MARKET WRAP -2 / U.S. & Int'l Market Activity Ending 12/18/98
Tech Rally Lifts Nasdaq Composite To Record Close
The Nasdaq Composite Index rallied to a record Friday, as computer related stocks rallied on hopes for solid fourth quarter earnings. But the broader market posted only modest gains as investors kept a watchful eye on the impeachment debate and the continued assault on Iraq.
Trading volume was heavy amid a triple-witching expiration of futures and options. Bonds were little changed and the dollar sank.
The Dow Jones Industrial Average rose 27.81, or 0.31%, to 8,903.63. Dow component International Business Machines (IBM) hit a 52-week high Friday, as investors flocked to computer-hardware stocks that are viewed as likely to turn in better-than-expected fourth-quarter results. Its shares closed at 171 9/16, up 5 1/2.
The Standard & Poor's 500-stock index climbed 8 to 1,187.98 and the New York Stock Exchange Composite Index advanced 1.92 to 572.07.
But the tech-laden Nasdaq Composite Index surged 42.26, or about 2%, to 2,086.14, leaping past its Dec. 9 record of 2,050.42. Tech stocks, particularly computer-hardware makers and Internet retailers, were the market's strongest performers, boosting the Morgan Stanley high-technology index 20.74 to 816.14.
Computer-related stocks rallied Friday after Morgan Stanley Dean Witter analyst Mark Edelstone boosted his earnings estimate on bellwether Intel (INTC). Mr. Edelstone raised his estimates to $3.48 a share from $3.45 and lifted his estimates for 1999 to $4.60 a share from $4.40. Intel shares rose 3 1/8 to 120, lifting the Philadelphia Stock Exchange semiconductor index 9.27 to 349.25.
He also noted that the personal-computer industry is seeing solid demand in the current quarter, typically its strongest, and said he expects that the first quarter won't be as lean for the industry as usual.
But elsewhere in the market investors were more choosy, focusing on highly liquid stocks due to the unsettling factors overhanging the market. The bombing of Iraq continued Friday and the full House of Representatives met to debate the impeachment of President Clinton.
If that weren't enough, Friday marked the so-called triple-witching expiration of options and futures contracts. The December and June expirations tend to be the two biggest of the year, so trading volume was unusually heavy.
But most traders agreed that neither the impeachment of the president nor the fallout from the attacks on Iraq is likely to do any serious damage to the U.S. economy, so the impact on U.S. equities should remain limited.
As Wall Street continued to show indifference to the impeachment proceedings, the dollar remained under attack amid worries in the international community about the fate of the Clinton presidency. Bonds, which frequently track movements in the U.S. currency, also slipped. A weaker U.S. currency makes dollar-denominated securities like Treasury bonds less attractive for investors overseas.
Technology stocks
Shares of Intel (INTC) shot up 3 1/8 to 120, after an analyst at Morgan Stanley Dean Witter boosted earnings forecasts for the chip maker. Chip equipment maker Applied Materials (AMAT) moved ahead 4 5/16 to 45 7/16, after Goldman Sachs & Co. made encouraging comments about the company's outlook.
Cisco Systems (CSCO) gained 5 9/16 to 90 7/16, reaching a 52-week high, Dell Computer (DELL) gained 2 1/16 to 67 7/8 and Compaq Computer (CPQ) increased 2 9/16 to 42 11/16. And shares of International Business Machines (IBM) closed at a 52-week high of 171 5/8, up 59/16.
Semiconductor-equipment maker Applied Materials (AMAT) saw its shares rise 4 5/16 to 45 7/16 after Goldman Sachs said in a research note that gross margins are improving and first-quarter earnings probably will come in "toward the high end of previous guidance."
The movement in the PC sector came after Amazon.com (AMZN) had commanded the market's attention for two days. On Friday, the Net retailer -- and poster child for electronic commerce -- saw its stock advance 9 15/16 to 286 11/16.
