MARKET ACTIVITY PLUS OIL & GAS FOCUS PART 2 - SATURDAY A.M. 10/17/98
NEW YORK
Dow industrials close above 8,400 in rate-cut rally
By Terri Cullen of The Wall Street Journal Interactive Edition
The Dow Jones Industrial Average vaulted above the 8,400 mark on Friday as news of the Federal Reserve's surprise interest-rate cut boosted demand for stocks world-wide. Treasurys idled and the dollar traded mixed.
The industrial average jumped 117.40, or 1.4%, to 8,416.76, one day after posting its third-biggest point gain on record. Friday's surge finished off an unusually bullish week for Wall Street, with the blue-chip average up a total of 517 points, or 6.6%, after struggling for weeks.
The industrials now are up 5% on the year, and down just 9.9% from their record July 17 close of 9337.97. At worst during the past several months, the industrials were down nearly 20% from their high, the level that would mark the beginning of a bear market.
In the broader market, the Nasdaq Composite Index, which outperformed most major market barometers throughout the week, rose 9.94, or 0.6%, to 1,620.95, bringing its total gain since last Friday to 8.6%. The Standard & Poor's 500-stock index added 8.93 to 1056.42 and the New York Stock Exchange Composite Index climbed 5.78 to 522.24.
Volume on the Big Board was extremely active, totaling 1.03 billion shares, the fourth-busiest session on record. A "double-witching" expiration of stock and stock-index options contributed to the active trading.
The party continued on Wall Street as investors applauded the Federal Reserve's unexpected rate cut on Thursday. News of the reduction sparked a powerful rally in Asian financial markets and boosted European equities amid hopes that the U.S. move will trigger similar rate reductions around the globe. Canada and Argentina quickly followed the Fed's lead by reducing rates.
The Fed lowered its target for the federal-funds rate, which banks charge each other on overnight loans, by one-quarter point to 5%, its second cut in less than three weeks. The Fed also lowered the discount rate, the rate it charges banks for loans, to 4.75% from 5%. Many investors believe that Thursday's rate reduction heralds a string of Fed rate cuts. Policy makers are set to meet next on Nov. 17.
Investors also were encouraged by further signs of stability in Tokyo. The upper house of the Japanese Parliament on Friday approved laws to pump up to $505 billion in public funds into the country's troubled banks. The legislation is a much-needed step toward resolving the banking crisis that has helped plunge the world's second-largest economy into recession.
The U.S. transportation-stock sector put in the strongest performance, with the Dow Jones Transportation Average soaring 116.83, or 4.4%, to 2,781.11. The economically sensitive group stands to benefit directly from a more favorable interest-rate environment.
Banking and financial-services stocks, also beneficiaries of lower rates, rose sharply. The two sectors received a boost from the perception that the Fed is prepared to help the financial system withstand the pressure of bad loans at home and abroad. The Keefe Bruyette & Woods bank-stock index climbed 22 to 705.13.
The bond market paused after soaring Thursday. Traders largely ignored a report showing consumer prices unchanged in September, kept in check by sharply lower energy prices. The data were nearly in line with expectations. A separate report on the manufacturing sector showed industrial production slowing at a greater pace than had been expected..
Technology stocks
If there were any lingering doubts about whether Rambus (RMBS) will be a key player in the personal-computer business, Intel's (INTC) $500 million investment in memory maker Micron Technology (MU) on Friday laid them to rest.
Shares of Mountain View, Calif.-based Rambus surged as high as 66 5/8 in the morning, but closed the day unchanged at 61 1/2 on the Nasdaq Stock Market. Meanwhile, the Nasdaq Composite Index rose 9.94 to 1,620.95, while Morgan Stanley's high-tech 35 index edged down 1.11 to 560.70.
Early Friday, Intel said it would invest $500 million in Micron to buy about 6% of the company's common shares. Intel was explicit about what it hopes to get out of the investment: assurance of a steady supply of memory chips that employ Direct RDRAM, a technology developed by Rambus that improves the performance of PCs by speeding up communications between its core components.
Shares of Intel slipped 13/16 to 83 3/4 on Nasdaq and Micron Tech added 3/8 to 32 1/8 on the New York Stock Exchange. Micron expects to have Direct RDRAM products ready to ship by the third quarter of 1999.
Elsewhere, BMC Software (BMCS) dropped 6 3/4, or 14%, to 42 1/8 on Nasdaq. Goldman Sachs cut its rating on the stock of the mainframe software maker to "market outperform," removing it from its recommend list. While BMC's fiscal second-quarter profit of 33 cents a share beat Wall Street expectations by 2 cents, Goldman point to a drop in deferred revenue for the downgrade (see article). Prudential Securities cut the stock to "accumulate" from "strong buy."
Excite (XCIT) slipped 7/16 to 32 5/16 on Nasdaq. The Internet portal posted a surprise third-quarter operating profit, its first ever, but the company had a net loss because of accounting changes negotiated with the U.S. Securities and Exchange Commission
Sun Microsystems (SUNW) rose 1 7/16 to 50 1/4 on Nasdaq. The computer maker reported earnings slightly above Wall Street estimates, due to stronger-than-expected fiscal first-quarter sales.
Active Issues
Transportation stocks, financial-services issues and regional banking stocks were big beneficiaries of the Federal Reserve action late Thursday. Shares of US Airways (U) jumped 4 1/2 to 54 5/8, Delta Air Lines (DAL) gained 4 1/2 to 98, and AMR (AMR) increased 1 7/8 to 56 3/8.
