MARKET SNAPSHOT--Steady action for major averages
Chip stocks come under pressure
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 3:26 PM ET Aug 21, 2000 NewsWatch
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NEW YORK (CBS.MW) - Profit-taking in the semiconductor arena pushed the Nasdaq into the minus column Monday while the sagging retail sector was the sore spot for the broader market.
The event of the week is of course Tuesday's Federal Open Market Committee meeting and investors aren't showing a lot of conviction ahead of the gathering.
While marketeers aren't anticipating a change in the fed funds rate target of 6 1/2 percent, their attention will be fixated on the central bank's statement following the conclusion of the meeting for more clarity on the Fed's future course of action. View Economic Preview, economic calendar and forecasts and historical economic data.
"It's not clear what the market has priced in on the Fed-statement front," said Clark Yingst, market strategist at Prudential Securities.
It would be bullish for shares, of course, if the Fed said risks to the U.S. economy were evenly weighted. "That would help housing-related issues and financial stocks," Yingst said.
But Yingst said a Fed statement indicating that economic risks are still tilted toward inflationary pressures wouldn't catch the market off guard. In fact, demand remains strong and, despite recent signs of a cooler economy, growth stands at very robust levels.
Within technology, chip shares came under selling pressure in afternoon dealings while Internet stocks maintained minor gains thanks to interest in Net security software companies. Turning to the broad market, bank stocks remained positive, as did drug and oil shares. But retail and paper issues remained firmly in the red.
The Dow Jones Industrials Average ($DJ: news, msgs) shed 15 points, or 0.2 percent, to 11,030.
John Waterman, managing director of investments at Rittenhouse Financial, believes the market has become overly confident that there will be no action on rates Tuesday.
While the odds definitely favor no move on the borrowing target, he believes there will be serious discussions at the Fed table on Tuesday.
"The economic data released has still been pretty mixed," Waterman commented.
Leading the Dow on the downside were shares of Wal-Mart, Home Depot, International Paper, Alcoa and Eastman Kodak. The blue-chip barometer's upside movers included Boeing, Honeywell, United Technologies and Citigroup.
The Nasdaq Composite ($COMPQ: news, msgs) edged down 11 points, or 0.3 percent, to 3,918 while the Nasdaq 100 Index ($NDX: news, msgs) dipped 18 points, or 0.5 percent, to 3,789.
Lehman Brothers' Jeffrey Applegate believes that very rich valuations for the best tech stocks will continue - perhaps for years. Fundamentals are in place for the long business cycle to get longer, the Lehman strategist said in a note to clients.
Applegate notes that demand for technological product is largely interest-rate insensitive.
Spending on technology currently accounts for 60 percent of all capital spending, he said. The tech growth rate first accelerated hugely in 1994 and it again picked up significant steam in the latest year - from about 43 percent to 62 percent, Applegate notes. And the Fed was raising interest rates to slow GDP growth during both those time periods.
The Standard & Poor's 500 Index ($SPX: news, msgs) added 0.1 percent while the Russell 2000 Index ($RUT: news, msgs) of small-capitalization stocks slipped 0.1 percent.
There will be a vacuum of news this week with slim pickings on the earnings front. First Call said only 13 Standard & Poor's 500 companies have yet to reveal their results. Second-quarter earnings growth currently stands at 21.6 percent. Only 9 percent of companies missed estimates, First Call said.
While the outlook for the third-quarter remains positive, results aren't expected to be as good as in the second quarter. First Call estimates third-quarter profit growth at 17.6 percent.
Volume came in at 573 million on the NYSE and at 1.00 billion on the Nasdaq Stock Market. Breadth turned negative, with decliners outnumbering advancers by 14 to 12 on the NYSE and by 20 to 19 on the Nasdaq.
Separately, Trim Tabs said stock market liquidity was modestly bullish last week at $2.6 billion and noted that initial public offerings will dry up over the next weeks with equity fund inflows also likely to slow significantly for seasonal reasons.
Trim Tabs estimates that U.S, equity funds lost $1.3 billion over the three trading sessions ended Aug. 17 for a monthly rate of negative $10 billion. Aggressive growth funds took in $864 million while technology funds lost $125 million.
Sector movers
Chip bellwether Intel (INTC: news, msgs) added 3/4, or 1.1 percent, to 71 5/16 and was a major factor behind gains in the tech sector earlier in the session.
The chip kingpin hit a fresh 52-week high of 74 1/16 in intra-day dealings before erasing the lion's share of the gains late in the day. Lehman Brothers' Dan Niles raised his fiscal year 2000 earnings-per-share estimates on Intel to $1.74 from $1.70 and 2001 estimates to $1.90 from $1.85. He maintains an $88 price target on the stock. In the meantime, Intel plans to exhibit its speedy Pentium 4 microprocessors this week.
