something tells me this week will be action-packed (apologies if this article has already been posted - not on top of it all right now)
URL: cbs.marketwatch.com
The bulls take charge
Earnings news to dominate
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 6:10 PM ET Jul 7, 2000 NewsWatch
Latest headlinesNEW YORK (CBS.MW) - The market ended the week on a fabulous note with buyers lifting almost all boats on the notion the Federal Reserve can indeed achieve a soft landing for the U.S. economy.
Technicians were also encouraged, as it appears that the market’s attempt to break out if its recent, dull trading range may actually be successful this time around.
“I think 4,000 on the Nasdaq will stick this time around. I believe there are more upward moves to come,” remarked Barry Hyman, senior market strategist with Ehrenkrantz King Nussbaum.
He believes the Nasdaq can trade at 4,200 to 4,300 by the end of the month. “The Nasdaq is the best-positioned index. It’s breaking out of its trading range.”
“We’re done with the pre-announcements and I think the earnings releases will elicit an upward move in the market,” Hyman continued. And the steady stream of economic data pointing to a cooler economy and a sidelined Fed is providing the market with a positive backdrop, he added.
Joe Liro, equity analyst at Stone & McCarthy Research Associates, believes the market can do better from these levels but doesn’t believe the major averages will rush to new highs.
“The earnings news will be good and we don’t have to worry about the Fed until August. But if this is going to be the real McCoy, we need to see the financials take a bigger role,” Liro said. He expects the earnings news to be positive for financial stocks and believes the sector’s credit quality remains good.
In the meantime, the market will have to wade through more important economic news next week, but observers believe it will take a backseat to earnings.
Hyman said next week’s focus will be on quarterly results and whether the Nasdaq can hold this week’s gains
The highlights on the economic front include the June retail sales report and producer price index. Also due out: Industrial production, capacity utilization and import and export price data. See Economic Preview. In addition, Fed Chair Alan Greenspan will speak on Tuesday and Wednesday.
The Dow Industrials finished the week up 1.8 percent but is down 7.4 percent for the year. The Nasdaq rose 1.4 percent this week and is down only 1.1 percent for the year.
Earnings watch
Highlighting next week’s earnings releases are four Dow stocks - Alcoa, International Paper, JP Morgan and General Electric.
Others reports of significance include Yahoo, Biogen, Motorola, Gateway, Vitesse Semiconductor, PMC Sierra, Altera, Ariba, Maytag and Fannie Mae.
First Call said it’s highly likely that pre-announcements for the second quarter will be less negative than usual. The number of negative pre-announcements currently stands at 217 and final numbers will likely fall short of the 370 witnessed in the second-quarter of 1999, the earnings compiler said.
S&P 500 earnings growth for the second quarter is expected to come in at 19.2 percent, First Call said. The earnings compiler believes there is enough momentum to carry earnings growth in the third quarter to about 19 to 20 percent.
Friday’s trading activity
The major averages took off Friday, with an encouraging rally that benefited virtually all market sectors. Catalyst for the sharp upward move was a tamer-than-expected employment report, which supported the view that the Fed will be successful in crafting a soft landing of the U.S. economy.
Non-farm payrolls rose by 11,000 in June compared to expectations for a 277,000 increase. The unemployment rate edged down to an as-expected 4.0 percent from May’s 4.1 percent. And closely watched average hourly earnings rose by an as-expected 0.4 percent following a 0.1 percent rise in May. See full story.
Friday’s report was a good set of numbers for stocks, Liro of Stone & McCarthy Research Associates said. The hourly earnings growth suggests that consumer spending remains healthy but isn’t strong enough to stir up inflation concerns, he added.
Inside the broad market, most sectors enjoyed gains, though retail stocks were by far the star performers. Also posting handsome gains were bank and biotech shares. Among the few downside movers were oil service, airline, chemical and drug stocks. Within technology, the buying was across the board, with chip and software stocks continuing their rebound after taking a beating on Wednesday.
The Dow Jones Industrial Average piled on 154.51 points, or 1.5 percent, to 10,635.98.
“The market is reacting to lowered Fed tightening expectations. But the market will put the Fed aside and focus on earnings for the next couple of weeks,” said Peter Boockvar, equity strategist at Miller, Tabak & Co. Earnings, he added, will dictate the market’s moves.