Other e-commerce stocks were strong, too. Shares of online auction company eBay (EBAY) climbed to 252 1/4, up 13 15/16, and shares of uBid (UBID) shot up 10 9/16, or 25%, to 53 1/8.
Several traders noted strong trading among Internet issues such as Egghead.com (EGGS), which advanced 2 to 22 1/16, and Onsale (ONSL), which rose 4 5/16, or 11%, to 43 11/16.
Elsewhere in the technology sector, Microsoft's (MSFT) shares moved ahead 3 7/16 to 137 13/16. In the Internet sector, Yahoo! (YHOO) rose 6 13/16 to 212 5/16.
General Instrument (GIC) slipped 1 to 34. Donaldson Lufkin & Jenrette cut its rating on the Hatboro, Pa., video products maker.
i2 Technology (ITWO) rose 5 to 29 3/16. First Boston upgraded its rating on the Irving, Texas, software manufacturer to "strong buy" from "buy."
Aspec Technology (ASPCE) shed 17/32 to 1 5/8 after restating its results for fiscal 1996 and 1997 and the first two quarters of fiscal 1998. Although the company reported higher results for some periods, it lowered its first-half 1998 results. The company also reported a rise in third-quarter profit, but warned that it expects revenue for the fourth quarter and the first quarter of 1999 to be "significantly lower" than its most recent quarter. Aspec Technology develops design-implementation technology for integrated circuits.
Active issues
The Dow Jones Industrial Average staged a more modest advance, adding 27.81, or 0.3%, to 8903.63, despite strong contributions from several blue-chip stocks. Shares of McDonald's (MCD) jumped 3 1/4 to 75 3/16, while General Electric (GE), a bellwether for the broad market, added 2 9/16 to 96 7/8. Each managed to overtake the highs for the year that were set back in July.
Shares of FedEx's parent company, FDX Corp. (FDX), jumped 6 1/16 to 82 3/8 after the company reported better than expected earnings Thursday. Also, the company and its unionized pilots announced they have reached a tentative contract agreement, setting the stage for a possible end to years of labor turmoil at the Memphis, Tenn., air-express company.
Boston Scientific (BSX) dropped 2 9/16 to 23 1/8. Federal investigators are reviewing clinical data from the Natick, Mass., medical device manufacturer relating to a major coronary-stent system, which the company recalled two months ago. The focus of the investigation was not clear. The probe adds to the woes of Boston Scientific, which Thursday was named in a class-action lawsuit claiming it overstated its earnings.
Nike (NKE) reported late Thursday fiscal second-quarter earnings that beat Wall Street estimates, but said the labor dispute involving the National Basketball Association players took a "critical runway" from the company this fall. Nike said its second-quarter net fell to 24 cents a diluted share from 48 cents a year earlier, beating First Call consensus estimates by two cents a share. Its shares slipped 1 13/16 to 39 11/16.
Borg-Warner Automotive (BWA) agreed to acquire Savannah, Ga., electrical component manufacturer Kuhlman (KUH) for $660 million, or $39 a share. Chicago-based Borg-Warner, an automobile powertrain manufacturer, said its purchase includes cash, $150 million in stock and the assumption of debt. Shares of Borg-Warner eased 3/4 to 50 3/4, while Kuhlman gained 5 7/8 to 37 3/8.
Telephone & Data Systems (TDS) fell after the company announced Friday it will withdraw its offer to exchange so-called tracking stocks for the outstanding common shares of U.S Cellular (USM) and Aerial Communications (AERL). Telephone & Data owns most of both companies, and had sought to acquire the balance of the companies in exchange for the tracking stock. In addition, the company announced it is pursuing a tax-free spin-off of its 82.3% interest in Aerial, a cellular communication company. Telephone and Data Systems shares lost 4 1/2 to 42 3/4 and U.S. Cellular shed 2 11/16 to 37 1/4, both on the American Stock Exchange. Aerial gained 5/16 to 4 3/8 on the Nasdaq. All of the companies involved are based in Chicago.
