Market Snapshot
Stocks fly after Fed stays put on rates
Dow up 144 points; Q4 GDP up 0.2%
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 5:13 PM ET Jan 30, 2002
NEW YORK (CBS.MW) -- The Dow industrials ended with a triple-digit gain Wednesday after the Fed concluded a two-day monetary policy meeting with a widely-expected decision to leave short-term rates unchanged. A jump in retail, financial and chip stocks hurled all of the major averages into the plus column late in the trading day.
The Nasdaq's upside was driven primarily by a rally in the chip sector following positive remarks from Applied Materials at a technology conference. Capping additional upside, however, was a slump in software and Internet issues, which sagged on the back of hefty declines in shares of Veritas Software and AOL Time Warner.
While accounting issues continued to hamper shares of companies such as Elan, Cendant and Williams Cos., Tyco staged a monumental turnaround to end 3.3 percent higher after diving over 18 percent in the morning.
The Dow Jones Industrial Average ($INDU) ran up 144.62 points, or 1.5 percent, to 9,762.86 after falling as much as 89 points. Nice upside action was seen in shares of Honeywell, Hewlett-Packard, Home Depot, Wal-Mart, Eastman Kodak and McDonald's while AT&T, Walt Disney, Alcoa and Boeing led on the downside.
The Nasdaq Composite ($COMPQ) added 20.45 points, or 1.1 percent, to 1,913.44 while the Nasdaq 100 Index ($NDX) swelled 19.61 points, or 1.3 percent, to 1,538.94.
The Standard & Poor's 500 Index ($SPX) climbed 1.2 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks rose 1.2 percent.
The broader market saw the best gains in the retail, oil service, drug, consumer and bank sectors, with only defensive gold issues ending in the red. Check market stats and latest sector performance.
Volume was very heavy at 1.97 billion on the NYSE and at 2.07 billion on the Nasdaq Stock Market. Market breadth turned positive, with winners edging past losers by 19 to 12 on the NYSE and by 19 to 16 on the Nasdaq.
Check for trading after the closing bell.
Fed stands pat
The overnight fed funds rate stands at 1.75 percent following 11 aggressive rate cuts in 2001 that shaved it by 4.75 percent.
In its statement, the Fed said signs that weakness in demand is abating and economic activity is beginning to firm have become more prevalent. Still, the central bank signaled that the degree of strength in business capital and household spending remains uncertain.
"Based on Wednesday's announcement, the Fed clearly believes we are on the cusp of a recovery and we'll continue to see the effects of past rate cuts on the stock market, as there is typically a six- to 12-month delay. While the recovery has not yet gained momentum, leading indicators are broadly pointing in the right direction," echoed Stuart Freeman, chief equity strategist at A.G. Edwards & Co.
"The message is clear: no more easing. Expect a switch to neutrality [at the] March [meeting]," remarked Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Investors have certainly had their share of positive economic reports to feast on in recent sessions. On Wednesday, the advance reading on gross domestic product showed a 0.2 percent increase on Wednesday vs. the expected 1.2-percent decline. The economy contracted at a 1.3 percent rate in the third quarter. A 9.2-percent jump in government spending and a 5.4-percent spike in consumer spending propelled growth. .
Thursday will see the release of weekly initial claims, December personal income, expected to rise 0.3 percent, personal spending, seen declining 0.1 percent, the Chicago PMI Index and the fourth-quarter employment cost index, which is expected to rise 1 percent. Check economic calendar and forecasts.
More accounting jitters
Worries over accounting practices continued to dominate, though many stocks in the limelight in previous sessions were propelled well off the day's nadir in afternoon dealings.
"The Enron/Andersen accounting scandal has a lot of investors wondering who's next. Tuesday's accounting punching bag was Tyco. Wall Street is also very concerned about more bankruptcies looming...because of the recent bankruptcies filed by Kmart and Global Crossing," commented Louis Navellier, fund manager of the Navellier Performance Funds.
Cendant (CD), which dropped 6.2 percent on Tuesday, fell another 2.8 percent. The company's slide began as investors fretted over its off-balance sheet partnerships. Concerns lingered even after Cendant said Tuesday that fourth-quarter and 2002 results would top analysts' current projections.
And Elan (ELN) plunged 16.9 percent following a report in the Wall Street Journal questioning the way the Irish specialty pharmaceutical company accounts for partnerships with other companies.
But Tyco (TYC) staged an amazing rebound after falling over 18 percent earlier in the session and closing down 20 percent on Tuesday. Shares, which closed up 3.3 percent, recovered on news that the company's chief executive and chief financial officer plan to each buy 500,000 shares of Tyco stock in the open market. The company has been battling with questions over a payment to one of its directors. Some analysts also came out to defend the stock. Merrill Lynch, for one, recommends purchase of the stock on belief that management will continue to create value. And Salomon said fear-driven momentum selling has knocked Tyco's shares down to levels that have moved from "compelling" to "extraordinary" and that investors with a nine to 12-month horizon can see significant upside.
Meanwhile, Anadarko Petroleum (APC) slid 1.1 percent after disclosing late Tuesday that it would correct financial results for its third quarter due to an error in calculating an impairment of the book value of U.S. oil and gas properties. Downgrades from Deutsche Banc Alex. Brown and Merrill Lynch ensued. But UBS Warburg claimed that downward pressure could provide an attractive buying opportunity.
