MARKET SNAPSHOT
Dow pierces 11,000 barrier
Tame PPI inspires buyers; techs stage a recovery
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:35 PM ET Aug 11, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) - The Dow Industrials closed above the 11,000 mark for the first time since April 25 Friday as a report revealing that wholesale inflation remains in check buoyed interest-rate sensitive areas of the market such as the financials. A 9.6 percent rally in shares of Philip Morris also helped the blue-chip gauge score triple-digit gains.
The flat reading in the July producer price index reinforced the view that the Federal Reserve needn't raise short-term rates at its upcoming policy-setting meeting on Aug. 22.
The upbeat tone in the broad market lifted the spirits of tech investors and helped the Nasdaq carve out respectable gains after faltering out of the gate.
"The market is getting hopeful that the Fed is done on the tightening front and that economic growth will hold up at a good clip," said John Waterman, managing director of investments at Rittenhouse Financial.
Select technology stocks participated in the blue-chip rally, Waterman observed. "But money is being selective, it's flowing into the companies that saw the most solid earnings while [ignoring those] with even the slightest question mark on that front."
Within technology, chip stocks enjoyed the best buying interest while computer hardware stocks slumped under the weight of heavy selling in shares of Dell Computer. The broader market saw eager buyers emerge in the financial, tobacco, retail, chemical, drug and utility sectors while oil service shares retreated as crude oil prices took a break after reaching 6-week highs on Thursday.
The Dow Jones Industrials Average ($DJ: news, msgs) rallied 119.04 points, or 1.1 percent, 11,027.80.
The Dow has risen nine out of the past 10 trading days, noted Bill Schneider, head of block trading at UBS Warburg.
"The market may pause [at this point]. But the Dow has really benefited from its old-economy components, which have more reliability on the earnings front compared to tech stocks," Schneider said.
Todd Gold, technical strategist at Gruntal & Co., defined the Dow's performance Friday as a "bright spot" but said the Nasdaq is still unable to find real leadership.
"Between Applied Materials and Cisco we had great reports and great forward-looking statements but no real follow-through buying [to take them higher]," Gold said.
"Overall, the market is not rewarding the faith of tech shareholders very well," echoed Tom Peterson, publisher of the newsletter Bull's Eye Research.
Keeping the Dow firmly in the black was the 9.2 percent jump in shares of Philip Morris. Also higher: DuPont, Caterpillar, Intel and Procter & Gamble. Only five Dow stocks ended lower, including Hewlett-Packard, General Electric and Microsoft.
The Nasdaq Composite ($COMPQ: news, msgs) lifted 29 points, or 0.8 percent, to 3,789 while the Nasdaq 100 Index ($NDX: news, msgs) added 49 points, or 1.4 percent, to 3,644.
The Standard & Poor's 500 Index ($SPX: news, msgs) edged up 0.8 percent while the Russell 2000 Index ($RUT: news, msgs) of small-capitalization stocks rose 1.7 percent.
Volume was light, standing at 840 million on the NYSE and at 1.33 billion on the Nasdaq Stock Market. Advancers bested decliners by 19 to 9 on the NYSE and by 21 to 18 on the Nasdaq.
Separately, Trim Tabs reported equity inflows of $8.7 billion in the week ended Aug. 9 versus outflows of $5.3 billion in the previous week. Equity funds that invest chiefly in U.S. stocks saw inflows of $7.5 billion compared to outflows of $5.0 billion in the prior week, Trim Tabs said.
Inside the data
July retail sales rose 0.7 percent compared to the expected 0.4 percent increase. Excluding autos, retail sales rose 0.6 percent. See full story.
"I'm impressed with this report. And the individual components are even more impressive, with solid gains in key categories," remarked Michael Moran, chief economist at Daiwa Securities.
Consumers, Moran added, showed a willingness to spend on discretionary items.
The July producer price index, meanwhile, came in at flat levels compared to the expected 0.1 percent increase. The core PPI, which excludes the jumpy food and energy components, edged up 0.1 percent, as expected. See full story and view Economic Preview, economic calendar and forecasts and historical economic data.
"We got another great inflation report," Moran said of the PPI. He believes the Fed will remain sidelined in August but said key to the Fed's stance on rates going forward will be the performance of the housing markets and the spending habits of consumers.
Moran it will be important to see whether lower mortgage rates will rekindle strength in the housing market going forward.
Sector movers
Shares of computer hardware stocks were the hardest hit area within technology Friday, with Goldman Sachs Hardware Index ($GHA: news, msgs) off 1.3 percent.
Dell Computer (DELL: news, msgs) was the downside mover, losing 3 7/8, or 9.3 percent, to 37 7/8. Dell posted second-quarter results after the close Thursday, making 22 cents compared to the First Call estimate of 21 cents a share and 19 cents in the year-ago quarter. Dell said Wednesday that its earnings per share would include an investment gain, but declined to comment on the amount. Market participants were disappointed with the PC giant's revenue growth and took the stock lower. See full story.
Morgan Stanley Dean Witter defined Dell's earnings as "fair but not perfect."
While earnings-per-share exceeded estimates, the company's revenue, though up 25 percent from the year-ago quarter, fell short of its estimates, Morgan Stanley said in a note to clients. The brokerage maintained its outperform rating on the stock and increased its earnings-per-share estimates on Dell for the January 2001 quarter to 94 from 91.
