Stocks fly on Greenspan remarks
Jump in IBM shares also boosts market
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 2:05 PM ET Jul 20, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) -- Soothing remarks from Fed chief Alan Greenspan Thursday sent an already giddy equity market sharply higher. Tech stocks led the charge, propelled by stellar gains in shares of IBM.
"We're seeing ample good news to drive the market higher," said Todd Gold, technical strategist at Gruntal & Co. "The market is cautiously confident, and that's very healthy."
Speaking before the Senate Banking Committee on monetary policy, Greenspan said inflationary expectations remain modest outside of energy prices and that demand is moving more into line with supply, suggesting that imbalances in the economy are being corrected. Read the full story.
"The market is responding to Greenspan's acknowledgment that the U.S. economy appears to be moderating. [The Fed chief] is also emphasizing that he still believes productivity gains aren't likely to be surrendered as the economy slows," said Nick Sargen, chief investment strategist at J.P. Morgan.
"The market's relieved Greenspan tone was a little more upbeat," Sargen continued.
Inside the market, Internet stocks were on a roll while semiconductors were the laggards within technology. Financial and biotech stocks also climbed while the defensive drug group retreated, unable to respond positively to a batch of positive earnings news.
The Dow Jones Industrial Average rallied 132 points, or 1.2 percent, to 10,828 at 1:10 p.m.
A rally in shares of IBM propelled the market from the start of trading. Also moving higher were the Dow's financial components: American Express, Citigroup and J.P. Morgan. On the downside were shares of AT&T, Caterpillar and Merck.
IBM rose 10 11/16 above its NYSE close to 114 3/16. Big Blue (IBM: news, msgs) reported after the close Wednesday second-quarter profit of $1.06 per share, which beat the First Call estimate of $1.00 per share. The company made 91 cents in the year-ago period. As expected, revenue was slightly lower. And without adjustments for foreign-exchange currency fluctuations, IBM said its overall sales growth was essentially flat. Read the story.
Lehman Brothers upgraded IBM to a "buy" rating from an "outperform" and raised its price target to $160 a share. Lehman raised 2000 earnings-per-share estimates to $4.42 share from $4.30 and 2001 estimates to $5.10 share from $5.00.
Two Dow companies posted their quarterly results Thursday. Caterpillar came in with second-quarter earnings of 90 cents a share, beating the First Call estimate by 3 cents. The company made 78 cents in the year-ago period. Shares (CAT: news, msgs) shed 11/16 to 37 1/4. See Earnings Surprises.
And SBC Communications posted a profit from operations of 56 cents a share in the second quarter, surpassing the First Call estimate by 1 penny. The company earned 55 cents in the year-ago quarter. The stock (SBC: news, msgs) added 1 1/16 to 44 11/16.
The Nasdaq Composite put on 112 points, or 2.8 percent, to 4,168 while the Nasdaq 100 Index climbed 134 points, or 3.5 percent, to 3,978.
Gold noted that the Nasdaq selling over the past couple of trading sessions came on low volume and maintains a near-term target of 4,475 for the index, which corresponds to the April 10 high.
The Standard & Poor's 500 Index added 0.9 percent while the Russell 2000 Index of small-capitalization stocks rose 1.0 percent.
Separately, volume checked in at 647 million on the NYSE and at 994 million on the Nasdaq Stock Market. Winners beat losers by 15 to 11 on the NYSE and by 21 to 16 on the Nasdaq.
Inside Greenspan's remarks
Greenspan sees the U.S. economy growing for at least 18 more months and suggested the slowdown that has emerged from recent economic data is real. Still, Greenspan said it's "much too soon to conclude concerns are behind us."
"All in all, it's an encouraging testimony. Greenspan sounds pretty optimistic, though the speech doesn't resolve the debate over [whether the Fed will tighten] at the August meeting," said David Sloan, senior economist at 4Cast.
"The big debate is whether the slowdown in consumer spending is temporary or permanent. Greenspan does acknowledge the possibility that it's temporary but he's still optimistic on productivity. He seems to be acknowledging the possibility that the slowdown is for real," Sloan continued.
Greenspan's speech, Sargen said, contained a litany of "on-one-hand" and "on-the-other hand" comments.
"Greenspan didn't really tip the balance one way or the other. He's waiting for more information [on the economic front]. He doesn't have to make a decision for another month," Sargen observed.
Elsewhere, the Fed expects the economy to grow 4 to 4.5 percent in 2000, suggesting a noticeable deceleration over the second half of 2000.
Sector movers
Merrill Lynch's Broadband Holdrs (BDH: news, msgs) fell 0.7 percent on Thursday. The trust was held down by heavy losses in shares of Lucent and Conexant Systems -- but a surge in shares of JDS Uniphase kept the index from falling further. Also included in the Holdrs are SDL and Qulacomm shares.
Lucent Technologies (LU: news, msgs) checked in with a third-quarter profit from operations of 30 cents per share, a penny ahead of the First Call estimate. The company made 23 cents a share in the year-ago period. Looking ahead, Lucent sees lower-than-expected results in its fourth quarter and first quarter of 2001, but didn't specify how the company would stack up against current Wall Street estimates. See full story. The stock lost 11 1/4, or 17.4 percent, to 53 1/4.
Conexant (CNXT: news, msgs) tumbled 11, or 22.5 percent, to 37 15/16. The company said it expects operating income to decline by about 10 percent in the fiscal fourth quarter due to increased spending on research and development. Third-quarter earnings came in at 22 cents a share, in line with the First Call estimate. The company was hit by downgrades from Chase H&Q, Bear Stearns and Goldman Sachs.
