MARKET SNAPSHOT
Jobs report offers positive backdrop
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 5:23 PM ET Aug 4, 2000 NewsWatch
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NEW YORK (CBS.MW) - The major averages staged a modest advance Friday thanks to a healthy rally in financial stocks. The July jobs report, in fact, provided the market with a friendly backdrop and gave interest-rate sensitive sectors a nice boost.
"People believe the Fed is on hold but you still have a lot of anxiety surrounding the Aug. 22 FOMC meeting," said Terry Gabriel, technical analyst at IDEAglobal.
"The market has taken a lot of bad news with interest rates, earnings and rising oil prices," Gabriel said. "Institutions appear to be sidelined."
Inside the market, the financials reaped handsome gains. Utilities inched higher, reversing early losses, and the Dow Jones Utility Average breached new highs. Biotech stocks also rose in choppy trading while oil service stocks flexed their muscles as crude futures staged yet another rally.
The tech group saw the biggest gains in the networking, computer hardware and Internet arenas while the chip sector fell for a fourth straight session as concerns over future earnings continued to cast a pall on the sector.
The Dow Jones Industrial Average jumped 61.17 points, or 0.6 percent, to 10,767.75.
A rally in financial stocks sustained the blue-chip barometer throughout the session: Citigroup and American Express reached fresh 52-week highs and J.P. Morgan also scored hefty gains.
And Walt Disney (DIS: news, msgs) added 1 1/2 to 42 7/16. After the close Thursday, the Dow-component posted net income of 21 cents a share in the third quarter, handily surpassing the First Call estimate of 14 cents a share. The entertainment behemoth made 18 cents in the same period last year. Read the full story.
Among the Dow's downside movers were shares of Intel, Merck, International Paper, Microsoft and Wal-Mart.
The Nasdaq Composite edged up 27.48 points, or 0.7 percent, to 3,787.36 while the Nasdaq 100 Index lost 4.87 points, or 0.1 percent, to 3,618.63.
The Nasdaq 100 -- which encompasses the largest Nasdaq stocks by market capitalization - trailed the Nasdaq heavily throughout the day after leading the market higher on Thursday.
Oracle and Cisco Systems were among the big winners in the Nasdaq 100 while Intel suffered a 3.8 percent losss.
Market observers said earnings reports next week from Cisco Systems, Dell Computer and Applied Materials will be crucial in establishing direction within the technology sector.
"Cisco's earnings may give tech investors comfort," said Peter Boockvar, equity strategist at Miller Tabak & Co.
The test for the market will be its ability to rally if it gets good news next week, Boockvar added. That will establish whether the sell-off that hit the Nasdaq early Thursday set a short-term bottom for the market or not.
"We had a nice turnaround Thursday, which left people with a good feeling. But we don't have any catalysts to really turn this market around," remarked Ned Collins, head of trading at Daiwa Securities.
"We have a real lack of leadership out there," Collins added, referring to the chip sector's continued slump. "People are turning around on a dime and flipping from sector to sector more than ever before."
The Standard & Poor's 500 Index gained 0.7 percent while the Russell 2000 Index of small-capitalization stocks added 0.8 percent.
Volume came in at 952 million on the NYSE and at 1.44 billion on the Nasdaq Stock Market. Market breadth was positive, with winners outpacing losers by 17 to 11 on the NYSE and by 22 to 17 on the Nasdaq.
Elsewhere, Trim Tabs said all equity funds had outflows of $5.3 billion over the week ended Aug. 2 compared with inflows of $7.6 billion during the prior week. And equity funds investing chiefly in U.S. stocks saw outflows of $5.0 billion versus inflows of $6.9 billion during the previous week.
Inside the jobs data
Within the employment report, non-farm payrolls fell 108,000 compared to expectations for a 96,000 increase. The unemployment rate remained steady at 4.0 percent and July average hourly earnings rose by a slightly higher-than-expected 0.4 percent. A survey of economists conducted by CBS MarketWatch.com had expected a 0.3 percent increase in hourly earnings. Read full story.
"The figures were somewhat friendly," said David Jones, chief economist at Aubrey G. Lanston & Co. and a veteran Fed watcher. The overall tone of the release, he added, supports the notion that we're heading for a soft landing.
But the July report does not give a lot of additional information on what the central bank may or may not do at the FOMC meeting in two and a half weeks, Jones said. He said there's less than a 50- percent chance that we'll see a 25 basis point rate hike in August and a greater than 50-percent chance that we'll get a soft landing for the U.S. economy.
The non-farm payrolls drop in July was due to layoffs of census workers. In fact, the private sector saw a 138,000 rise in payrolls in July -- less than the 182,000 average of the first six months of the year.
Meanwhile, June non-farm payrolls were upwardly revised to show a 30,000 increase compared to the previously reported 11,000 rise. View Economic Preview, economic calendar and forecasts and historical economic data.
