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By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 8:02 AM ET Jun 30, 2000 NewsWatch
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NEW YORK (CBS.MW) - U.S. shares are set for a flat to mildly higher open Friday as investors brace for quarter end, which may underpin prices as fund managers “window dress” their portfolios.
September S&P 500 futures rose 3.50 points, or 0.2 percent, and were trading roughly 0.70 point above fair value, according to HL Camp & Co. Nasdaq futures, meanwhile, added 10.00 points, or 0.2 percent.
Separately, Trim Tabs said all equity funds had inflows of $1.8 billion over the week ended June 28 compared with inflows of $6.5 billion during the previous week. Equity funds that invest chiefly in U.S. stocks had inflows of $2.7 billion versus inflows of $6.6 billion during the prior week.
In the government market, prices traded close to the unchanged mark. The 10-year Treasury note added 2/32 to yield 6.02 percent while the 30-year bond was up 1/32 to yield 5.877 percent
On the economic front, Friday will see the release of May personal income and personal consumption spending. View Economic Preview, economic calendar and forecasts and historical economic data.
In the currency market, the dollar continued to weaken against the yen as market participants brace for Tuesday’s release of the quarterly tankan survey of Japan’s businesses, which is expected to show an improvement. If the figure comes in better-than-expected, the case will build for the Bank of Japan to end its zero-rate interest policy.
Dollar/yen fell 0.3 percent and was recently trading at 104.96 while euro/dollar added 0.4 percent to 0.9553. See latest currency rates.
Thursday’s trading activity
The major averages took a beating Thursday, with big-cap tech names suffering the brunt of the selling as a slew of earnings warnings again raised concerns about profit growth, particularly as the U.S. economy slows going forward.
“There’s a lot of re-positioning taking place ahead of quarter end. People are moving out of some stocks and getting into others but I’m not convinced a lot of new positions are being established,” said Louis Parks, senior managing director at Raymond James.
“Though rates were left unchanged Wednesday, the Fed made it clear that inflation remains a concern,” Parks continued. And the market, he said, is digesting the possibility of future rate hikes.
"There are a lot of big potholes in this market and concerns about earnings have been the driving force," said Mike Vogelzang, president and chief investment officer at Boston Advisors.
The major averages briefly attempted to regain their composure around mid-afternoon, but sellers had the better, with chip and computer hardware stocks the hardest hit.
The widespread selling in computer hardware issues came following a Salomon Smith Barney downgrade of Compaq Computer. The Goldman Sachs Computer Hardware Index ($GHA: news, msgs) fell 3.8 percent.
The broader market saw the best gains in oil service shares as oil prices rose. Drug and brokerage stocks were also higher while retail, bank and biotech stocks were the laggards on the day.
The Dow Jones Industrial Average tumbled 129.75 points, or 1.2 percent, to 10,398.04 after falling as much as 168 points earlier in the session.
Four Dow stock reached fresh 52-week lows on Thursday: AT&T, DuPont, International Paper and General Motors.
Leading the market on the downside were shares of Caterpillar, DuPont, Hewlett-Packard, J.P. Morgan, Wal-Mart and United Technologies. Among the upside movers were Philip Morris and SBC Communications.
The Nasdaq Composite erased 63.11 points, or 1.6 percent, to 3,877.23 while the Nasdaq 100 Index tumbled 105.23 points, or 2.8 percent, to 3,665.83.
Among the big-cap tech names under the gun were Cisco Systems (CSCO: news, msgs), off 2 3/8 to 61 3/16, Sun Microsystems (SUNW: news, msgs), down 2 3/8 to 87 13/16, Oracle (ORCL: news, msgs), down 2 1/16 to 80 7/8, and Texas Instruments, down 2 7/8 to 68 3/4.
“We’re now in the waiting period for earnings,”said Peter Cardillo, chief strategist at Westfalia Investments.
He believes earnings in the tech sector will be extremely positive and expects an improvement in the market’s performance as they begin to trickle in.
Todd Gold, technical analyst at Gruntal & Co., believes the market is overreacting on the downside Thursday and remains bullish as the earnings season approaches.
The Standard & Poor's 500 Index fell 0.9 percent while the Russell 2000 Index of small-capitalization stocks lost 1.6 percent.
