MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, JANUARY 16, 1998 (4)
ACTIVITY IN THE U.S.
NEW YORK -- What a difference a week makes, especially on Wall Street. Last week at this time, the sky was falling in Asia (particularly Hong Kong) and U.S. stocks were shuddering as well. Heading into next week's Martin Luther King Jr. Day-shortened trading week, a measure of confidence and optimism has clearly returned to investors both here and overseas.
A continuation of the latter will go a long way toward ensuring the mood stays that way for investors here next week as a heavy slate of corporate earnings battles the Asia scene for market-moving dominance.
"I'm not looking for any extraordinary numbers next week," said Doug Myers, vice president of trading at Interstate Johnson Lane. "People will be paying attention to the all the usual things. Are corporate earnings numbers in as planned? And making sure there are no whoopsy-doodles overseas. Barring that, I think we can continue to go higher."
When traders return from the Monday holiday they'll not only have to deal with two trading days in Asia, but corporate earnings from tech heavyweights IBM (IBM), Computer Associates (CA) and Lucent Technologies (LU). Also due to report on Tuesday are Ascend Communications (ASND) and KLA-Tencor (KLAC). There's no respite the next day, with reports expected from Microsoft (MSFT), Compaq Computer (CPQ) and Texas Instruments (TXN). And that's to name just a few. Outside of technology, earnings are due next week from Dow components like The Travelers Group (TRV), Chrysler (C), Caterpillar (CAT), and McDonald's (MCD) as well as many big money-center banks, oil drilling-and-services firms and airlines.
In sum, it will be a hectic week -- a period in which sentiment on Wall Street likely will shift between euphoria and despair more rapidly than normal, depending on the "all-encompassing" release of the moment.
As for economic data, the big numbers aren't until the week of Jan. 26, though the trade-balance data due on Wednesday might get more scrutiny than usual, due to the ongoing turmoil in Asian economies. And for a look at how the domestic economy is performing, the Fed's Redbook survey, also due Wednesday, will also garner a close look.
Don't think for a minute that this past week's relative calm means the unrest in the Far East is over; Wall Street mavens sure don't, and if things turn sour there again, there will be repercussions here.
"I think the first thing I'm going to be watching next week are the foreign-exchange markets and the stock markets of those Asian countries. That's still at the top of the list," said Hugh Johnson, chief investment officer at First Albany. "We'll start to move the focus off that a little bit, back to domestic economics and the earnings."
Johnson likened earnings season to final-exam time during college.
"The earnings matter, people will certainly be watching. It's time to find out if you really know what you're doing," he said. "There are a lot of swings in emotion. The earnings reports can set the whole tone of the market. If you get some good reports, it makes you feel a lot better."
Of course, a few disappointments, and folks will be reaching for the antacids.
AFTER THE BELL
Shares of ICN Pharmaceuticals (ICN) were trading lower in after-hours trading after the Securities and Exchange Commission recommended civil action against the company's chairman, Milan Panic (no puns about his last name). The company said the SEC's action is "inappropriate."
Microsoft (MSFT) asked an appeals court to suspend the activities of the "special master" directed by Federal Judge Thomas Penfield Jackson to investigate the software giant's business practices.
FRIDAY'S MARKETS
It was a blue-chip bonanza for much of the day on Friday, as stocks barreled higher on the heels of overnight strength in Asian markets. A late-day slide took some of the bloom off Wall Street's rose, however, as many players apparently feared taking long positions into the three-day weekend. After climbing as high as 109 points, the Dow closed 62 points up, while the Nasdaq maintained its footing, rising nearly 16.
A sense that the worst has passed in Asia and some strong earnings from Sun Microsystems (SUNW) reinvigorated the market's confidence in technology stocks, although there were a few individual disasters, and semiconductor stocks lagged. In the broader markets, financial stocks rallied on the easing of Asia worries while oil stocks, airlines and drug stocks all were smartly higher.
The Dow Jones Industrial Average ($INDUA) jumped nearly 80 points higher in its opening move, following a stellar overnight performance for Asian bourses. A brief dip of about 30 points soon gave way to more strength, and the index climbed steadily higher through the morning. By 1 p.m. EST, the index was up more than 105 points and traded in a range of between 109 and 80 points up heading into the last hour. After re-testing its best level of the day about a half-hour before the closing bell, the blue-chip proxy turned sharply lower heading into the close. The Dow ended the session up 61.78 points at 7,753.55. For the week, the index gained 2.3%.
