roughly 5.20 points above fair value, according to HL Camp & Co. Nasdaq futures, meanwhile, added 17.50 points, or 0.5 percent.
In shares trading before the opening bell, 3Com (COMS: news, msgs) rose 1 to 49 11/16, according to Madoff Investment Securities. See Indications. After the close Tuesday, 3Com posted a fourth-quarter loss of 42 cents a share, a touch narrower than the First Call estimate of a loss of 42 cents a share. The company made 24 cents a share in the year-ago period. Read the full story.
In the Treasury market, prices traded on a mixed note, with the long end leading on the way up.
In the meantime, the corporate bond market is bustling with new deals. The largest on tap this week is a mammoth $14 billion global offering from Deutsche Telekom, which contains a $9.5 billion U.S. dollar portion that was launched Tuesday and is expected to price early Wednesday. The deal -- which was increased in size -- has portions in the 5-, 10- and 30-year sectors.
The 10-year Treasury note was flat to yield 6.08 percent while the 30-year bond was up 5/32 to yield 5.93 percent.
Wednesday will see the release of May durable goods orders, expected to show a 2.5 percent increase. View Economic Preview, economic calendar and forecasts and historical economic data.
In the currency market, dollar/yen added 0.5 percent and was recently trading at 105.75. Euro/dollar fell 0.4 percent to 0.9417. See latest currency rates.
Tuesday?s trading activity
The major averages slipped as buyers preferred to sit on the fence and wait out the Federal Open Market Committee meeting, which began on Tuesday.
The Dow Industrials remained mildly positive throughout the session thanks to interest in its cyclical and retail components. But sellers had the better in the afternoon and pushed the blue-chip barometer into the minus column, with IBM shares leading on the downside. The Nasdaq, which remained negative for most of the session, extended losses late in the day
A Fed announcement on interest rates is set for Wednesday -- which the overwhelming majority on Wall Street believes will be a decision to leave the fed funds rate target unchanged at 6 1/2 percent.
The overnight lending rate rests at its highest level in nine years and is up 175 basis points from when the central bank began tightening in June 1999.
The focus Wednesday will be more on the Fed?s statement than on its expected lack of action, said Alan Skrainka, chief market strategist at Edward Jones. ?They?ll continue to say that the balance of risk remains tilted toward inflation.?
?Two-thirds of Wall Street believes that the Fed is pretty much done on the tightening front. But the risk is that it takes longer than the market expects for the Fed to slow growth down to a [more sustainable] pace,? observed Scott Bleier, chief investment strategist at Prime Charter.
?I believe the Fed will gently hammer the economy to bring the growth rate down to 2 to 3 percent,? Bleier continued.
Inside the market, chemical, retail, airline, and paper stocks climbed while utility and biotech stocks slipped. Within technology, Internet stocks saw scattered buying interest while chip and computer hardware shares slumped.
The Dow Jones Industrial Average trimmed 38.53 points, or 0.4 percent, to 10,504.46.
On the downside were shares of IBM, Intel, American Express, Hewlett-Packard and Honeywell. Upside movers included Wal-Mart, Home Depot, International Paper and Alcoa
Shares of IBM (IBM: news, msgs) shed 5 3/8 from its NYSE close to 109 3/4. Merrill Lynch?s Steven Milunovich said he expects that Big Blue?s second-quarter results will be mediocre year-over-year, though second-half improvement will aid the stock.
?We are reducing our second-quarter revenue growth from 3 percent to 1 percent to reflect currency impact and a slower rebound in services. Our second-quarter earnings-per-share is bumped up a cent to $1.00, though, on reduced PC losses and improved Unix sales,? the influential Merrill analyst said.
The Nasdaq Composite shed 53.16 points, or 1.4 percent, to 3,858.96 while the Nasdaq 100 index fell 72.45 points, or 1.9 percent, to 3,699.00.
If it takes the Fed longer than the market predicts to cool off the U.S. economy to levels it deems non-inflationary, Bleier said earnings will need to be pared down -- with the exception of a few hot groups within technology.
?Technology stocks are showing the strongest earnings growth but that?s also reflected in their prices,? Skrainka said. He believes financial stocks have room to improve if it becomes clear that the Federal Reserve is done tightening.
The market may get a positive knee-jerk reaction to a sidelined Fed Wednesday, but Bleier believes the market will quickly revert to its old ways -- meandering within a tight range.
?You?ll have a lot of wheel spinning with big movements from sector to sector. The U.S. economy needs to get to the point where the Fed will be completely out of the picture,? Bleier said.
The Standard & Poor's 500 Index edged down 0.3 percent while the Russell 2000 Index of small-capitalization stocks erased 1.6 percent.
Volume was relatively solid, coming in at 1.03 billion on the NYSE and at 1.47 billion on the Nasdaq Stock Market. Breadth was narrowly positive on the NYSE, with winners outnumbering losers by 15 to 14. But losers beat winners by 23 to 17 on the Nasdaq.
Individual movers
WorldCom (WCOM: news, msgs) was up 2 3/16 to 39 11/16. The U.S Justice Department announced Tuesday that it will file suit to impede WorldCom?s $129 billion acquisition of Sprint, indicating that the union would harm competition and stifle innovation in the telecom industry. Read the full story. While European regulators were ready to block the deal based on concerns about concentration in the Internet backbone, U.S. regulators focused more heavily on the long-distance market. Sprint (FON: news, msgs) shares lost 1 3/16 to 58 3/8.
Merrill Lynch?s Telecom Holdrs (TTH: news, msgs), of which Sprint and WorldCom are components, fell 0.7 percent.