Volume was healthy, coming in at 1.11 billion on the NYSE and at 1.55 billion on the Nasdaq Stock Market. Breadth was negative, with decliners beating advancers by 15 to 14 on the NYSE and by 22 to 18 on the Nasdaq.
Sector movers
Shares of Ericsson (ERICY: news, msgs) and Nokia (NOK: news, msgs) took a hit in after Ericsson’s president Kurt Hellstrom warned that growth in the mobile phone market could slow due to higher-than-expected costs operators are paying for third generation cell-phone licenses. See full story. Ericsson fell 1 3/8 to 18 11/16 while Nokia trimmed 1 5/8 to 48 3/4. And Motorola (MOT: news, msgs) shaved 15/16 to 29 3/16.
Qualcomm (QCOM: news, msgs) fell 2 1/16 to 61 1/2. PaineWebber lowered its 2000 earnings-per-share estimate to $2.33 from $2.39 and sliced its price target to $40 from $48. See Rating Revisions.
Eli Lilly (LLY: news, msgs) jumped 17.5 percent, or 15 77/256 to 102 1/2, after the company said its treatment for sepsis has met research goals. The climb buttressed the drug sector, which was among the few winners Thursday. The Amex Pharmaceutical Index ($DRG: news, msgs) rose 2.1 percent. Another upside mover included Merck (MRK: news, msgs), up 7/64 to 74 3/16. Donaldson, Lufkin & Jenrette upped its price target on Merck to $90 from $85.
Shares of Compaq Computer (CPQ: news, msgs) dropped 11.4 percent, or 3 1/4 to 25 1/4. Salomon Smith Barney cut its rating on the stock to a "neutral" from "buy" and lowered its price target to $25 from $45, citing second-quarter revenue concerns.
Compaq released after the close a statement in response to the Smith Barney downgrade, saying that they’re comfortable with channel inventory levels.
“Compaq's channel inventory has been low and in some cases near stock-out levels. The second quarter has been very back-end loaded due to supply constraints early in the quarter,” the company said.
Among other hardware stocks losing ground were Hewlett-Packard (HWP: news, msgs), down 4 5/128 to 119 3/4, Apple Computer (AAPL: news, msgs), off 3 3/16 to 51 1/4, and Gateway (GTW: news, msgs), down 2 59/64 to 55 11/16.
Chip stocks came under pressure, with the Philadelphia Semiconductor Index ($SOX: news, msgs) down 3.6 percent. The sector has been down for four straight sessions, trimming 7.3 percent. Among the losers were Advanced Micro Devices (AMD: news, msgs), off 4 7/16 to 76 1/4, KLA-Tencor (KLAC: news, msgs), off 4 1/4 to 57 5/8, and Intel (INTC: news, msgs), down 5/8 to 131 3/4. Micron Technology (MU: news, msgs) was among the few winners, adding 3 1/4 to 90 13/16
Warnings abound
Unisys announced that it’s expecting second-quarter earnings of 18 to 20 cents a share compared to the First Call estimate of 37 cents due to weakness in its federal government and financial services business. The stock (UIS: news, msgs) fell 8 5/8, or 37.3 percent, to 14 1/2. View full story.
And Goodyear Tire & Rubber (GT: news, msgs) sees second-quarter earnings about level with year-ago levels of 37 cents a share. First Call expected the company to earn 58 cents a share in the quarter. The company blamed the earnings shortfall to an increasingly competitive environment, a weak Euro and increased raw material and energy costs. Read the story. Shares shaved 1 21/256 to 21 1/4.
SCM Microsystems announced that second-quarter results will fall short of expectations due to slower sales. The company (SCMM: news, msgs) expects to earn 7 to 11 cents a share in the quarter, including one-time items, well below the First Call estimate of 22 cents a share. The stock tumbled 40 percent, or 35 11/16 to 53 5/8.
Ion Networks slumped 1 5/32, or 27.6 percent, to 3 1/32. The company (IONN: news, msgs) said first-quarter revenue would be about $2 million, down from the year-ago total of $4.9 million, due to delayed orders by some of its largest customers and a shift in the release date for its new PRIISMS Managers software. See full story.