The Nasdaq Composite Index (COMP) was able to hold onto more of its early gains. The tech-heavy index opened with a double-digit gain, slid briefly, then moved steadily higher throughout the morning session. At about 1:30 p.m., the index was up nearly 20 points from its opening level and demonstrated tenacity in hanging onto its gains for the rest of the day. While the Dow lost more than half of its best level at one point, the Nasdaq never came closer than within 12 points of break-even. The index ended up 15.82 points at 1,562.88, closing the week with a gain of nearly 4%.
The S&P 500 (SPX) finished the session up 10.78 points to 961.51, climbing 3.6% for the week. The small-cap proxy Russell 2000 Index (RUT) demonstrated strength on the day, rising 4.50 points to 426.25 while ending the week up 3.2%.
Traders said some computer-driven sell programs contributed to the late-day downturn, but that did not obscure the generally positive mood among many market players.
On the NYSE, 673 million shares were traded while advancing issues beat out decliners by a 21-to-8 margin. In Nasdaq trading, 706 million shares were exchanged and advancing issues bested declining stocks by a 26-to-17 spread.
Overseas, Japan's Nikkei stock index soared more than 6% on speculation that the Japanese government would announce more measures to boost the country's economy. Hong Kong stocks gained 3.7%, Indonesia's market rose 6.9%, the Thailand SET climbed 5.2% and Malaysia closed up 2.7%. South Korea bucked the trend, however, sliding 3.5%.
The international stability came at the expense of the U.S. bond market, which has benefited in recent weeks from the "flight to quality" trade as Asian markets tumbled. On Friday, bond prices fell more than 7/8 of a point, sending the yield on the benchmark 30-year Treasury bond up to 5.80%.
TECHNOLOGY STOCKS
Semiconductor stocks didn't participate, but it was a pretty solid day for tech stocks beyond the earnings-specific blowups. The Morgan Stanley High Tech Index (MSH) closed up 1.37 points to 443.82.
Wall Street liked what it found in earnings news from Sun Microsystems (SUNW). The stock gained 2 1/16 to 45 1/8, topping the volume board as the most actively traded issue on the Nasdaq. Late Thursday, the networking giant reported fiscal second-quarter earnings of 57 cents per share, 3 cents ahead of consensus.
Other networking stocks followed Sun higher, but only modestly so. The Networking Index (NWX) gained 1.82 to 269.97, as Cisco Systems (CSCO) rose 1/2 to 57 15/16 while 3Com (COMS) closed off 1/16 to 33 7/16. Ascend Communications (ASND) stood out from the pack, rising 1 1/8 to 30 1/16.
In addition to Sun, the Nasdaq's rise was led by rival Microsoft (MSFT), which closed up 2 15/16 to 135 1/4, and PC maker Dell Computer (DELL), up 1 1/8 to 92 3/4.
Internet-related stocks were also strong, led by Lycos (LCOS), up 2 21/32 to 38 1/32; CNET (CNWK), which rose 2 1/16 to 30 11/16, and online service MindSpring Entertainment (MSPG), up 1 3/4 to 31. On the NYSE, category leader America Online (AOL) overcame early weakness to rise 11/16 to 93 1/2.
On the Big Board, IBM (IBM) jumped 1 5/8 to 105 1/16 while fellow Dow component Hewlett-Packard (HWP) closed up 11/16 to 55 1/16. Compaq Computer (CPQ) rose 1 1/16 to 59 1/8 while Motorola (MOT) gained 1/4 to 56 1/8.
Missing out on the tech advance was the semiconductor group, sending the Philadelphia Semiconductor Index (SOX) down 3.67 points to 260.81. Industry leader Intel (INTC) slid 1/2 to 74 13/16 while Texas Instruments (TXN) shed 5/8 to 45 1/8. Micron Technology (MU) was the biggest loser in the group, losing 2 7/8 to 28 11/16 after Merrill Lynch's Tom Kurlak suggested that the stock should trade at about $20 per share. The influential chip analyst sees no recovery for Micron's earnings in 1998, as DRAM prices will continue to be pressured.
