MARKET ACTIVITY/ WEEKEND EDITION OF TRADING NOTES JUNE 21, 1998 (2)
MARKET OVERVIEW, Con't
Friday's Markets In U.S.
Blue-chip stocks tumbled Friday as investors adopted a cautious stance ahead of this weekend's meeting of the Group of Seven nations in Tokyo.
The Dow Jones Industrial Average ($INDUA) tumbled 100.14 points to close at 8,712.87 in a choppy session that ended a volatile week.
Friday's trading was marked by swings related to the "triple-witching" expiration of index futures, index options and individual stock options.
Volume was heavy at more than 681 million shares. For the week, the Dow lost about 122 points.
The Nasdaq Composite Index (COMP) rose 8.59 to 1,781.29. The S&P 500 (SPX) slide 5.73 to close at 1,100.64. The Russell 2000 (IUX) index of small-cap stocks declined 1.32 points to 438.47.
Technology stocks
Texas Instruments Inc. (TXN) fell 1/16 to 54 7/16 after the chip maker announced it will sell its money-losing memory-chip business to Micron Technology Inc. (MU) for about $830 million. TI also said it would eliminate 3,500 jobs in other parts of the company to cut costs and will take an unspecified second quarter charge for the job cuts and shutdown of several plants. Officials say they expect to save some $270 million a year from the restructuring.
Micron (MU) shares rose 1 3/16 to 23 3/8. The chip maker also released its fiscal third-quarter results, saying it lost $106 million, or 50 cents a diluted share, on sales of $610 million. Analyst estimates had forecast a loss of 43 cents a share.
Micron was nearly the only issue on the upside on the Philadelphia Semiconductor Index (SOX), which was down 2.97 to 236.10. Most chip shares were sharply down, led by LSI Logic (LSI), off 1 to 23 1/2; Lam Research (LRCX), down 5/8 to 20 1/2; and National Semiconductor (NSM), off 5/8 to 13 1/8.
The chip negativity dragged down the technology sector, where issues were broadly mixed. The Morgan Stanley High Tech Index (MSH) was up slightly at 0.13 to 553.82, though a majority of its components were in negative territory.
Most of the index's buoyancy came from software giant Microsoft (MSFT), up 3 1/2 to 94 11/16. The company's shares received a dual boost: first, Chairman Bill Gates' bullish remarks about the continuing growth of the personal computer industry despite Asia's financial crisis; second, Goldman Sachs raised its estimate on the company's 1998 earnings. (Microsoft is the publisher of Investor.)
Networking stocks also boosted the tech sector. The AMEX Networking Index (NWX), up 4.33 to 362.85, was led upward by FORE Systems (FORE), which rose 1 1/2 to 24 7/16; Xylan Corp. (XYLN), up 2 3/16 to 28 3/16; and Cabletron, which gained 13/16 to 13 15/16.
The biggest influence on the networkers came from Ericsson AB (ERICY), which rose 3/16 to 26 1/16 after The Wall Street Journal reported that the mobile-phone giant is looking to buy 10 U.S. networking companies and is in talks with three of them. Ericsson officials, according to the report, dismissed speculation that the company may buy 3Com Corp. (COMS) or Ascend Communications Inc.(ASND), saying that they're more interested in buying less-expensive startups.
PairGain Technologies Inc. (PAIR) shot ahead 1 11/16 to 15 5/8, or 12%, following an upgrade and takeover speculation. Volpe Brown analysts raised the network equipment maker to "strong buy" from "neutral," citing its potential as a takeover target.
Internet shares shrugged off negativity for a couple of the sector's bellwethers and were led upward by another, with the AMEX Internet Index (IIX) rising 3.02 to 346.29.
America Online Inc. (AOL) climbed 2 1/8 to 96 after Goldman Sachs analysts reiterated that the No. 1 Internet-service provider was on its "recommend" list. The analysts said the company will meet or beat 19-cents-a-share earnings estimates for the fourth quarter, and likely will surpass the estimated subscriber count of 14.6 million.