Specific movers
Shares of Palm added 3 5/16, or 12.6 percent, to 29 11/16. Late Wednesday, the company (PALM: news, msgs) posted a fourth-quarter profit of 3 cents a share -- which excludes separation charges related to its spinoff from 3Com -- ahead of the First Call expectation of 1 cent a share. The company made a penny a share in the year-ago period. See story. Shares of 3Com (COMS: news, msgs) added 4 7/16 to 52 9/16.
EarthLink stock (ELNK: news, msgs) added 1/64 to 14 53/64. The company said Hewlett-Packard plans to feature EarthLink’s Web service on a line of home PCs. See full story.
ConAgra (CAG: news, msgs) saw its shares slip 13/64 to 19 5/8. The food company reported Thursday a fourth-quarter profit from operations of 46 cents a share, matching the First Call estimate. It made 41 cents in the year-ago period. Read the story
Shares of Del Monte (DLM: news, msgs) fell 1 5/16, or about 15.7 percent, to 7 1/16. Late Wednesday, Del Monte warned that fourth-quarter earnings were expected to come in between 20 to 24 cents a share -- well short of the First Call estimate of 30 cents a share. Goldman Sachs lowered its rating on the company to a “market performer” from its recommended list.
Priceline.com (PCLN: news, msgs) shares fell 8.4 percent, or 3 3/8 to 36 13/16 following news that six major airlines plan to compete for customers looking for discounts on plane tickets online. Read the story.
Shares of Tyco International (TYC: news, msgs) added 7/8 to 46 3/8. the company announced that it was purchasing health-care equipment manufacturer in a $4.2 billion stock deal. The acquisition is expected to make an immediate, positive bottom-line impact for Tyco. Mallinckrodt (MKG: news, msgs) closed at 43 5/8, well above Wednesday’s official close of 31 3/8. See full story.
See After Hours for post-market trading activity.
Treasury focus
Government prices posted heavy gains, with the 10- and 30-year issues leading on the way up, as a sell-off in equities as well as month-end buying sparked interest in fixed-income.
Separately, the government purchased $2 billion in bonds Thursday in its eighth such operation to date. The buyback drew offers totaling $7.02 billion. Treasury paid $2.48 billion to buy back $2 billion in par amount of 30-year bonds maturing between Feb. 2019 and Aug. 2023.
The 10-year Treasury note jumped 17/32 to yield 6.03 percent while the 30-year bond skyrocketed 1 6/32 to yield 5.875 percent. See Bond Report.
On the economic front, Thursday saw the release of the final revision to first-quarter gross domestic product, which was upwardly revised to 5.5 percent from 5.4 percent. The implicit price deflator was revised to 3.0 percent from the previously reported 2.7 percent. See full story.
And weekly initial claims rose 2,000 to 306,000. May new home sales lost 0.2 percent to 875,000, less than the expected 914,000.
The Fed released the minutes of the May 16 FOMC meeting, which produced a 50-basis-point rate hike. All Fed members agreed on the rate increase, the minutes revealed. The group felt that a more aggressive move was warranted given "extraordinary and persisting" demand strength and an ever-tightening job market, according to those minutes.
Moreover, members saw little risk in taking the bigger step given widespread financial market expectations that policymakers would need to fight inflation with a more powerful tool. See full story.
In the currency market, dollar/yen fell 0.2 percent and was recently trading at 105.26 while euro/dollar jumped 1.0 percent to 0.9514. See latest currency rates.
Fitch announced a downgrade of Japan’s long-term local currency rating to “AA+” from “AAA” Thursday due to concerns over the health of the country’s public finances.
The yen didn’t weaken on the Fitch news as market participants reflected on interest-rate issues. In fact, Japan has been signaling that it will soon end its zero interest-rate policy, in place since February 1999, perhaps as soon a mid-July. This has been a source of support for the yen.
Further, speculation of a downgrade had surfaced earlier in the week, causing yen selling on Monday.
In the commodity arena, August crude gained 82 cents to $32.72 while the Bridge CRB index added 1.31 to 226.33.
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Julie Rannazzisi is markets editor for CBS.MarketWatch.com.
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