MARKET SNAPSHOT
Blue chips resilient; Nasdaq dips
Productivity gains solid -- up 5.3%
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 11:25 AM ET Aug 8, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) - Blue chips managed to overcome early weakness Tuesday and claw its way back into the plus column, buttressed by an economic report revealing extremely solid productivity gains. But tech stocks saw whippy action, as investors displayed a cautious tone ahead of Cisco Systems' earnings release.
Within the tech sector, Internet and computer hardware stocks captured the leadership position while chip stocks retreated after showing strength at the open. Retail, oil service and paper stocks moved higher within the broader market as drug, biotech, utility and financial shares slumped.
The Dow Jones Industrial Average rose for a seventh straight session, adding 21 points, or 0.2 percent, to 10,889 at 11:17 a.m.
Leading the Dow to higher ground were shares of Eastman Kodak, International Paper, Walt Disney, Home Depot and Caterpillar. Among the losers were Merck, Johnson & Johnson and SBC Communications.
The Nasdaq Composite slipped 12 points, or 0.3 percent, to 3,850, interrupting its three-day winning streak. The Nasdaq 100 Index, meanwhile, lost 24 points, or 0.7 percent, to 3,686.
The Standard & Poor's 500 Index erased 0.2 percent while the Russell 2000 Index of small-capitalization stocks edged up 0.1 percent.
Volume checked in at 368 million on the NYSE and at 550 million on the Nasdaq Stock Market. Market breadth was mixed, with winners outpacing losers by 13 to 12 on the NYSE and declining issues outnumbering advancing ones by 19 to 16 on the Nasdaq.
Inside the productivity figures
Non-farm productivity rose 5.3 percent compared to the expected 4.3 percent increase. And closely-watched unit labor costs fell 0.1 percent compared to the expected 0.3 percent rise. Unit labor costs fell 0.4 percent in the past four quarters -- the first decline since 1984. See full story.
The strong productivity gains reinforce the view that inflation will remain in check and that the Fed can afford to stay on hold for now. The market is certainly anticipating the central bank to stand pat at the Aug. 22 Federal Open Market Committee meeting in light of the recent economic data, including Friday's friendly July jobs report.
"These are spectacular numbers. Clearly, there is no near-term inflation threat coming from the labor market. Indeed, the numbers are so good that it seems churlish to point out that the real test of productivity performance is not how fast it rises in an upswing, but how well it holds up when the economy finally slows," opined Ian Shepherdson, chief U.S. economist at High Frequency Economics.
"Of course, if the Fed succeeds in inducing a soft landing, any productivity slowdown will be modest, posing little inflation risk," he concluded.
Meanwhile, the first-quarter productivity figures were downwardly revised to show a 1.9 percent increase compared to the previously reported 2.4 percent rise.
Joel Naroff, chief economist at Naroff Economic Advisors, said Fed chair Alan Greenspan's nagging question has been whether productivity gains will be strong enough to counter rising wage pressures. For now, the answer is yes, according to Naroff.
"Expect the FOMC to remain on hold until at least late in this year," Naroff said.
Specific movers
Market participants are bracing for tech leader Cisco Systems' (CSCO: news, msgs) earnings release after the close, with First Call estimating earnings-per-share of 15 cents for the company's fiscal fourth quarter. Read earnings preview.
Donaldson, Lufkin & Jenrette initiated coverage on the networking kingpin with a "buy" rating and a $95 price target. Key to the rating, DLJ said, is Cisco's ability to sustain 30 percent growth over 10 years. See Rating Revisions. Shares edged up 3/16 to 66 7/16, erasing earlier losses.
In earnings news, Verizon Communications (VZ: news, msgs) checked in with a second-quarter profit from operations of 72 cents a share. Including a 9-cent gain, Verizon made 81 cents a share. First Call had estimated earnings-per-share of 83 cents a share. Further, Verizon warned that it projects earnings of $2.90 to $294 a share for fiscal 2000, below the First Call estimate of $3.15. The stock fell 4 1/2 to 43 3/8. Read the full story.
Separately, Verizon said it'll pay $800 million for a controlling stake in NorthPoint Communications, a supplier of high-speed DSL connections. Verizon will merge its consumer-oriented DSL service with NorthPoint and own 55 percent of the new entity.
Ameritrade (AMTD: news, msgs) shed 5/16 to 12 3/4. The company announced late Monday that its chief executive Tom Lewis resigned for personal reasons and that he may continue as a consultant. Joe Ricketts, Ameritrade's chairman and founder, will take over Lewis' duties as the company searches for a permanent replacement.
Drug stocks retreated Tuesday, with the Amex Pharmaceutical Index ($DRG: news, msgs) down 0.5 percent. Merrill Lynch had positive comments on the group in a research note Tuesday.
"We think earnings growth for the group for the remainder of 2000 will be good to exceptional. We favor names that offer significant earnings growth in the sector," Merrill said in a note to clients. The companies mentioned included Pharmacia Corp. (PHA: news, msgs), Pfizer (PFE: news, msgs) and Eli Lilly (LLY: news, msgs), all of which rose slightly.
Treasury focus
Fixed-income securities gained ground, led by long-dated issues, on the heels of the positive productivity news.
The 10-year Treasury note added 1/8 to yield 5.935 and the 30-year bond climbed 9/32 to yield 5.735 percent. See Bond Report.
Treasury's quarterly refunding auctions will commence Tuesday afternoon, with a $10 billion 5-year note sale on tap first. Wednesday will see the sale of $10 billion in 10-year securities and Thursday will get $5 billion in 30-year bonds.
In the currency market, the dollar traded in a mixed fashion, falling against the yen while gaining ground against the euro. In recent dealings, dollar/yen slipped 0.5 percent to 108.50 while euro/dollar fell 0.7 percent to 0.9013.
Bank of Japan Governor Masaru Hayami said Tuesday the central bank is looking to end its zero-rate policy - in effect since Feb. 1999 - as soon as possible as economic indicators released since the BOJ's last policy-setting meeting in July were positive.
Japan's central bank will meet Friday to decide the fate of short-term rates.
While the BOJ is pushing for higher rates, however, many Japanese government officials are against prematurely ending the zero-rate policy, particularly in light of the Sogo bankruptcy and the recent slide in the Nikkei 225 index.
In the commodity arena, September crude gained 14 cents to $29.05 while the Bridge CRB index added 0.01 to 218.29.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