National Data (NDC) gained 3 1/2 to 44 3/16 after it reported its earnings in the second fiscal quarter beat analysts' estimates by a penny. The Atlanta company, which provides transaction processing services and application systems to health-care and payment-systems firms, reported net income rose to 45 cents a diluted share from 22 cents a share.
Aliant Communications (ALNT) jumped 6 3/8 to 37 1/4 on Nasdaq. Alltel (AT) agreed to acquire the Lincoln, Neb., telecommunications service provider in a pact valued at $1.5 billion. Shares of Alltel, a Little Rock, Ark., telecommunications company, slipped 1 1/8 to 55 7/8. Sprint (FON) gave back some of Thursday's gains, falling 5/8 to 80 3/4, after rising 4% Thursday. The telecommunications concern received a contract from the U.S. government to provide long-distance telephone service to federal government agencies, one of two big contracts thegovernment is handing out.
Trigon Healthcare (TGH) moved up 1 15/16 to 36 9/16. The Richmond, Va., managed-care concern snapped back from losses sustained earlier in the week, when the issue was backing off the high of 38 3/8 reached Dec. 8.
SCI Systems (SCI) added 1 1/2 to 56 1/4, and reached a 52-week high. The Huntsville, Ala., contract manufacturer said it started operations at a new plant near Guadalajara in Mexico to supply the region's growing health-care sector.
Atlantic Richfield (ARC) rose 7/8 to 64 1/8. The Houston oil company said it will cut its 1999 capital spending 25% from this year's level.
Sapient (SAPE) jumped 12 9/16 to 57 5/16 on Nasdaq. The Cambridge, Mass., computer software developer gave investors an optimistic outlook for the company's fourth quarter during a tour of investors and analysts Thursday and Friday.
Small-capitalization stocks
Ramapo Financial (RMPO) surged 2 3/4, or 33.8%, to 10 7/8 after the Wayne, N.J., bank holding company agreed to be acquired by Valley National Bancorp (VLY) in a stock swap.
Spectran (SPTR) shot up by 1 3/16, or 33.3%, to 4 3/4. The Sturbridge, Mass., fiber-optic products company agreed to pay Lucent Technologies (LU) $4 million for a world-wide, nonexclusive licensing agreement to certain Lucent optical-fiber patents, and will pay royalties beginning in 2000.
NYSE-traded Whittaker (WKR) jumped 3 7/16, or 26.3%, to 16 1/2 and hit a 52-week high intraday at 16 5/8. A shareholder of the Simi Valley, Calif., developer of fluid control and fire safety systems made an unsolicited bid to take the company private for $18.50 a share. Whittaker said it isn't taking the bid seriously but also said it will meet with anyone who makes an offer.
NYSE-traded Kuhlman (KUH) climbed 5 7/8, or 18.7%, to 37 3/8 following news the Savannah, Ga., industrial manufacturing company agreed to be acquired by Borg-Warner Automotive (BWG) for $39 a share.
NYSE-traded Terex (TEX), a Westport, Conn., maker of heavy-duty off-road trucks and construction equipment, rose 3 1/8, or 13.5%, to 26 1/4. Terex withdrew its planned 3.5 million share stock offering. The company said the offering was fully subscribed, but added that the recent decline in market price does not reflect the stock's value. Terex said it has "sufficient resources to continue its operating and growth strategies."
Central Garden & Pet (CENT) tumbled 2 7/8, or 19%, to 12 1/4 after the Lafayette, Calif., lawn, garden and pet supply concern posted fiscal fourth quarter earnings that were up 69% from a year earlier, but
which fell short of what analysts had been predicting. The final month of a fiscal quarter is often referred to as "confession season," the period when many companies let it be known that their quarterly results won't live up to analysts' expectations. Those so-called earnings preannouncements tend to have a severe impact on the companies' share prices.