Microchip Technology (MCHP) plunged 5 7/8 to 21 7/8 after reporting third-quarter results of 30 cents per share, 6 cents shy of expectations. NationsBanc Montgomery Securities downgraded the stock to "hold" from "buy." NationsBanc also downgraded VLSI Technology (VLSI) to "hold" from "buy" and the stock slid 2 17/32 to 19 7/16.
Though the sector and its bellwether stocks dipped, select semiconductor and equipment companies continued to gain ground. Cree Research (CREE) jumped 1 to 16 11/16 on a Street-beating earnings announcement, while Galileo Technology (GALTF) closed up 1 1/16 to 30 1/4, and SGS Thomson Microelectronics (STM) gained 1 13/16 to 59 3/16.
And multimedia-chip maker Eltron International (ELTN) climbed 1 9/16 to 29 11/16 after reporting first-quarter earnings of 12 cents per share, up from a penny per share a year ago.
IntelliQuest Information Group (IQST) was another big highlight on the downside. The provider of market information to technology firms lost 4 to 9 1/4 following its profit warning, posted Thursday night.
A red flag from MicroAge (MICA) also didn't sit well with investors as the stock lost 1 5/16 to 11 1/2.
More bad news didn't make things any better for Seagate Technology (SEG), which closed off 1 1/8 to 18 1/2. The disk-drive maker said it will take a charge of $300 million in its second quarter to pay for a 10% reduction in its workforce.
Fellow disk-drive concern Quantum (QNTM) slid 1/8 to 19 1/2 after posting third-quarter earnings of 29 cents a share, a penny shy of the consensus estimate.
Rouge Wave Software (RWAV) bucked the trend, rising 1 1/4 to 10 1/4 after reporting first-quarter earnings of 13 cents per share, a penny better than expectations.
Boston Scientific (BSX) climbed 3 1/2 to 46 9/16 behind an upgrade from Merrill Lynch to "accumulate" from "neutral." The upgrade overcame some disappointing sales-growth forecasts made by the firm.
Automatic Data Processing (AUD) climbed 5/16 to 59 1/2 despite posting second-quarter earnings of 49 cents per share, a penny better than expectations.
Also weak were shares of BMC Software (BMCS), which fell 1 15/16 to 62 15/16 despite receiving a new "buy" rating from NationsBanc Montgomery Securities.
Sawtek (SAWS) tumbled 1 5/8 to 23 3/8 following a downgrade from NationsBanc to "hold" from "buy."
PaineWebber lowered the boom on Red Brick Systems (REDB), which fell 2 11/16 to 6 15/16. The brokerage firm downgraded the database management software firm to "neutral" from "buy."
Aspect Telecommunications (ASPT) slid 15/16 to 22 11/16 despite an upgrade from Hambrecht & Quist to "strong buy" from "buy" and reporting fourth-quarter earnings of 26 cents per share, a penny ahead of expectations.
ACTIVE ISSUES
In addition to its technology components, the Dow was led by Johnson & Johnson (JNJ), up 2 1/16 to 67 3/4; Goodyear Tire & Rubber (GT), which climbed 1 9/16 to 62 9/16; International Paper (IP), which rose 1 5/8 to 43 5/8; and Coca-Cola (KO), up 1 3/8 to 65 1/8.
Interest-rate-sensitive stocks were also higher following the progress made by Asia's troubled markets. J.P. Morgan (JPM) closed up 1 3/8 to 106 7/8, The Travelers Group (TRV) climbed 1 to 50 3/4 and American Express (AXP) rose 1 1/8 to 82 1/2.
Elsewhere in the group, Citicorp (CCI) rose 2 1/8 to 119 7/8, Chase Manhattan (CMB) gained 2 1/4 to 105 1/2, NationsBank (NB) gained 1 1/4 to 61 3/8, Wells Fargo (WFC) surged 4 3/8 to 321 9/16, and Bankers Trust NY (BT) closed up 2 15/16 to 105 3/16.
Dow laggards were led by General Motors (GM), off 1 1/8 to 57 3/8; Procter & Gamble (PG), down 11/16 to 79 1/4; and Boeing (BA), which shed 11/16 to 43 7/16.
Airline stocks were higher after PaineWebber upped its 1998 earnings estimates for some of the industry's biggest players. The gains helped send the Dow Transportation Index up 60.61 points to 3289.56.