Infoseek Corp. (SEEK), which rose sharply Thursday, fell 1 11/16 to 33 7/16 after The Wall Street Journal reported that investors may not greatly benefit from Walt Disney Co.'s (DIS) purchase of a 43% stake in the search-engine company. Analyst Keith Benjamin of BancAmerica Robertson Stephens said that since the accord commits Infoseek to paying Disney $165 million for promotional activities, the transaction will "dramatically increase" the Infoseek's expenses for the next two years and delay profitability. Disney shares also dropped sharply, off 4 9/16 to 107 7/16.
Another Internet bellwether, Yahoo! (YHOO), dropped 1 1/2 to 129 1/4 after saying in a filing with the Securities and Exchange Commission that it expected to post a loss in the second quarter due to a one-time $45 million charge related to its purchase of Web software maker Viaweb Inc.
Iomega Corp. (IOM) fell 13/16 to 5 1/2 after warning that it expects a loss for the second quarter and full year 1998 and saying it will cut 12% of its workforce.
Active issues
Word of a merger rippled through the oil sector. Camco International Inc. (CAM) skyrocketed 12 3/16 to 74 7/16 as Schlumberger Ltd. (SLB), the largest oil-services company in the world, said it will buy the nation's eighth-largest oilfield-services company for $3.14 billion in stock, the latest acquisition in an industry being squeezed by customer cost-cutting. Schlumberger fell 3 5/8 to 66 5/16.
Response to the acquisition was mixed throughout the sector, which continues to come under pressure as oil prices decline. The AMEX Oil Index (XOI) fell 5.16 to 460.16. Leading the negativity were British Petroleum (BP), down 1 3/4 to 83 1/4, and Amoco (AN), off 1 to 41 7/16. TOTAL SA (TOT) provided some lift, rising 7/8 to 60 3/8.
WorldCom Inc. (WCOM) climbed 1 5/16 to 47 1/16 after a European Union official said that regulators plan to approve the telecommunications company's proposed $42.7 billion purchase of MCI Communications (MCIC) in the next few days. The official, quoted by Bloomberg Business News, said MCI must answer some final questions on its offer to sell its Internet business. MCI rose 1 13/16 to 56 1/2.
MCI and WorldCom shares also were boosted by the news that Cable and Wireless (CWP) would drop its breach-of-contract lawsuit against MCI, clearing another obstacle in the drive to win regulatory approval of
its takeover of MCI. Cable & Wireless continued discussions about buying MCI's Internet assets, a source familiar with the talks said Thursday. Cable and Wireless shares climbed 3/16 to 34 1/16.
Drug stocks initially provided the markets some upward pull, thanks to an acquisition and product news, but dropped in the afternoon as one of its bellwethers received some bad news. The AMEX Pharmaceutical Index (DRG) ended by declining 1.38 to 665.14.
Pfizer Inc. (PFE) plummeted 3 1/8 to 111 1/4 after the Kaiser Permanente Group, the largest U.S. health-maintenance organization, said it will stop paying for Viagra, the drug maker's anti-impotence pill. Kaiser officials said the cost of the drug is so high that it would need to raise rates to cover it.
Merck & Co. (MRK) fell 2 to 126 7/8 after Astra AB (A) said it will buy the drug maker's half of their U.S. sales venture in a transaction based on future sales for at least $4.4 billion. The deal paves the way for Astra, Sweden's biggest drug company, to merge with a rival if it wants. Its shares rose 9/16 to 21 1/16.
Progenics Pharmaceuticals Inc. (PGNX) rose 7/16 to 14 13/16 after the biotechnology company reported that its lead cancer vaccine, GMK, induced antibodies in vaccinated melanoma patients that have the potential to kill cancer cells. Progenics is collaborating with Bristol-Myers Squibb Co. (BMY) in the vaccine's development, and the drug maker has an exclusive worldwide license to sell the vaccine. Bristol-Myers shares climbed 9/16 to 113 9/16.
Transport stocks rose, with the Dow Tranportation Index ($TRAN) climbing 61.81 to 3,401.96, though a single stock was responsible for a large portion of that increase. Freight-equipment leasing specialist XTRA Corp. (XTR) skyrocketed 14 15/16, or 32%, to 61, after the company was acquired by Interpool Inc. (INX) in a deal valued at $1.9 billion. Interpool shares climbed 1 1/16 to 15 3/4.