Sector and specific stock moves
The chip sector ($SOX) mounted an amazing turnaround, led by the equipment makers. Applied Materials (AMAT) said at the Banc of America Securities technology conference in San Francisco that a bottom has come and gone for the industry, mirroring similar remarks from other executives. AMAT sprinted 4.5 percent, Novellus Systems 4 percent, KLA-Tencor 6.1 percent and Lam Research over 2 percent.
AOL Time Warner (AOL) closed down 1.1 percent after reaching a fresh 52-week low of $24 earlier in the day. The Internet and media colossus checked in with fourth-quarter cash earnings that matched analysts' expectations. Going forward, AOL said it expects revenue to remain flat in the current quarter vs. last year and to increase 8 to 12 percent in 2002. Thomas Weisel upped AOL to a "strong buy" from a "buy" on belief the company will see margin expansion once the ad market rebounds. Among other Net stocks, CNet (CNET) plunged 24.5 percent after warning late Tuesday that its first-quarter and full-year revenue would fall short of current projections due to the weak outlook for technology advertising.
Dow stock AT&T (T) lost 2 percent after posting a fourth-quarter profit from operations that modestly surpassed the Wall Street consensus estimate. Looking ahead, the company projected a "slight acceleration" in the rate of revenue decline for the first quarter on a sequential basis.
And Dow company Philip Morris (MO) edged down 0.4 percent after posting in-line fourth-quarter results and predicting that earnings-per-share would grow 9 to 11 percent in 2002.
Software issues ($GSO) were being hurt by a severe decline in shares of Veritas Software (VRTS), which tumbled 6.6 percent. The company posted late Tuesday a fourth-quarter profit from operations that surpassed the Wall Street consensus estimate and indicated that its first-quarter sales are also expected to top expectations. SG Cowen said business momentum is improving for the company, with a clear uptick in deal pipeline and closures. Still, Cowen said the stock may need more proof to gain additional ground.
In the networking arena, Cisco Systems' shares (CSCO) recovered, rising 1.7 percent ahead of its earnings release next week. Analysts chimed in with upbeat remarks: UBS Warburg, for one, expects the networking behemoth to exceed both its earnings and revenue estimates and thinks Cisco will emphasize how it has gained market share during the downturn.
In the telecom space, WorldCom (WCOM) continued to get whacked, falling another 5.3 percent on the back of speculation of pending stock or debt downgrades.
The bank sector, volatile throughout the trading day, checked in with neat upside in the afternoon. Salomon Smith Barney came out with optimistic comments on the group, indicating that worries other banks will restate their earnings in a similar fashion to PNC Financial (PNC) on Tuesday were misguided.
"We believe the sell-off creates a buying opportunity in some bank stocks since [it] appears to be overdone. Based on Tuesday's weakness, we believe the best opportunities are Bank of America (BAC), Mellon Financial (MEL), Bank One (ONE) and J.P. Morgan Chase (JPM)," said Salomon analyst Ruchi Madan in a note to clients. Still, rating agency Moody's Investors Service placed PNC's credit ratings on review for possible downgrade Wednesday. Among the mentioned stocks, Bank of America rose 4.2 percent after an upgrade from Credit Suisse First Boston to a "buy" from a "hold." And JPM added 3.2 percent while Mellon fell 1.1 percent and PNC 0.7 percent. And insurance giant AIG (AIG) declined 2.1 percent after disclosing that subsidiary AIG Financial Products completed three transactions with PNC Financial. Check the related Pulse item.
In the energy group, ChevronTexaco (CVX) declined 2.4 percent after the Wall Street Journal reported the oil company was considering making an unsolicited bid for either Phillips Petroleum (P) or Conoco (COC) in an attempt to break up their proposed merger. Prudential downgraded Chevron to a "hold" from a "buy" on price. Read the related item. Mirant (MIR) edged up 0.4 percent after taking a hit earlier in the day. The company announced a restructuring of its European operations. Natural gas issues recovered after falling to near 2-year lows earlier in the day, though the Williams Cos. (WMB) checked in with another loss as investors pondered its lingering financial obligations to former subsidiary Williams Communications (WCG). On Wednesday, Williams said it had released all facts related to the spin-off of the unit and said it had "significant liquidity." On its part, Merrill called the stock's slide an "overreaction." Williams shares declined 4.2 percent.
Kraft Foods (KFT) was a standout on the upside, gaining 4.3 percent after posting late Tuesday an in-line fourth quarter and benefiting from a CS First Boston upgrade.
Read for the latest individual stock action.
Treasurys deteriorate
Government bond prices closed sharply lower, with a sour tone created by the stronger-than-expected GDP and exacerbated by the late-day rally in stocks.
Investors also assessed President Bush's State of the Union address.
Bush urged Congress to push through a fiscal stimulus package to jump-start the stagnant U.S. economy. He said the government would run a small and short-term deficit as long as Congress restrains spending and acts in a fiscally responsible way.
In recent dealings, the 10-year Treasury note was off 18/32 to yield ($TNX) 5.01 percent while the 30-year government bond erased 20/32 to yield ($TYX) 5.435 percent.
In the currency sector, the dollar dropped 0.4 percent to 132.90 yen while the euro erased 0.5 percent to 86.09 cents.
The dollar weakened against the yen following a Wall Street Journal article revealing that General Motors complained about the Japanese currency's weakness to Treasury Secretary Paul O'Neill. A weak yen makes Japanese exports more competitive on U.S. markets. |
