<FONT COLOR=BLUE>MARKET SNAPSHOT--2:13 P.M.--Profit worry roughs up stocks
Internet brokerages rally after buyout of NDB
By Martin Cej, CBS.MarketWatch.com
Last Update: 2:13 PM ET Oct 10, 2000
NEW YORK (CBS.MW) -- U.S. stocks fell Tuesday as persistent concern that share prices may still overestimate the outlook for earnings countered two billion-dollar takeovers in the Internet sector.
Semiconductor stocks led the fourth straight decline by the Nasdaq Composite Index after analysts at Lehman Brothers and Salomon Smith Barney cut their recommendations on some companies in the sector.
The Nasdaq Composite ($COMPQ) tumbled 71.49 points, or 2.1 percent, to 3,284.07, on course for its lowest close since May. The Dow Industrials ($DJ) was recently down 1.11 points at 10,566 after earlier gaining as much as 55 points and the Standard & Poor's 500 ($SPX) also surrendered earlier gains to trade down 6.35 at 1,395.65.
The Dow and the S&P 500 swung between gains and losses before trading lower as Deutsche Bank's $1 billion takeover offer for National Discount Brokers failed to stoke demand for banks and financial services companies outside the Internet. Some bank stocks swooned on concern that volatile equity markets may mean lower trading and investment banking profits.
Oil and gas stocks helped prevent broader losses amid higher crude prices and as analysts argued that investors should raise their profit expectations for the sector. Buyers also flocked to drug stocks as a perceived safe haven in times of volatile markets and slowing economies.
Leading up to the expected release of earnings from Yahoo and Motorola later Tuesday, many investors were reticent to pile funds back into the technology sector, even though the Nasdaq is down more than 30 percent from its March high and is down 20 percent so far this year.
"There is some nervousness before the earnings, but expectations have become more realistic," said Subodh Kumar, chief portfolio strategist at CIBC World Markets. "It's a healthy thing."
Decliners outpaced advancers by about 7 to 6 on the NYSE and 9 to 7 on the Nasdaq market in mid-afternoon trade. Some 689 million shares changed hands on the Big Board by midday, while 1.2 billion shares were traded on the Nasdaq market.
"Until we're certain that we've seen the bottom, it's going to be very hard to move higher," said Bryan Piskorowski, market strategist at Prudential Securities. "We haven't seen a real capitulation yet."
Earnings concern couldn't dent demand for NDB (NDB) shares in the wake of Deutsche Bank's bid. NDB shares soared $22.13, or 88 percent, to $47.38 after the company said Deutsche Bank offered to pay $49 for each share of NDB that it didn't already own. Deutsche Bank currently controls 16 percent of the online broker and market maker.
The offer stoked optimism for more takeovers and mergers in the rapidly consolidating financial services sector, and hoisted shares of other online brokerages. Shares of Ameritrade (AMTD) jumped 6 percent, E-Trade (EGRP) rose 7 percent, Charles Schwab (SCH) added 5 percent and Knight Trading (NITE) advanced 12 percent.
Larger financial institutions sat out the advance, shackled by concern that tumbling equity markets have eaten into trading and investment banking profits. Citigroup (C) dropped 4.3 percent and Morgan Stanley Dean Witter (MWD) fell 9 percent.
The Dow Industrials are down about 8 percent so far this year and the S&P 500 is down 5 percent in 2000.
The other billion-dollar bid in the Internet sector involved Metromedia Fiber Network, which said Tuesday that it will buy SiteSmith for about $1.36 billion in stock, adding to its ability to offer a range of services to companies looking to do business on the Internet. Metromedia (MFNX) fell 25 cents to $21.56.
Elsewhere in the tech sector, Yahoo (YHOO) seesawed between modest gains and losses as investors fretted about the company's earnings report after the close of trading Tuesday. Yahoo is expected to reveal a profit of 12 cents a share on about $280 million in revenue, a 4 percent increase over the second quarter. Yahoo was recently down $1.25 at $84.50.
Motorola (MOT), also due to report earnings after the closing bell, saw its shares slip 1.9 percent.
"We're waiting for confirmation of what we've been seeing in recent weeks with all the earnings warnings," Piskorowski said. "Earnings are the real caveat now. We need to hear what these companies expect for the first half of the year."
Motorola shares were also weighed down by analyst downgrades to other companies in its sector. Altera (ALTR) tumbled 24 percent and Xilinx (XLNX) plunged 28 percent after analysts at Lehman Bros. and Salomon Smith Barney lowered their ratings on both stocks.
The Philadelphia Semiconductor Index ($SOX), considered the benchmark for the industry, plunged 9.5 percent. The sector has been languishing since Intel, the world's largest computer chip maker, warned in late September of slowing revenue growth.
Intel's statement was followed promptly by profit warnings from Apple Computer, Dell Computer and a host of others.
"The warning process is largely through and a lot of air has been let out of the balloon," reasoned Bill Schneider, head of block trading at UBS Warburg. "If the semiconductor stocks can stabilize and we see good numbers from Motorola and Yahoo, we may begin to move higher."
Oil, gas and oilfield services companies gave investors something to cheer about Tuesday as buoyant oil prices continued to underscore expectations of a banner year for profits. Most analysts now agree that while energy stocks have performed well so far this year, they still don't reflect the impact of booming oil prices.
Analysts at Merrill Lynch said that most leading oil companies were being valued on expectations of an average crude price of $18-$19 a barrel, rather than the current $30-plus prices. In their annual oil review, Merrill analysts said they expect prices to stabilize around $25 for a sustained period over the next two years. Merrill's top U.S. pick was Exxon-Mobil (XOM), which rose 1.6 percent.
Calgary-based brokerage Peters & Co., which specializes in the oil and gas industry, concurred with Merrill's expectations. The brokerage anticipates an average oil price of $29 a barrel in 2000 and $25 a barrel in 2001.
Mergers and acquisitions in the industry, including cross-border deals, also kept buyers flocking to the sector.
Oil and gas company Apache (APA) surged 9 percent after the company said it would partner with Shell Overseas Holdings to purchase Fletcher Challenge Energy for $600 million. In a separate transaction, Shell will buy 1.64 million restricted shares of Apache common stock for $100 million. The Amex Natural Gas Index ($XNG) climbed 3.3 percent.
Bonds provided little support for equities. The benchmark 10-year Treasury note lost 8/32 at 99 11/32, as its yield, which moves inversely to the price, rose to 5.83 percent. The 30-year bond also shed 8/32 to 105 12/32, yielding 5.86 percent. |