The chip sector came under some profit-taking in afternoon trading Monday after rallying for six straight sessions as the Philadelphia Semiconductor Index ($SOX: news, msgs) shed 3.1 percent. Among other components of the $SOX, Motorola (MOT: news, msgs) lost 9/16 to 35 11/16. The company revealed that China has approved a $1.9 billion investment by Motorola in semiconductor manufacturing and telecoms facilities in the northern city of Tianjin. See full story.
Shares of antivirus software companies climbed on Monday following a positive writeup in this week's issue of Barron's, which points to the growing market for that specific kind of software. For example, Network Associates (NETA: news, msgs) tacked on 51/64, or 4.0 percent, to 20 9/16 with Barron's suggesting the company trades at modest valuations. Also mentioned in the article were shares of Japan's Trend Micro (TMIC: news, msgs) and Symantec Corp. (SYMC: news, msgs). The latter added 2.4 percent. Network Associates is also a component of Merrill Lynch's Internet Holdrs (HHH: news, msgs), which added 1.3 percent. Other upside movers within the group were America Online, which gained 3 percent to 56 6/8, EBay, up 2.5 percent to 56 3/8, and Exodus Communications, up 1.6 percent to 61 3/8.
Oil stocks climbed as crude oil prices gained ground for a fourth consecutive session while the oil service sector slipped as it digested merger news. The CBOE Oil Index ($OIX: news, msgs) added 0.8 percent while Philadelphia Oil Service Index ($OSX: news, msgs), of which Transocean Sedco Forex and R&B Falcon are components, fell 1.0 percent.
Transocean Sedco Forex (RIG: news, msgs) revealed that it's purchasing R&B Falcon (FLC: news, msgs) for $5.8 billion plus $3 billion in debt, which would create the third largest oil service company in the world. Read the full story. Transocean shed 3 3/16 to 54 1/2 while R&B added 1/4 to 25 7/16.
Financial shares captured some buying interest a day ahead of the Fed meeting, with the S&P Bank Index ($BIX: news, msgs) up 0.5 percent and the Amex Securities Broker/Dealer Index ($XBD: news, msgs) gained 0.2 percent. Dow-component Citigroup reached a new 52-week high of 75 7/8 on Monday, posting 1.6 percent gains and helping the blue-chip barometer maintain gains.
A number of online brokerages flexed their muscles Monday. Putnam Lovell Securities initiated coverage on a string of stocks within the group and said it believes that in the near-term the sector is due for a rebound as the slower summer trading volumes have weighed heavily on the short-term performance of these stocks. E-Trade (EGRP: news, msgs), up 4.6 percent, or 3/4 to 17 1/8, was initiated by Putman Lovell with a "buy" rating and a 12-month price target of $21 a share. And Ameritrade (AMTD: news, msgs), up 7 percent, or 1 1/16 to 15 15/16, was initiated with a "hold" rating.
In a research note, Prudential Securities said the listlessness that the bank sector has been seeing lately is due to "restructuring fatigue." Prudential reiterated its "strong buy" rating on FleetBoston Financial (FBF: news, msgs) on belief the stock is undervalued and a "strong buy" on Bank One (ONE: news, msgs), indicating that the firm's new management is already making a difference. And PNC Bank's (PNC: news, msgs) price target was raised to $70 from $57 on belief that the outfit is undervalued versus other trust companies.
In merger news, Washington Mutual (WM: news, msgs) announced Monday it will pony up $1.5 billion to purchase Houston-based Bank United in a bid to boost its presence in Texas. See full story. Bank United (BNKU: news, msgs) lost 1 7/8 to 40 1/2 while Washington Mutual shed 15/16 to 31 7/8.
In the insurance arena, indexes that track the sector headed north with the S&P Insurance Index ($IUX: news, msgs) up 0.9 percent. The largest gains were seen in shares of Allstate Corp. (ALL: news, msgs), up 1 1/8 to 29 7/8. Slipping in the red were shares of Aflac (AFL: news, msgs), down 1/8 to 54 9/16. Lehman Brothers lowered its rating on the stock to a "neutral" from "outperform" as the company hit the brokerage's $55 price target. The analyst labeled Aflac's performance as "superb" but called the stock "overheated."
Bond focus
Treasurys retreated, with buyers sticking to the sidelines awaiting the conclusion of the FOMC meeting on Tuesday.
The 10-year Treasury note dipped 2/32 to yield ($TNX: news, msgs) 5.785 percent and the 30-year bond erased 12/32 to yield ($TYX: news, msgs) 5.715 percent. See Bond Report.
There is no data set for release on Monday. The economic highlights of the week include the durable goods report for July, existing home sales for July and the minutes of the Fed's July 27-28 policy -setting meeting.
In the currency market, dollar/yen (C_JPY: news, msgs) recovered, rising 0.4 percent to 108.64 while euro/dollar (C_EUR: news, msgs) slid 0.6 percent to 0.9015. See latest currency rates.
In the commodity market, September crude added 56 cents to $32.55 while the Bridge/CRB index tacked on 1.34 to 221.90. See related story.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