Caterpillar (CAT) led the Dow's losers with a 2 7/8-point drop to 51 5/8. The heavy-machinery maker, punished most of this month because of its exposure in Asian markets, had risen earlier this week after the U.S. moved to support Japan's currency.
Stone Container Corp. (STO) fell 1 3/16 to 14 3/4 after Prudential Securities analysts cut 1998 estimates. The forecast included lower-than-expected prices for linerboard, a product the company uses to make corrugated packages.
Sunbeam Corp. (SOC) fell 1 13/16 to 11 1/4 after analysts at Bear, Stearns & Co. cut 1998 earnings estimates for the appliance maker. The company fired its chief executive, Al Dunlap, earlier this week.
After the bell
Warren Buffett's Berkshire Hathaway Inc. (BRK) said Friday it will acquire insurer General Re Corp. (GRN) in a deal valued at $22 billion. Omaha-based Berkshire, controlled by the billionaire who is one of the world's most widely imitated investors, will add General Re to its stable of insurance businesses, which include Geico Corp., the nation's seventh-largest auto insurer. General Re is one of the world's largest issuers of reinsurance policies, which insurance companies buy to manage risks associated with the policies they write. Shares of General Re reportedly soared 29 3/4 in late after-hours trading from its Friday close of 220 1/4.
MedImmune Inc. (MEDI) said its Synagis has been approved for marketing by the U.S. Food and Drug Administration for the prevention of serious lower respiratory tract disease in pediatric patients. The biotech company said the drug was used to prevent respiratory disease caused by respiratory syncytial virus (RSV), the most common cause of pneumonia and bronchitis in infancy and early childhood.
Starwood Financial Trust (APT) said that its shareholders approved both a 1-for-6 reverse split of its capital stock and a plan to change the residence of its real-estate investment trust status from the state of California to the state of Maryland.
Adobe Systems Inc. (ADBE) is expected to earn 39 cents a diluted share for its second quarter, meeting analysts' estimates. The company earned 54 cents a year earlier, and is scheduled to report earnings Monday.
BellSouth Corp. (BLS) joined 15 other companies that are considering bids for the companies created by the breakup of Brazil's Telecomunicacoes Brasileiras SA. (TBR). BellSouth provides wireless telephone service in nine Latin American countries and already operates Brazil's largest non-state cellular phone company.
All Eyes Remain Fixed On Japan's Setting Sun
Wall Street rode the Asian roller coaster this week, with the yen in the driver's seat. And investors will keep their eyes on Tokyo next week in anticipation of the next turn, lurch, climb or dive.
The United States has put substantial pressure on Japan to come up with serious measures to boost its languishing economy and address problems of bad bank loans. If the Japanese heed Washington's advice, it could set the stage for Asian and U.S. stocks to rise. But any disappointment would likely be greeted with an exodus from stock markets.
"We need a commitment for a definite change in policy in Japan," said Joseph Barthel, chief investment strategist at Fahnestock & Co. "We want to see the [Japanese] banks say, `Yes, we have bad loans,' and shut down banks carrying losses. We'll have to see some hard action with the banks."
A meeting of Group of Seven deputy finance ministers and Asian officials in Tokyo on Saturday could yield a statement of strong support for the yen and Asian stability in return for Japanese promises on reforms.
"Whatever comes out of the G7 meeting will lead how we trade," said Jennifer Moran, analyst at Donaldson Lufkin & Jenrette. "They may set a target on the value of the yen, but that will be contingent on the Japanese coming up with a strong reform package."
U.S. Deputy Treasury Secretary Lawrence Summers, on an emergency mission to Tokyo, gave the Japanese a three-week deadline to set the wheels in motion. That is the time remaining until a July 12 national election. Summers put Japan's government on notice that Washington would be watching its every move.
Wall Street's wild ride this week closely tracked the fortunes of the yen. The Dow Jones Industrial Average tumbled 207 points Monday as the Japanese currency sank to eight-year lows against the dollar.
