MARKET SNAPSHOT
Stocks keep some gains after Fed
Central bank leaves rates unchanged
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:59 PM ET Jun 28, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) - The Nasdaq held on to nice gains Wednesday following the Federal Reserve?s decision to leave interest rates unchanged. But Dow stocks came under some profit-taking and ended only modestly higher.
As had been widely expected, the central bank left the overnight fed funds rate unchanged at 6 1/2 percent. The overnight lending rate remains at its highest level in nine years and is up 175 basis points from when the central bank began tightening in June 1999. Read the full story.
The Fed last raised short-term rates on May 16 with an aggressive, 50-basis-point move.
In the statement released at the conclusion of the meeting, the Fed
said economic risks are still weighted toward inflation pressures.
?There was no reason to do anything differently,? John Zaro, managing member at Bourgeon Capital Management, said of the Fed?s decision. But the risk, he added, is that the market takes off, fueling consumer spending and increasing the need for more rate hikes down the road.
Inside the market, the sectors with the greatest strength were biotech, computer software and hardware, networking and transportation. Weakness was seen in bank, oil service, paper and retail stocks.
?Techs continue to have everybody?s attention. It has the momentum, and over the past couple of weeks the market has gone back to being a momentum-driven one,? Zaro said. ?Nobody wants to miss something that?s working.?
Zaro said a lot of ?rebalancing? trades took place with changes in the Russell 2000 set to go in effect on July 1. See related story. Moreover, fund managers are making adjustments related to quarter-end.
The Dow Jones Industrial Average added 23.33 points, or 0.2 percent, to 10,527.79.
Upside movers included Hewlett-Packard, IBM, Coca-Cola and General Electric. Leading on the downside were shares of AT&T, Philip Morris, SBC Communications and Home Depot.
The Nasdaq Composite jumped 81.38 points, or 2.1 percent, to 3,940.34 while the Nasdaq 100 index climbed 72.06 points, or 1.9 percent, to 3,771.06.
The Standard & Poor's 500 Index edged up 0.3 percent while the Russell 2000 Index of small-capitalization stocks rose 2.5 percent.
Bridgewater Associates said the market?s pattern around Fed meetings has been to rally right around the time of the meeting, only to sell off a week or two after each gathering when it became clear that another tightening was on the way.
The question, Bridgewater said, is whether we are currently seeing another replay of this pattern.
Volume stood at 1.06 billion on the NYSE and at 1.66 billion on the Nasdaq Stock Market. Breadth was positive, with winners outnumbering losers by 17 to 12 on the NYSE and by 23 to 16 on the Nasdaq.
Inside the Fed decision
There were no surprises in the Fed?s decision or statement, said John Lonski, chief economist at Moody?s Investors Service.
?Recent data suggest that the expansion of aggregate demand may be moderating toward a pace closer to the rate of growth of the economy's potential to produce,? the Fed said in its statement.
Nonetheless, signs that growth in demand is moving to a sustainable pace are still tentative and preliminary, and the utilization of the pool of available workers remains at an unusually high level, the central bank continued.
?The last thing the Fed wants to do at this stage is suggest that the tightening is nearly over,? said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
?Looking forward, we remain of the view that there is a real risk of a run of stronger numbers over the summer, mostly on the consumer side, but this should fade through the fall as the manufacturing slowdown intensifies and higher interest rates bite. We expect a 25 basis point hike in August -- and another inflation warning,? Shepherdson continued.
The Fed, Lonski said, has lots of time before the August 22 meeting to make its next decision. ?They?ll be keeping their eye on what the labor markets are doing.? See related story.
Robin Griffiths, chief technical analyst at HSBC Securities, believes there?s enough evidence the Fed has taken the U.S. economy?s temperature down.
Griffiths believes that until the presidential elections are over, the market is safe from more tightenings. But longer-term, he thinks the Fed will need to make more upward adjustments to interest rates as the U.S. economy still remains strong.
Economic focus
Wednesday saw the release of May durable goods orders, which rose a hefty 6 percent -- significantly higher than the expected 2.5 percent increase. See full story. The big jump in May?s orders was largely due to a 26 percent increase in electronics orders to $46.5 billion.
The report is the second this week -- Monday saw a larger-than-expected rise in May existing home sales -- revealing an economy that?s still very robust.
While the monthly numbers for durable goods are certainly extremely volatile, they lend credence to those who believe that the recent evidence of an economic slowdown isn?t enough to say that the Fed won?t need to tighten again going forward. Many believe the pace of economic growth will pick up in the second half of the year and that the Fed may need to be more aggressive than many in the market think.
?It is rare that the data are so clear when the economy begins to turn. Normally, the numbers bounce around and we have begun to see that happen,? said Joel Naroff, chief economist at Naroff Economic Advisors.
?Most likely, we have begun to slow. But the extent of the slowdown is not as clear as people may have thought when they looked at the data released in May and most of June. Don?t be surprised if the employment report, which will be released July 7, is quite strong,? Naroff added.
Individual movers
3Com (COMS: news, msgs) shed 9/16 to 48 1/8. 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 44 cents a share. The company made 24 cents a share in the year-ago period. Read the full story.