“The market perceives the Fed is coming to an end of its tightening cycle,” said Donald Selkin, chief market strategist at Joseph Gunnar. “In addition, we’re at the end of the pre-announcement period and earnings will be good,” he added.
Selkin notes that there are many pockets of strength in the market -- like the biotechs -- and that breadth has improved over the past couple of sessions.
The Dow’s leaders on the upside were shares of Home Depot, Wal-Mart, Hewlett-Packard and American Express. The biggest downside movers were Alcoa, Philip Morris and Caterpillar.
Selkin noted that IBM’s recovery Friday lent additional support to the Dow. Big Blue (IBM: news, msgs) was a big drag on the Dow Industrials over the past couple of trading sessions but gained 3 7/16 to 104 11/16 on Friday.
The Nasdaq Composite climbed 62.63 points, or 1.6 percent, to 4,023.20 -- its first close above the 4,000 mark since June 21. The Nasdaq 100 Index advanced 47.79 points, or 1.3 percent, to 3,841.27.
The Standard & Poor's 500 Index gained 1.5 percent while the Russell 2000 Index of small-capitalization stocks added 0.9 percent.
Volume came in at 933 million on the NYSE and at 1.47 billion on the Nasdaq Stock Market. Breadth was again positive, with advancers outnumbering decliners by 18 to 11 on the NYSE and by 21 to 18 on the Nasdaq.
Inside the jobs data
While the headline payrolls number was shockingly soft, Henry Willmore, senior economist at Barclays Capital, believes the report was a return to normalcy following an incredibly weak May when removing the distortions created by the census workers.
In fact, private payrolls rose by a healthy 206,000 while the government lost a hefty 195,000 jobs -- including 190,000 temporary workers hired for the census.
“The June numbers leave the Fed on track to raise rates by 25 basis points,” Willmore said, noting, however, that the central bank will view a smorgasbord of economic figures before making its decision on rates on August 22.
If the numbers released from now until August are uniformly weak, Willmore believes the Fed will stand pat on rates. But if they give a mixed reading of the economy, he believes the central bank will opt to raise short-term rates.
“It’s their last chance before the presidential election,” he concluded.
Joel Naroff, chief economist at Naroff Economic Advisors, stressed the importance of looking beyond Friday’s headline numbers.
“Some will argue that today’s employment report clearly puts the Fed on hold. Indeed, this was a tame report that would not seem overly threatening. But that really is not the whole story,” Naroff said.
“The private sector job gain and the hourly wage increase were not comforting at all and the number of hours worked did rebound. If we see the same numbers in the July report, the conclusion will be that the job market has not slowed measurably and the pressure will be back on the FOMC to hike rate,” the economist concluded.
Sector movers
Bank stocks got a boost from the friendly employment numbers and the rallying bond market. The Phlx Bank Index ($BKX: news, msgs) gained 2.6 percent and the CBOE Bank Index ($BIX: news, msgs) climbed 2.9 percent. And the Amex Securities Broker/Dealer Index ($XBD: news, msgs) added 0.6 percent.
The brokerage sector came under some pressure earlier in the session as Merrill Lynch (MER: news, msgs) slumped. But the stock pared the brunt of its losses, ending down 3/4 to 123 1/4. The Wall Street Journal said the company may cut its workforce by as much as 2,000 -- which would be the heftiest slash since 1998, when the Asian crisis and the Long-Term Capital Management debacle produced a rout in financial markets worldwide. Goldman Sachs (GS: news, msgs) added 1 3/4 to 94 15/16 and Morgan Stanley Dean Witter (MWD: news, msgs) gained 1 1/8 to 90 5/8.
Retail stocks took off on Friday, adding to Thursday’s gains, with the S&P Retail Index ($RLX: news, msgs) up a whopping 6.3 percent. The index rose above the 900-mark for the first time since June 5. Among the upside movers were Dow components Home Depot (HD: news, msgs), up 8.0 percent, or 4 1/8 to 55 3/8, and Wal-Mart (WMT: news, msgs), which added 4 3/8, or 7.6 percent, to 61 7/8.