But blue chips regained most of that Wednesday after the U.S. and Japanese central banks joined forces to reverse the yen's slide with a multi-billion-dollar intervention in the foreign exchange markets.
The other major focus next week will be an Organization of Petroleum Exporting Countries meeting on Wednesday in Vienna. New production cuts could push crude oil prices up from historically low levels and help shares of oil and oil services companies.
Barthel said the market was oversold and looked set to advance next week. "The path of least near-term resistance is up. I'm inclined to think we are going to try the upside."
Bill Meehan, chief market analyst at Cantor Fitzgerald, said a heavier than usual flow of earnings warnings from U.S. companies has done its damage to the broad market and stocks were poised for a push higher.
"A rally on Monday [after the G7 meeting] would serve as the all-clear signal that we can now sail through pre-announcements," he said. "Expectations have been reduced enough that investors are likely to sigh a little bit in relief."
Gail Dudack, chief investment strategist at UBS Securities, said she expects to scale back her already modest forecast for 5 percent growth in earnings of Standard & Poor's 500 companies this year.
"There was nothing in the first quarter which suggests earnings are going to grow much at all in 1998," she said.
A handful of economic releases next week likely will be followed closely as well. On Tuesday, the LJR Redbook report on total store sales is due, while durable-goods figures will be released Wednesday, and on Thursday, gross-domestic-product and existing-home-sales data are due.
International
Mexico City: Mexican stocks extended earlier gains at the close on Friday on what analysts said was moderate speculative buying following Thursday's losses. The 35-share IPC share index (^MXX - news) closed up 85.01 points, or 1.99 percent, at 4,353.74. Volume (MX/STATS) was slow at 60.3 million shares. ''It's mainly quick, same-day, in-and-out trading on thin volume, trying to make up for yesterday's losses,'' Hector Jimenez, an analyst at the Inverlat brokerage said. The IPC had fallen 1.66 percent on Thursday.
Gerardo Copca, fund manager at the Finamex brokerage, said the Mexican bourse shrugged off losses on Wall Street because of expectations that a June 24 OPEC meeting would agree to cut oil supplies to a glutted world market, a move that stands to benefit oil-exporting Mexico. ''Although market volatility definitely revolves around Asia, oil is the most important factor for Mexico,'' he said, adding this explained why Mexican shares had fallen harder than their Brazilian or Argentine counterparts so far this year.
The Paris bourse was the most resilient European market, staying in positive territory for most of the day on strong oil shares as well as the improvement in the yen. But Wall Street's decline sent it down 0.6 percent by the close.
Expiring derivatives contracts meant prices yo-yoed in Frankfurt and London. Germany's blue chip Xetra DAX finished 0.8 percent lower in cautious trade after it hit a high of 5,811.70 on Thursday, extending an unprecedented bull run.
''We are sitting on a powder keg,'' one dealer said. ''Everyone is a bit afraid. The market can keep going up bit by bit but if there's any really bad news it could fall significantly.''
London was among the hardest hit exchanges with the FTSE-100 index losing 1.1 percent amid fears that the Bank of England could raise interest rates again as early as July after strong recent data and comments overnight from BOE Governor Eddie George.
George said domestic demand was well above a sustainable growth rate, blaming domestic demand for inflationary pressure in the economy. He said he hoped inflation had peaked but cautioned that it was impossible to predict short-term trends.
The remarks sent sterling to 3.002 marks late on Thursday, its highest level since April 30, and the currency was hovering near three marks on Friday, hitting exporters in the leading share index.
On the foreign exchanges, dealers were preoccupied with the Group of Seven (G7) meeting in Tokyo and the yen gleaned support from the ongoing threat of intervention after the U.S. and Japanese authorities spent an estimated $6.0 billion on rescuing the yen on Wednesday.
''People have been very impressed by how far the yen has risen after the intervention but everything depends on the G7 meeting,'' said Martin de Blocq, sales manager at Nomura Bank.
''Pessimists still outnumber optimists so we need to see strong words from the G7 and signs that Japan will stick to its reforms if people are to be convinced that this is the beginning of a turnaround in the yen.''