In the meantime, Lehman Brothers unveiled its list of 10 ?uncommon value? stocks, which include: Juniper Networks (JNPR: news, msgs), Nortel Networks (NT: news, msgs), Micron Technology (MU: news, msgs), Tellabs (TLAB: news, msgs), Eli Lilly (LLY: news, msgs), Gemstar (GMST: news, msgs), Hewlett-Packard (HWP: news, msgs), Agilent Technologies (A: news, msgs), Cendant (CD: news, msgs), BEA Systems (BEAS: news, msgs). Only Eli Lilly was also on last year?s ?uncommon values? list.
Among the biggest movers on the list were Cendant, up 1 3/8 to 14 1/4, BEA Systems, up 7 3/64 to 45 63/34, and Gemstar, up 4 1/2 to 54 3/8.
Shares of Qualcomm trimmed 1/8 to 63 9/16. The company (QCOM: news, msgs) warned that its South Korean customers may be ordering fewer chipsets for mobile phones in the fiscal fourth quarter. The elimination of Korean subsidies is expected to result in declining phone sales. See full story.
Phelps Dodge dropped 5 1/16 from its NYSE close to 36 5/8. The company (PD: news, msgs) warned after the close Tuesday that it would miss Wall Street?s earnings expectations for the second quarter and full year due to operational issues in its mining and manufacturing units and restructuring charges. Read the story. The company said that second-quarter earnings will come in at 2 to 5 cents a share compared to the First Call estimate of 23 cents a share. For the year, the company will check in with earnings in the range of 60 to 75 cents a share versus the estimate of $1.49 a share.
Dial Corp.(DL: news, msgs) plunged 2 1/8 to 10 15/16 after warning that it expects first-half earnings to be 30 percent below last year?s profit of 55 cents a share. Dial was expected to post second-quarter earnings of 26 cents a share, according to First Call. Dial expects full-year earnings to be 25 to 30 percent below last year?s levels. The company last earned of an earnings shortfall on March 10.
Shares of WorldCom (WCOM: news, msgs) jumped 12.3 percent, or 4 7/8 to 44 9/16. The European Commission said on Wednesday it will block the planned $129 billion merger between U.S. telecoms giants WorldCom and Sprint (FON: news, msgs) -- the first time it?s blocked a merger between two non-European companies. See full story. Sprint shares lost 5 5/8 to 52 3/4.
Meanwhile, WorldCom shares got a lift from comments from Salomon Smith Barney, which views WorldCom as the best-positioned company in the industry. Although the likely collapse of the Sprint deal is "unfortunate," Smith Barney believes it doesn't disrupt the company's ability to grow at a double-digit rate for top and bottom. See Market Pulse.
Novellus Systems shares (NVLS: news, msgs) tacked on 4 3/8 to 58 3/ after being named Merrill Lynch?s Focus 1 stock of the week. The Philadelphia Semiconductor index ($SOX: news, msgs), of which Novellus is a component, rose 1.5 percent.
Shares of Dow-component Coca-Cola (KO: news, msgs) added 2 1/8 to 60. The stock saw its rating shaved to a ?hold? from a ?strong buy? by UBS Warburg. See Rating Revisions.
Yahoo shares (YHOO: news, msgs) shed 2 3/8 to 123 9/16. The company said it?ll buy e-mail service provider EGroups for $437.5 million in stock to enhance the Internet giant?s communications services. See full story.
Shares of AAR Corp. fell 11.3ercent, or 1 1/2 to 11 3/4, after reporting disappointing fourth-quarter results. AAR (AIR: news, msgs) posted a profit from operations of 20 cents a share compared to the First Call estimate of 40 cents. The company made 42 cents in the year-ago period. See full story.
Treasury focus
Long-term Treasury prices remained modestly lower, while short-term rates lifted on the Fed?s decision to leave short-term rates unchanged.
Weakness emerged earlier in the session due to the stronger-than-expected durable goods data as well as the pricing of a huge corporate bond offering.
Further, the front end must digest a 2-year note offering, which was sold Wednesday afternoon at a high yield of 6.483 percent.
The corporate bond market is bustling with new deals. A mammoth $14 billion global offering from Deutsche Telekom (DT: news, msgs) -- which contains a $9.5 billion U.S. dollar portion - was priced. The deal also has sterling, yen and euro portions, which were priced before the U.S. piece. The U.S. part -- the largest ever - contained 5-, 10- and 30-year tranches. See full story.
The 10-year Treasury note added 5/32 to yield 6.10 percent while the 30-year bond was off 11/32 to yield 5.97 percent.
Separately, the government announced that it remains on track to reclaim $30 billion in old debt this year with a $2 billion debt buyback slated for Thursday -- the eighth such operation to date. See Bond Report.
Looking ahead, Thursday will see the release of weekly initial claims, May new home sales, seen at 914,000, and the final revision to first-quarter gross domestic product. View Economic Preview, economic calendar and forecasts and historical economic data.
In the currency market, dollar/yen added 0.2 percent and was recently trading at 105.49. Euro/dollar fell 0.4 percent to 0.9417. See latest currency rates.
In the commodity arena, August crude trimmed 16 cents to $31.90 while the Bridge CRB index fell 1.07 to 224.95.
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Julie Rannazzisi is markets editor for CBS.MarketWatch.com.
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