MARKET SNAPSHOT
Dow stumbles; Nasdaq edges up
Eli Lilly tumble stings drug stocks
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:09 PM ET Aug 9, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) - Selling in drug and retail stocks put pressure on the Dow Industrials Wednesday while the Nasdaq erased the lion's share of its earlier gains as profit-taking set in, hurting the Internet sector in particular.
A climb in shares of Cisco Systems in the wake of its great earnings release buoyed tech shares throughout the session, but investors turned cautious, reverting to the sidelines, late in the session.
"Cisco has consistently showed us numbers that are slightly better-than-expected," said Joe Liro, market analyst at Stone & McCarthy Research Associates. The news out there is good, he said.
With a backdrop of economic data supportive of a soft landing and a positive profit report from Cisco, the market certainly has a lot of good news to chew on, Liro said. "You wonder why the Nasdaq can't get more mileage out of the news."
Tech stocks still have high valuations relative to their growth rates, Liro said. "You can't expect those multiples to get richer if earnings growth [will] slow going forward. That's the hurdle here."
Within the broad market, drug and retail stocks were the hardest hit. Checking in with milder losses were transportation and utility shares. Paper stocks advanced while oil and oil service shares climbed in the wake of a rally in crude oil futures. Inside technology, chip and networking stocks advanced but came well off their highs by the end of the trading session. And Internet stocks succumbed to selling in the afternoon.
The Dow Jones Industrials Average ($DJ: news, msgs) broke its seven-day winning streak, slipping 70 points, or 0.6 percent, to 10,906.
Holding the Dow down were shares of Wal-Mart, which shed 7.8 percent, Alcoa, Merck and General Motors. On the upside were shares of Intel, General Electric, 3M and Home Depot.
The Nasdaq Composite ($COMPQ: news, msgs) gained 4 points, or 0.1 percent, to 3,853 after rising as much as 88 points in intra-day dealings. The Nasdaq 100 Index ($NDX: news, msgs) advanced by 6 points, or 0.2 percent, to 3,693.
By virtue of the advance on the Nasdaq, the market is pricing in the effect of no rate hike on the Fed's part on Aug. 22, said Bryan Piskorowski, market analyst at Prudential Securities.
But August tends to be a sleepy month, he said, and it's hard to be confident that the market will head north without bumps along the road.
The market has concluded from the recent batch of favorable economic news that the Fed is on the sidelines for the time being, Liro echoed.
"But the economic numbers going forward need to be friendly to keep the market where it is since it already has a very rosy scenario priced in," he added.
The Standard & Poor's 500 Index ($SPX: news, msgs) dropped 0.7 percent while the Russell 2000 Index ($RUT: news, msgs) of small-capitalization stocks edged down 0.2 percent.
Volume stood at 1.05 billion on the NYSE and at 1.50 billion on the Nasdaq Stock Market. Market breadth deteriorated, with decliners outnumbering advancers by 15 to 14 on the NYSE and by 21 to 18 on the Nasdaq.
Sector movers
Cisco Systems (CSCO: news, msgs) put on 3 1/2, or 5.3 percent, to 69, boosting the Amex Networking Index ($NWX: news, msgs) by 0.3 percent. After the close Tuesday, Cisco posted fiscal fourth-quarter earnings of 16 cents a share, beating the First Call estimate by 1 cent. Revenue rose 61 percent to $5.72 billion compared with $3.56 billion for the same period last year. See full story. Separately, Cisco announced its No. 2 executive Don Listwin will step down. No immediate replacement was named.
In merger news, Phone.com (PHCM: news, msgs) and Software.com (SWCM: news, msgs) announced a merger agreement reportedly valued at around $6.4 billion Wednesday and said they hired Cisco executive vice president Don Listwin to become the new company's president and chief executive. See full story. Phone.com and Software.com shareholders will each own approximately 50 percent of the combined company. Software.com climbed 35 1/4, or 32.7 percent, to 143 while Phone.com rose 15 15/16, or about 20 percent, to 94. Software.com is part of Merrill Lynch's Internet Infrastructure Holdrs (IIH: news, msgs), which fell 0.9 percent, erasing earlier gains.
Many chip and chip equipment stocks saw significant gains Wednesday, leading the Philadelphia Semiconductor Index ($SOX: news, msgs) up 1.3 percent. Among the chip makers, giant Intel (INTC: news, msgs) added 3.3 percent to 63 11/16 while Advanced Micro Devices (AMD: news, msgs) gained 2.4 percent to 62 3/4. Within the chip equipment segment, Kulicke & Soffa Industries (KLIC: news, msgs) rose for the first time since issuing a profit warning last Thursday. The stock added 3/8 to 15 13/16. Applied Materials (AMAT: news, msgs), up 2 11/16 to 73 1/4, is set to reveal its third-quarter earnings after the close Wednesday. First Call estimates earnings-per-share of 68 cents for the quarter.