The market digested an earnings warnings from Compuware (CPWR: news, msgs). The company said earnings per share for its fiscal first quarter will come in at 7 to 9 cents a share compared to the First Call estimate of 15 cents a share, blaming disappointing software sales. The stock tumbled 1 3/32, or 10.7 percent, to 9 5/32. See full story.
Compuware is a component of the CBOE Computer Software Index ($CWX: news, msgs), which added 2.3 percent on Friday. On Wednesday, the index took a drubbing due to warnings of an earnings shortfall from BMC Software and Computer Associates. Helping the index Friday were gains in shares of PeopleSoft (PSFT: news, msgs), which added 2 1/2 to 18 3/8 on the heels of upgrades from Lehman Brothers and Merrill Lynch.
Chip stocks continued their ascent and the Philadelphia Semiconductor Index ($SOX: news, msgs) added 3.7 percent. The index is up 8.4 percent over the past couple of sessions after falling 9.3 percent on Wednesday.
Among the stocks recovering from Wednesday’s body shot from Salomon Smith Barney were Texas Instruments (TXN: news, msgs), up 1 5/8 to 68 5/8, Advanced Micro Devices (AMD: news, msgs), up 4 1/2 to 82, and National Semiconductor (NSM: news, msgs), up 4 1/2 to 54. But Silicon Storage (SSTI: news, msgs) continued to slide following the Salomon downgrade on Wednesday and shaved 1 9/16 to 80 1/16 after seeing a big run-up earlier in the week. See Silicon Stocks.
Internet stocks sputtered and were among the few pockets of weakness in the tech sector. The group was weighed down by losses in shares of Yahoo (YHOO: news, msgs), which trimmed 5 7/8 to 116 1/2. The company saw its rating cut to a “buy” from a “strong buy” by Deutsche Banc Alex. Brown on concerns over revenue and valuation. See Rating Revisions. Yahoo kicks off earnings season next Tuesday. Merrill Lynch’s Internet Holdrs (HHH: news, msgs), of which Yahoo is a component, shed 2.5 percent. See Net Stocks.
Shares of Sycamore Networks (SCMR: news, msgs) added 16 11/16 to 126 15/16 after announcing that it won a contract worth up to $420 million to provide networking equipment to 360Networks. See full story.
Sycamore is a component of Merrill Lynch’s Broadband Holdrs (BDH: news, msgs), which added 2.5 percent. Also posting nice gains were JDS Uniphase (JDSU: news, msgs), up 2 3/16 to 116 3/16, and Ciena (CIEN: news, msgs), up 7 13/16 to 171 7/8. But Qualcomm (QCOM: news, msgs) fell 5 1/16 to 56 5/8 after South Korea’s two mobile telecommunication leaders, SK Telecom and Korea FreeTel said they plan to use Qualcomm competitors’ W-CDMA (Wideband Code Division Multiple Access) technology for their new cell phone networks if awarded licenses from the government. W-CDMA is being developed by Japan’s NTT DoCoMo as well as Nokia and Ericsson. Nokia (NOK: news, msgs) added 2 to 54 while Ericsson (ERICY: news, msgs) added 5/8 to 21 5/8. Read the story.
Merrill’s Internet Infrastructure Holdrs (IIH: news, msgs) shed 3.1 percent, held down by steep losses in shares of BroadVision (BVSN: news, msgs). The stock plunged 25.4 percent, or 13 5/8 to 40 after the company came out the loser in the bidding for a high-profile contract let by American Airlines. The contract went to Art Technology (ARTG: news, msgs), which rose 17 to 111 1/2.
Treasury focus
Bond prices rallied on the employment news, with gains spread across the maturity spectrum.
The 10-year Treasury note rose 9/32 to yield 6.01 percent while the 30-year bond gained 22/32 to yield 5.86 percent. See Bond Report.
Monday will see the release of May consumer credit. See Economic Preview, economic calendar and forecasts and historical economic data.
In the currency arena, dollar/yen added 0.4 percent to 107.85 while euro/dollar lost 0.3 percent to 0.9473. See latest currency rates.
In the commodity market, August crude climbed 29 cents to $30.28, erasing earlier losses. The Bridge CRB index added 1.45 to 219.33.
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Julie Rannazzisi is markets editor for CBS.MarketWatch.com.
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