"Friday's employment report is perhaps the most confusing we've ever seen. The bottom line for the Fed, however, is no rate hike on Aug. 22," said David Orr, chief economist at First Union.
In fact, the pool of available workers rose by 291,000, which, coupled with the steady 4 percent unemployment rate, argues for no Fed action at the upcoming meeting, Orr said.
But the picture painted by the jobs report in July was still one of ambiguity, Orr added, due to the effects of the census workers.
Jones said the actions of consumers going forward will be key, as the Fed wants to see a slowdown in domestic spending.
"We're getting some evidence of a slowdown in consumer spending that appears to suggest the cooling off is more than just a second-quarter phenomenon," Jones said.
Sector movers
The chip and chip equipment sector remained under the gun a day after an earnings warning from Kulicke & Soffa Industries and a Lehman Brothers report on Motorola lowering its handset guidance in a conference call with suppliers roiled the market.
By the end of Thursday's session, many stocks in the sector had recovered. But on Friday, investors remained nervous and unwilling to take any bets on semis. Within the Philadelphia Semiconductor Index ($SOX: news, msgs), which was down 3.1 percent on Friday and off 3.8 percent for the week, Intel (INTC: news, msgs) slipped 2 1/2 to 62 9/16, Motorola (MOT: news, msgs) lost 11/16 to 35 1/4 and Advanced Micro Devices (AMD: news, msgs) fell 2 3/4 to 62 3/4.
Among the equipment makers, Novellus Systems fell 6.0 percent, or 2 7/8 to 45 3/8, Applied Materials slipped 1 1/4 to 67 3/4 and KLA Tencor edged up 5/16 to 45. In the meantime, Kulicke & Soffa Industries fell 1/8 to 16 1/2.
Commenting on the chip sector, Morgan Stanley Dean Witter said Friday the cycle not only remains intact, but has an additional 18 to 24 months to run. "Stocks in the industry have seen their lows for the year an the cycle, and should recover sharply," the brokerage said in a note to clients.
"Valuations fully reflect expectations about the second half of this year and the second phase of the cycle, in which year-over-year growth rates should begin to decelerate as a result of difficult comparisons," Morgan Stanley Dean Witter added.
Financials were the upside leaders, with the Phlx/KBW Bank Index ($BKX: news, msgs) up 3.8 percent while the S&P Bank Index ($BIX: news, msgs) put on 4.1 percent. And the Amex Securities Broker/Dealer Index ($XBD: news, msgs) rose 3.8 percent.
A number of brokerages breached fresh 52-week highs in intra-day dealings Friday: Bear Stearns (BSC: news, msgs) climbed to 62 5/16, Merrill Lynch (MER: news, msgs) rose to 136 15/16, Lehman Brothers (LEH: news, msgs) advanced to 129 1/4 and Morgan Stanley Dean Witter (MWD: news, msgs) climbed to 98 7/16. Among the bank stocks, Bank of New York reached a 52-week high while Aflac (AFL: news, msgs) and Chubb Corp. (CB: news, msgs) were among the insurers reaching new 52-week peaks.
Among the upside movers were Bank of America (BAC: news, msgs), which rallied 3 5/8, or 7.4 percent, to 52 11/16 after receiving an upgrade to a "buy" rating from an "outperform" from Lehman Brothers. And Goldman Sachs (GS: news, msgs) tacked on 5 7/8, or 5.6 percent, to 111 1/2. The stock was upped by J.P. Morgan to a "buy" from a "market performer." Earlier in the week, Goldman completed a secondary offering of 40 million shares. J.P. Morgan said the successful completion of the company's secondary offering removed any perceived near-term overhang for the stock.
In other earnings news, Aetna (AET: news, msgs) checked in Friday with a second-quarter profit from operations of 94 cents a share compared to the First Call estimate of 88 cents a share and $1.03 in the year-ago period. The stock fell 5/16 to 58 The stock added 1 3/16 to 59 1/2 and the S&P Healthcare Index ($HCX: news, msgs), of which Aetna is a component, shed 0.5 percent. See full story.
See After Hours for post-market trading activity.
Treasury focus
Government prices picked up steam in afternoon trading following choppy morning action, closing out the week with nice gains.
The 10-year Treasury note rallied 12/32 to yield 5.91 and the 30-year bond put on 13/32 to yield 5.71 percent. The front end of the yield curve, the most sensitive to central bank changes in the fed funds rate, also saw healthy gains. See Bond Report.
Turning to the currency arena, the dollar edged up against the yen after four straight sessions of declines. Dollar/yen inched up 0.2 percent to 108.58 in recent dealings while euro/dollar added 0.1 percent to 0.9076.
In the commodity arena, September crude surged $1.30 to $29.96 while the Bridge CRB index added 0.01 to 219.35. Tight supply concerns have propelled oil prices throughout the week. Read related story.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