But Salomon Smith Barney lowered its rating on Dell to an "outperform" from a "buy" rating due to revenue concerns.
Among other downside movers in the hardware arena, Dow-component Hewlett-Packard (HWP: news, msgs) slipped 2 5/16 to 109 15/16 while Apple Computer (AAPL: news, msgs) lost 1 3/8 to 46 3/16. But IBM (IBM: news, msgs) edged up 1/4 to 120. See Hardware Stocks.
Chip and chip equipment stocks put on a mixed performance, recuperating a portion of the losses suffered out of the gate. The Philadelphia Semiconductor Index ($SOX: news, msgs) fell 1.3 percent.
Among the chip stocks, Intel (INTC: news, msgs) added 9/16 to 62 9/16 while Advanced Micro Devices (AMD: news, msgs) slipped 1 5/8 to 55 3/8. With the chip equipment segment, Kulicke and Soffa Industries (KLIC: news, msgs), off 3/16 to 15, was still reeling from last week's profit warning. Applied Materials (AMAT: news, msgs) fell 1 5/16 to 67 15/16, unable to get mileage from it positive earnings report this week.
In the networking arena, shares of bellwether Cisco Systems (CSCO: news, msgs) recovered following Thursday's steep drop, pulling the Amex Networking Index ($NWX: news, msgs), off 0.9 percent, well above its intra-day lows.
Within the sagging Internet group, business-to-business stocks slipped. Merrill Lynch's B2B Holdrs (BHH: news, msgs) off 3.3 percent. Internet Capital Group (ICGE: news, msgs) fell 5.3 percent, or 1 11/16 to 29 15/16. The company posted late Thursday a second-quarter loss of 70 cents a share, higher than the 6 cents it lost in the year-ago period.
Dain Rauscher Wessels initiated a number of companies in the B2B arena Friday with a "buy" rating, including VerticalNet (VERT: news, msgs), FreeMarkets (FMKT: news, msgs), Commerce One (CMRC: news, msgs) and Internet Capital Group. Among them, Commerce One rose 3.1 percent while Free Markets fell 3.6 percent.
In the broader market, tobacco stocks climbed, with smart gains across the board. Philip Morris (MO: news, msgs) was Dow's upside leader throughout the session, rising 2 7/16 to 30 15/16. RJ Reynolds (RJR: news, msgs) added 1 11/16, or 5.1 percent, to 35 while Loews Corp. (LTR: news, msgs) climbed 5 7/16 to 81 1/2.
Goldman Sachs issued a positive note on the sector. "We see good likelihood that tobacco company valuations will improve significantly over the next 12 to 18 months as the threat of aggregated claims cases recedes," Goldman said in a note to clients.
"Our sum-of-the-parts valuation analysis indicates that the shares of Philip Morris and Loews could rise 50 to 60 percent by next year,' Goldman added.
Retail stocks recovered mildly, with the S&P Retail Index ($RLX: news, msgs) off 1.6 percent. Wal-Mart regained its composure, adding 1 to 52 after tumbling 11.5 percent over the past couple of trading sessions. And Kmart (KM: news, msgs) rose 1/8 to 7 3/8. One loser was Gap (GPS: news, msgs), which continued to slide, falling 9/16 to 26 7/16, following another earnings warning on Thursday.
Treasury focus
Government prices relinquished all of their earlier gains as equities captured investors' fancy.
The market is in the process of digesting the week's $25 billion worth of refunding auctions, which saw the best demand for the 5- and 30-year issues.
The 10-year Treasury note lost 11/32 to yield ($TNX: news, msgs) 5.81 and the 30-year bond fell 1/2 to yield ($TYX: news, msgs) 5.72 percent. See Bond Report.
Over in the currency arena, the dollar showed little reaction to the Bank of Japan's decision to nudge up rates Friday for the first time in 10 years. The target for short-term rates now stands at 25 basis points from practically zero - where it has hovered since Feb. 1999.
The move was widely expected by financial markets as central bank officials had repeatedly expressed their desire to end the zero-rate policy -- considered artificial and thus unsustainable - over the past months. BOJ Governor Masaru Hayami said in a press conference after the rate hike that the decision was made by a clear majority and that it wasn't the beginning of a rate hike cycle.
The move came after weeks of wrangling between the government - which opposed an increase in rates - and the central bank. Read the full story.
Having the BOJ and the government fight over policy has terrible long-term implications if you're trying to encourage investors.
"The BOJ rate hike Friday is not about levels of short-term rates, it's about the message that was sent to the market and the lack of coordination [it demonstrated]," said Greg Anderson, financial economist at Fleet Boston Financial.
The divide between the views of the Ministry of Finance and the central bank is a real confidence buster, Anderson continued. It doesn't give financial markets confidence that fiscal and monetary policy will work together to bring a real recovery to Japan.
He sees a weaker yen over the next months as a consequence.
"It's like having two doctors arguing over the symptoms and treatment of a patient," he quipped.
In recent trading, dollar/yen (C_JPY: news, msgs) shed 0.1 percent to 108.50 while euro/dollar (C_EUR: news, msgs) fell 0.5 percent to 0.9030. See latest currency rates.
In the commodity market, September crude added 32 cents to $31.02, climbing above the $31 barrier for the first time since June 30 on Thursday. Tight inventories have put great upward pressure on crude prices in recent weeks. Meanwhile, the Bridge CRB index rose 0.50 to 220.02.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