The broad market saw the most powerful gains in the oil and oil service segments in the wake of another decline in inventories, which boosted crude oil futures Wednesday. The Philadelphia Oil Service Index ($OSX: news, msgs) climbed 3.0 percent, led by a 3.1 percent gain in shares of Baker Hughes (BHI: news, msgs) and a 3.4 percent rise in shares of Halliburton (HAL: news, msgs). And the CBOE Oil Index ($OIX: news, msgs) advanced 1.2 percent, with Dow-component Exxon Mobil (XOM: news, msgs) up 1 21/64 to 82 1/8.
September crude climbed $1.01 to $30.13 and reached an intra-day high of $30.22, a level not seen since July 20. In the meantime, the Bridge CRB index slipped 0.06 to 218.84. The American Petroleum Institute reported late Tuesday another surprising drop in crude supplies, which fell by 2.144 million barrels in the latest week after a 9-million-barrel drop the week before, bringing total inventories to 24-year lows. See related story.
In the meantime, a number of retailers unleashed their results Wednesday, but sellers invaded the retail sector following Tuesday's smart advance. The S&P Retail Index ($RLX: news, msgs) slipped 3.4 percent on Wednesday.
Wal-Mart (WMT: news, msgs) checked in with a second-quarter profit of 36 cents a share, matching the First Call estimate. The Dow-component made 28 cents a share in the year-ago period. Totals sales checked in at $46.1 billion - a 20-percent increase over the same quarter last year. During the company's conference call, Wal-Mart executives said the First Call consensus of 33 cents in earnings per share for the third quarter was too rich given an accounting shift announced last quarter The stock slipped 3 1/2 to 54 1/8. Read full story.
Federated Dept. Stores (FD: news, msgs) posted second-quarter earnings of 30 cents a share, beating the First Call estimate of 26 cents a shares but short of the 61 cents a share earned in the same quarter last year. Shares lost 1/8 to 25 1/4.
And Polo Ralph Lauren Corp. posted a first-quarter profit of 25 cents a share, surpassing the First Call estimate by a penny. The company made 14 cents in the year-ago period. The stock (RL: news, msgs) trimmed 1/2 to 18 5/16.
Late Tuesday Abercrombie & Fitch (ANF: news, msgs) checked in with a second-quarter profit of 21 cents a share, which was 2 cents above the First Call estimate. The company earned 17 cents in the year-ago period. The stock was one of the winners within the retail segment Wednesday, gaining 1 1/16 to 21.
Drug stocks retreated, with the Amex Pharmaceutical Index ($DRG: news, msgs) off 5.6 percent. Shares of Eli Lilly (LLY: news, msgs) tumbled 29 percent, or 31 35/64 to 77. The stock was halted for most of the afternoon on the heels of an appeals court ruling that reversed a lower court double patenting ruling involving Prozac. The lawsuit against Lilly was brought on by Barr Laboratories (BRL: news, msgs), which tacked on 70 percent, or 32 to 77 3/4 after being halted for most of the afternoon.
Prozac is protected by two patents -- one that protects the drug's composition, valid until Feb. 2001, and a method-of-use patent that's valid until Dec. 2003. A federal court upheld the patent valid until 2001. See full story. Among the pharmaceuticals, Dow-components Merck (MRK: news, msgs) and Johnson & Johnson (JNJ: news, msgs) fell 2.7 percent and 2.2 percent, respectivaley. Sepracor (SEPR: news, msgs), which is developing an improved version of Prozac, tumbled 18 percent, or 23 1/2 to 106.
Treasury focus
Fixed-income securities recovered on the heels of a soothing Beige Book report.
The 10-year Treasury note climbed 1/8 to yield ($TNX: news, msgs) 5.94 and the 30-year bond added 2/32 to yield ($TYX: news, msgs) 5.72 percent. See Bond Report.
No economic data is set for release on Wednesday, with the week's remaining big news -- the July retail sales report and the producer price index -- due out on Friday.
Meanwhile, the Federal Reserve's Beige Book report on economic conditions was released, showing a slowdown in consumer spending. The central bank said the economy remained healthy, though a cooling was seen in consumer spending, construction and manufacturing, which kept inflation under wraps. View Economic Preview, economic calendar and forecasts and historical economic data.
Treasury completed the second leg of its refunding auctions Wednesday, selling $10.0 billion in 10-year notes at a high yield of 5.84 percent. But demand was soggy, in contrast to healthy buying interest for Tuesday's $10.0 billion in 5-year notes. On Thursday, the refunding auctions conclude with the sale of $5.0 billion in 30-year bonds.
In the currency market, the greenback weakened against the yen for a second straight session. Markets are bracing for a rate hike from the Bank of Japan on Friday when it meets to decide the fate of short-term interest rates.
But the battle between the BOJ and the government over monetary policy continues. In fact, Japanese government officials and the central bank are at odds with the BOJ on when to end the zero-rate interest policy, which is in place since Feb. 1999. The BOJ believes recent positive economic data suggests it's time to end the zero-rate policy while the government is of the view that a tightening at this juncture would be premature and squash the first feeble signs of economic recovery. See related story.
In recent trading, dollar/yen shed 0.6 percent to 107.83 while euro/dollar fell 0.4 percent to 0.8991. See latest currency rates.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