Shares of JDS Uniphase (JDSU: news, msgs) surged 17 1/2, or about 16 percent, to 124 1/4. Standard & Poor's said Wednesday that JDS Uniphase will replace Rite Aid (RAD: news, msgs) in the S&P 500 Index after the close of trading on July 26. See story. Rite Aid added 1/8 to 5 1/16. SDL (SDLI: news, msgs), which JDS agreed to buy early last week, put on 51 1/4, or 14.3 percent, to 410 7/8. Goldman Sachs initiated JDS Thursday, putting the stock on its recommended list. See Rating Revisions.
Qualcomm (QCOM: news, msgs) posted third-quarter earnings of 27 cents a share late Wednesday, in line with the First Call estimate. The developer of CDMA technology made 22 cents in the year-ago period. Revenue climbed 11 percent to $714 million, though analysts had been expecting sales closer to the $750 million mark. See full story. The stock eased 4 5/8 to 58 3/8.
Chip stocks were the laggards in the technology group, with the Philadelphia Semiconductor Index ($SOX: news, msgs) up only 0.4 percent. Among the components of the index, Advanced Micro Devices (AMD: news, msgs) checked in with earnings of $1.21 a share in its second quarter after the close Wednesday, surpassing the First Call estimate of $1.14 a share. The company also set a 2-for 1 stock split. The stock closed off 3/4 to 90 1/4. See story. Lehman Brothers called AMD's quarter "terrific" and raised earnings-per-share estimates for 2000 to $5.05 from $4.85. Shares shed 2 3/4 to 87 1/2. Intel (INTC: news, msgs) added 3 13/16 to 141 15/16.
Merrill's Internet Holdrs (HHH: news, msgs) put on 4.9 percent, helped by healthy gains in shares of Exodus and America Online.
Exodus Communications (EXDS: news, msgs) posted a second-quarter loss of 10 cents a share after the close Wednesday, narrower than the 12-cents loss expected by First Call. The company lost 7 cents a share in the year-ago period. See story. Merrill Lynch called the company's quarter "outstanding" and expects positive momentum to flow into 2001. Shares added 6, or 12 percent, to 56 13/16. See Net Stocks.
America Online (AOL: news, msgs) shares added 2 1/4 to 61 5/8. The company will report fourth-quarter earnings after the close Thursday, with First Call estimating the online giant to earn 11 cents a share.
Merrill's Internet Architecture Holdrs (IAH: news, msgs), which contains stocks such as Cisco Systems, IBM, Sun Microsystems and EMC, rose 5.1 percent. Sun Micro will unleash fourth quarter results after the close Thursday. First Call expects Sun to have made 33 cents a share in the quarter compared to 24 cents in the year-ago period.
Drug stocks slipped as money poured out of the group and into the technology arena. Still, a number of drug companies posted good results.
Eli Lilly (LLY: news, msgs) posted second-quarter earnings of 61 cents a share, a penny ahead of the First Call estimate. The company made 52 cents in the same quarter a year ago. Read the story. Shares fell 1 11/16 to 53 9/16.
And American Home Products (AHP: news, msgs) registered a second-quarter profit of 31 cents a share, matching the First Call estimate. The company made 22 cents in the year-ago quarter. Read the full story. The stock slipped 3 1/8 to 95 5/8. Both Eli Lilly and AHP are components of the Amex Pharmaceutical Index ($DRG: news, msgs), which trimmed 1.3 percent.
The airline sector remained soggy Thursday, with the Amex Airline Index ($XAL: news, msgs) off 0.3 percent following a 3.5 percent drop on Wednesday.
Delta Air Lines (DAL: news, msgs) posted a fourth-quarter profit from operations of $2.86 a share, besting the First Call estimate of $2.72 a share. The company made $2.40 in the year-ago quarter. Shares added 3/4 to 54 3/8. On Wednesday, airlines retreated after UAL warned of lower-than-expected earnings for its third quarter and US Airways came in with a lower-than-expected quarterly result.
Treasury focus
Government prices cheered Greenspan's remarks, staging a handsome rally following sessions of generally range-bound activity.
The 10-year Treasury note was up 19/32 to yield of 6.075 percent while the 30-year bond rallied 1 1/4 to yield 5.835 percent. See Bond Report.
On the economic front, June housing starts fell 2.6 percent to a 1.55 million rate, lower than the expected 1.58 million rate. Building permits came in flat at a 1.51 million rate compared to the expected 1.50 million. The bond market staged a muted reaction to the figures.
"No doubt these numbers will be taken by the market as a clear sign of a softening housing market. We are much more skeptical: housing starts lag home sales -- which have been depressed in recent months more by lack of inventory than by higher interest rates," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
"Demand for new mortgages to fund house purchase remains, according to the Mortgage Bankers' Association, very close to its cycle high. We think there is a good chance that home sales recover, or at worst stabilize, over the next few months," the economist concluded.
In other news, initial claims slipped 9,000 to 311,000 in the latest week. And the Philadelphia Fed index came in at 0.7 in July versus June's 1.7. The prices paid index slowed to 26.8 from the previous 30.8. Read the story and view Economic Preview, economic calendar and forecasts and historical economic data.
In the currency arena, dollar/yen slipped 0.1 percent to 108.15 while euro/dollar added 0.1 percent to 0.9248. See latest currency rates.
In the commodity arena, August crude lost 35 cents to $31.07 while the Bridge CRB index lost 0.63 to 222.89.
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Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