Among the bank issues moving higher was KeyCorp (KEY), up 2 15/16 to 31 1/8; First Union (FTU), increasing 3 1/8 to 57 3/8; and Banc One (ONE), jumping 2 7/16 to 47 5/8. One notable exception was J.P. Morgan (JPM), which shed 2 3/4 to 89 1/2.
Cyclical stocks on the Dow performed well, with investors betting that lower interest rates will keep a U.S. recession at bay. DuPont (DD) improved 3 5/8 to 64 1/8, United Technologies (UTX) gained 3 1/4 to 83 1/2, and Aluminum Co. of America (AA) added 2 3/8 to 79 1/2.
Shares of Caterpillar (CAT) limited the gains on the Dow industrials, losing 1 to 47. The Peoria, Ill., company earned 92 cents a diluted share in the third quarter, compared with $1.01 a year earlier and eight cents below analysts' consensus estimate, according to First Call.
Shares of Kellogg (K) dropped 3 9/16 to 34 1/16. The Battle Creek, Mich., cereal maker said it now expects 1998 earnings per share to be down about 20% from the $1.50 earned in 1997. The company had previously expected a drop of closer to 15%. Kellogg cited unpredictable foreign exchange rates, the troubled global economy, and softness of cereal sales in the U.S.
Shares of Temple-Inland (TIN) lost 3/16 to 50 3/16. The company reported third quarter net income of 44 cents a diluted share, compared with 22 cents a year ago but 5 cents below expectations. The Diboll, Texas, paper concern said weakness in Asian demand is hurting the paper industry and lumber markets.
Bankers Trust (BT) fell 5 1/2 to 51 3/8 amid further rumors that the New York bank may be in financial trouble and close to being bailed out by the Federal Reserve. A spokesman for the company strongly denied the rumors. Bankers Trust is also expected to report its earnings next week.
Progressive (PGR) posted third-quarter operating net of $1.80 a share, compared with $1.18 a year ago. The results were 44 cents ahead of analysts' consensus view, and the stock surged 19 3/16 to 127 3/4. Merrill Lynch, Salomon Smith Barney, and ING Barings all upgraded their rating on the stock.
Baltimore Gas & Electric (BGE) slipped 1 5/16 to 33 7/16. The company earned $1.08 a share in the third quarter, compared with $1.11 a year earlier.
Small-capitalization stocks
Small-capitalization stocks, with market capitalizations of $1 billion or less, jumped Thursday after the Fed surprised the markets by trimming the federal-funds rate by a quarter point to 5%, its second cut in less than three weeks. The Fed also lowered the discount rate, the rate it charges banks for loans, to 4.75% from 5%. Many investors believe that Thursday's rate reduction heralds a string of Fed rate cuts. Policy makers are set to meet next on Nov. 17.
Proxymed (PILL) slid 1/8 to 8 13/16. The health-care-information technology provider said it expects third-quarter revenue to rise 90% from a year ago to $7.6 million, far exceeding analyst's expectations. The Fort Lauderdale, Fla., company said revenue from its EDI licensing and transaction unit increased more than 10 times over the year-ago quarter, in part because of the May acquisition of Integrated Medical Systems.
Veramark Technologies (VERA) gained 9/16 to 4 1/8 after the Pittsford, N.Y., telecommunications-systems producer announced it had received two orders from Germany for the VeraBill customer care and billing system. The customer is an agency of the German government, which since June of this year has operated two VeraBill systems to bill usage of private telecommunication networks. The company hopes to win wide acceptance in the German market.
Planar Systems (PLNR) fell 1 3/4 to 9. The Beaverton, Ore., electronics concern said it expects per-share fourth-quarter earnings of between 14 cents and 16 cents. A First Call survey of four analysts produced a mean fourth-quarter earnings estimate of 20 cents a share.
Cohu (COHU) tumbled 1 13/16 to 13 1/2 after reporting earnings that came in far below analysts' expectations. Cohu posted third-quarter net income of five cents a diluted share, compared with expectations of 21 cents a share. In the year-ago quarter, Cohu earned 85 cents a share. The San Diego company supplies test-handling equipment used by semiconductor makers in final test operations.
Citation (CAST) lost 1 3/4 to 7 1/2. The Birmingham, Ala., maker of metal castings said it expects a loss in the fourth quarter of 50 to 60 cents a share, including a one-time charge. Without the charge, it expects a loss of 10 to 15 cents a share. In the year-ago fourth quarter, the company reported net income of 31 cents a share. A First Call survey of seven analysts had estimated the company's fourth-quarter net income at 13 cents a share.
International trading
INTERNATIONAL
Asian-Pacific equities markets surged Friday in response to a surprise interest-rate cut by the U.S. Federal Reserve. Hong 's Hang Seng Index surged 9%, while Tokyo's Nikkei index gained 2.2% for its first gain in four sessions. But shares in Seoul closed mixed, with the benchmark Korea Composite Stock Price Index up just 1.4%.
European shares surged Friday in line with a global rally following Thursday's U.S. interest-rate cut, but profit-taking tempered gains by the close. British, German, French, Swedish, Italian, Dutch, and Swiss shares surged in late morning trading, but eased markedly from opening highs on profit-taking.
Shares prices closed mixed Friday in the key markets of Latin America and Canada. Canadian stocks slightly edged higher, but pulled back from earlier gains, following the Bank of Canada's cut in interest rates by a quarter-point. Brazilian shares fell 2.4% ahead of Monday's expiration of Telebras options and the U.S. Fed's rate cut.
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