WorldCom is expected to lay out a new strategy for acquiring a wireless business -- which is why it considered Sprint in the first place. Options could include buying another established wireless operator such as Nextel Communications (NXTL: news, msgs), which rose 1 7/16 to 60 1/16, or VoiceStream Wireless (VSTR: news, msgs), up 4 7/8 to 126. CS First Boston lowered its rating on WorldCom to a ?buy? from a ?strong buy? rating. See Rating Revisions.
In a sign that the market is on the mend, the IPO sector was red hot Tuesday, with chip maker Marvell Technology (MRVL: news, msgs) skyrocketing 277.5 percent, or 41 5/8 to 56 5/8, in its first day of trading. The stock opened at 48 1/2 -- more than triple its $15 price. See IPO Report.
Another stock making a successful debut on Wall Street Tuesday was Internet infrastructure firm Stratos Lightwave (STLW: news, msgs), which jumped 69.7 percent, or 14 1/64 to 34 1/8.
Qwest Communications lost 3 1/2 to 50 3/4. The company (Q: news, msgs) will replace US West in the S&P 500 Index when Qwest completes its purchase of US West. The Federal Communications Commission Monday approved the $193 million deal merging US West (USW: news, msgs) and Qwest. See full story.
Ariba shares fell 2 1/8 to 90 1/16. The company (ARBA: news, msgs) announced late Monday that it will acquire privately-held SupplierMarket.com in a $580.8 million stock deal that will broaden its business-to-business marketplace. Ariba said the deal will not be completed until the fourth quarter. See full story. Merrill Lynch?s B2B Holdrs (BHH: news, msgs), of which Ariba is a component, lost 1.6 percent.
Meanwhile, shares of some Linux-related companies took a hit. Information technology research company International Data Corporation said that a break up of Microsoft (MSFT: news, msgs) could actually hurt Linux-related stocks. Red Hat (RHAT: news, msgs) fell 7.3 percent, or 2 3/16 to 27 5/8, while VA Linux Systems (LNUX: news, msgs) lost 11/16 to 41 3/4. But shares of Corel (CORL: news, msgs) jumped 21.6 percent, or 25/32 to 4 13/32 after announcing an agreement to bundle its Print House 2000 software with Hewlett-Packard?s ScanJet 4300C scanner for the home market.
Media Metrix (MMXI: news, msgs) fell 17.3 percent, or 4 7/8 to 23 3/8. The company is buying Jupiter Communications (JPTR: news, msgs) in a $408 million stock deal. Jupiter lost 1 15/16 to 21 1/16.
Harmonic (HLIT: news, msgs) tumbled 42.9 percent, or 17 1/2 to 23 5/16, after warning that it expects to record lower-than-expected earnings in the second quarter, in the range of 12 to 16 cents a share -- which compares to the First Call estimate of 29 cents a share.
In earnings news, General Mills (GIS: news, msgs) said fourth-quarter earnings came in at 37 cents a share, a penny ahead of the First Call estimate. The company made 33 cents a share a year earlier. The company said it expects per-share profit to rise at a double-digit rate in the next fiscal year. Read the story. The stock rose 5/16 to 38 5/8.
Dean Foods (DF: news, msgs) registered a fourth-quarter profit from operations of 83 cents a share, 3 cents ahead of the First Call estimate. The company made 68 cents in the year-ago period. The stock shed 11/16 to 32 7/8.
In the meantime, World Wrestling Federation Entertainment (WWFE: news, msgs) checked in with fourth-quarter pro-forma earnings of 19 cents a share compared to the First Call estimate of 16 cents a share. The company earned 23 cents in the year-ago period. Shares added 1 1/16 to 18 1/16.
And Apollo Group (APOL: news, msgs) posted a third-quarter profit of 32 cents a share, which excludes a 4-cent charge. That compared to the First Call estimate of 25 cents a share. The company earned 24 cents a share in the year-ago period. Shares shed 1 13/16 to 27 3/8.
J. P. Morgan (JPM: news, msgs) added 5/16 to 118 3/4. The Dow component announced that it?s acquiring a minority interest in the Arizona Stock Exchange, an electronic call market for stocks.
Shares of Johnson & Johnson (JNJ: news, msgs) continued their ascent following a nice climb on Monday. Donaldson Lufkin & Jenrette raised its price target to $115 from $100. Shares added 2 7/16 to 97 15/16.
Treasury focus
Treasury prices rose, picking up steam late in the session as investors unwound corporate hedges put on earlier in the session by buying back government issues. The 30-year reaped the brunt of the gains. See Bond Report.
In the corporate market, a whopping $9.5 billion dollar offering from Deutsche Telekom was launched and is expected to be priced early Wednesday. The $14 billion global deal has been upped in size from original levels and the $9.5 billion U.S. portion contains 5- 10- and 30-year tranches.
The 10-year Treasury note added 3/32 to yield 6.08 percent while the 30-year bond was up 18/32 to yield 5.94 percent.
On the economic front, Tuesday saw the release of June consumer confidence, which came in at 138.8 from May?s 144.7. The June numbers were weaker than the expected reading of 141.2. The bond market?s reaction to the news was muted. Read the story.
In the currency market, the dollar was quiet following Monday?s stellar advance against the yen. The dollar lost 0.2 percent to 105.30 yen while euro/dollar picked up steam, rising 1.0 percent to 0.9456. See latest currency rates.
In the commodity arena, August crude climbed 43 cents to $32.06 while the Bridge CRB index climbed 0.97 to 226.02.
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Julie Rannazzisi is markets editor for CBS.MarketWatch.com.
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