UAL (UAL) climbed 1 1/2 to 89, AMR (AMR) gained 2 1/2 to 132 11/16, Delta Air Lines (DAL) jumped 3 to 118 7/16, Southwest Airlines (LUV) rose 7/8 to 25 7/16, and US Airways (U) rose 13/16 to 61 13/16.
Northwest Airlines (NWAC) climbed 4 1/8 to 51 3/4 following its announcement that it was accelerating the reacquisition of shares owned by KLM Royal Dutch Airlines.
Oil-related stocks were higher, led by Dow components Exxon (XON), up 1 1/8 to 60 5/8 and Chevron (CHV), which rose 11/16 to 76 3/4. Elsewhere in the group, Smith International (SII) surged 3 3/4 to 52 7/8, Schlumberger (SLB) jumped 3 3/8 to 77 15/16, Camco International (CAM) gained 3 7/8 to 57 15/16, and Transocean Offshore (RIG) closed up 2 7/16 to 41 1/2.
Global Marine (GLM) rose 1 9/16 to 22 5/16 thanks to an upgrade to "buy" from "outperform" at Lehman Brothers.
Nordstrom's (NOBE) projection of weaker-than-expected fourth-quarter earnings sent the stock tumbling 4 5/8 to 44 7/8. Still, PaineWebber upgraded the stock to "buy" from "hold."
Briggs & Stratton (BGG) fell 7 cents shy of estimates, despite a warning in December, reporting fiscal second-quarter results of 41 cents per share. That stock fell 2 11/16 to 44 1/8.
Also posting a downside surprise was Raychem (RYC), which said it earned 64 cents per share in its second quarter, 6 cents below the expectations. Raychem shares fell 1 3/16 to 36 13/16.
Johnson Controls (JCI) beat the Street by 2 cents, reporting fiscal first-quarter earnings of 70 cents per share. The stock gained 1 7/8 to 47 1/4.
Foreign telecommunication stocks were strong. Nippon Telephone (NTT) gained 3 1/4 to 45 5/16, British Telecom (BTY) gained 3 3/4 to 89 1/2, Philippine Long Distance (PHI) was up 1 1/2 to 21 1/2, and Telebras (TBR) gained 3 7/8 to 104 15/16.
The rally in Indonesia's market helped lift shares of Persero PT Indonesian Satellite (IIT) up 2 3/16 to 16 3/16 and Telekomunikasi Indonesia (TLK) up 1 3/8 to 9 1/4.
Station Casinos (STN) stock jumped 4 1/8 to 15 1/2 after agreeing to be acquired by Crescent Real Estate Equities (CEI) in a $1.7 billion deal. Crescent shares closed off 1/8 to 37.
Other gaming stocks rallied on the news, including Circus Circus (CIR), up 1 1/2 to 25 1/2; Harrahs Entertainment (HET), which gained 2 5/16 to 21 7/8; Boyd Gaming (BYD), which rose 13/16 to 7 3/4; and Grand Casinos (GND), which rose 5/16 to 14 1/16.
Corporate Express (CEXP) jumped 1 3/8 to 9 3/8 after its board had authorized a shareholder-rights plan.
Dental-equipment maker Milestone Scientific (WAND) climbed 3 3/4 to 22 1/2 following receipt of a new "buy" rating from NationsBanc Montgomery Securities.
Medical-laser-equipment company Candela (CLZR), however, fell 1 1/4 to 3 3/8 after posting a second-quarter loss of 78 cents per share.
MacDermid (MACD) rose 4 3/4 to 78 after the chemical maker set a 3-for-1 stock split.
J and J Snack Foods (JJSF) rose 1 3/4 to 14 1/2 following its announcement that fiscal first-quarter earnings will beat expectations.
Separate fourth-quarter profit warnings sent shares of American Residential Services (ARS) down 3 11/16 to 10 1/4 and Central Newspapers (ECP) off 3 3/8 to 65 1/2.
CapMac Holdings (KAP) slid 1 7/8 to 30 7/16 after the bond insurer revised its merger agreement with MBIA Inc. (MBIA) due to its exposure to Asian markets. MBIA shares rose 1/4 to 67 1/16 on the news despite a downgrade from Merrill Lynch to "neutral" from "accumulate."
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