Dollar/yen slipped to more than one-month lows at 133.65, from 137.35 yen late Thursday in Europe.
Featured shares in London included specialist engineering firm Siebe, down 2.6 percent on sterling gains.
In Paris, heavily-weighted oil stocks Elf Aquitaine (ELFP.PA) and Total (TOTF.PA) gained around 2.5 percent on higher crude prices while Remy-Cointreau (RCOP.PA) fell 2.80 percent after at least two brokers cut their ratings following its 1997/98 results.
But European equities were mixed on interest rate worries, derivatives expiries and a gloomy performance from Wall Street, undermined by the quarterly triple witching expiry of stock futures and options.
Most Asian stock markets fell Friday as investors took profits amid skepticism over whether the Japanese yen's recent dramatic gains on the U.S. dollar could be sustained.
Philippine stocks tumbled, losing much of their advances in the previous session as investors cashed in on gains amid uncertainties over the sustainability of the Japanese yen's recovery.
The 30-share Philippine Stock Exchange Index fell 86.88 points, or 4.8 percent, closing at 1,741.71. In currency trading, the dollar averaged 40.898 pesos for the day, up 1.2 percent from Thursday's 40.425 pesos.
The United States and Japan intervened heavily in the currency market on Wednesday, selling dollars in an effort to stop the slide of the yen against the U.S. currency.
But the momentum of Thursday's surge in the yen stalled Friday. In late afternoon, the dollar bought 134.97 yen, down 1.91 yen from late Thursday in Tokyo and also below its late New York rate of 137.83 yen overnight.
Investors were also watching U.S. Deputy Treasury Secretary Lawrence Summers' meetings with Japanese officials for clues to whether Japan will dole out tougher reforms to heal its ailing economy.
Bank of Japan Gov. Masaru Hayami told Summers Friday that writing off the pile of bad debts held by Japanese banks is vital to revitalizing Japan's sagging economy.
South Korean shares also closed sharply lower, with the key index falling 3.8 percent on profit-taking.
The Seoul Stock Exchange's Korea Composite Stock Price Index fell 12.23 points to 313.26.
Thai shares closed 3.7 lower, but off the day's low after investors scooped up bargains in finance stocks in late afternoon, dealers said.
The Stock Exchange of Thailand (SET) index slumped 10.83 points to close at 284.32.
Indonesia share prices also closed sharply lower, with key Composite Index falling 14.640 points, or 3.3 percent, to 425.453.
On the Tokyo Stock Exchange, the 225-issue Nikkei Stock Average fell 93.56 points, or 0.61 percent, closing the week at 15,267.98 points. On Thursday, the average surged 646.16 points, or 4.39 percent, after a dramatic intervention drove the yen higher.
For much of Friday's currency trading in Tokyo, the dollar remained in a narrow range as players avoided from making significant moves prior to the weekend meeting of deputy finance ministers and central bankers from the Group of Seven industrialized nations.
Finance officials from other Asian nations will also attend the Tokyo meeting to discuss ways of stabilizing local currencies and economies in the region.
Elsewhere:
Hong Kong : Share prices closed higher for a fourth consecutive session after a late buying spree erased earlier losses. The Hang Seng Index rose 75.94 points, or 0.9 percent, to 8,591.91.
Taipei: Share prices closed lower on profit-taking. The market's key Weighted Price Index fell 13.88 points, or 0.17 percent, to 7,754.43.
Wellington: New Zealand share prices closed lower. The NZSE-40 Capital Index fell 56.74 points, or 2.7 percent, to 1,975.20.
SydneyY: Australian share prices closed lower as dealers remained cautious about the Japanese economy. The All Ordinaries Index fell 19.4 points, or 0.7 percent, to 2,588.8.
Kuala Lumpur: Malaysian share prices closed lower on profit-taking. The benchmark Composite Index fell 4.21 points, or 0.89 percent, to 467.61.
Singapore: Share prices closed mostly lower. The benchmark Straits Times Industrial Index fell 10.48 points, or 0.9 percent, to to 1,122.93.
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