Natural Microsystems (NMSS) plummeted 3 5/32, or 31%, to 7 1/32 after the Natick, Mass., telecommunications hardware and software concern said it expects to report a fourth-quarter loss of 21 cents to 25 cents a share, compared with analysts' projections of a four-cent profit. The company cited project delays, inventory adjustments and lower than expected orders from large customers for the disappointing results.
Data Dimensions (DDIM) plummeted 3 3/4, or 30.6% to 8 1/2 after the Bellevue, Wash., technology consultant said it expects its fourth quarter results will be below analysts' expectations.
VWR Scientific Products (VWRX) fell 3 1/2, or 17.1%, to 17. The West Chester, Pa., laboratory supply distributor said its fourth-quarter profit will fall short of analysts' expectations.
NYSE-traded Airgas (ARG) was down 3/8, or 4.2%, to 8 9/16. The Radnor, Pa., specialty gas company said its fiscal-third-quarter operating results will fall below analysts' projections, and that its cash flow will be below that of the year-earlier period.
Dispatch Management Services (DMSC) surged 17/32 to 4 9/16 after naming Steven Swink acting chairman. In a press release Thursday, the company said Mr. Swink is the executive vice president of Unicapital, a Miami equipment-servicing concern. New York-based Dispatch Management provides courier services.
An analyst upgrade lifted Advanta (ADVNA) 3 5/16 to 13 3/4. Friedman, Billings, Ramsey & Co. initiated coverage of the Spring House, Pa., provider of consumer financial services with a "strong buy" recommendation for its Class B shares and "buy" recommendation for its Class A shares.
International
Bourses refuse to panic - European markets make gentle gains on the week, despite external shocks
Bourses ended an eventful week in a mixed mood, as a touch of optionsexpiration caused a wobbly finish Friday.
Markets in Europe were slightly unnerved toward the close as triple witching in New York caused more uncertainty. Heavy selling was not apparent, though.
Bourses closed out the week pretty well however, given the external shocks from the bombing of Iraq and Clinton's impeachment process.
In London the FTSE 100 rose 57 points, 1 percent, to close the week at 5,741.9. The index posted a gain of 4 percent across the week as a whole.
Frankfurt's Xetra Dax had a poor afternoon Friday, as its tiny midday gains slipped away. By the close the index was down 65 points, 1.4 percent, at 4,666.74. Over the week though the Dax actually rose 3 percent.
France also closed on a glum note. By the close the CAC 40 had doubled its lunch time losses and was 1.6 percent down, off 59 points, at 3,691.89. The blue-chip index performed creditably over the week, easing just 4 points from last Friday's close.
Zurich's SMI eased just 0.5 percent Friday, 37 points, to close the week just above the psychologically important 7,000 level at 7,003.7.
December options contracts for individual stocks close after the market finished Friday. That led to some volatility late in the day, as investors squared their positions.
Leading the way among blue chips was retailer Great Universal Stores (GUS) which jumped 6 percent to 645 pence. Just behind was brewer and leisure group Bass (BASS) which rose 5 percent to 820 pence.
Heading in the opposite direction were office-services group Hays (HAS), which tumbled 4 percent to 465 pence, and drug groups Nycomed Amersham (NAM) and SmithKline Beecham (LSE:SB), which both slipped 4 percent.
Sentiment toward French retail conglomerate Pinault-Printemps Redoute (PPP) turned full circle Friday. The shares tumbled 6 percent to 940 francs. Earlier in the week merger speculation had inflated the price.
Tire group Michelin [PAR:PML] did its best to make up however, gaining 6 percent to 226 francs.
Oil stocks Elf Aquitaine (PAQ) and Total (PFP) were in the doghouse all day, and Elf closed down 5 percent with Total off 4 percent.
In Frankfurt Dresdner Bank (FDRB) became the latest German giant to consider spinning off its enormous industrial portfolio. Earlier in the week Deutsche Bank (FDBK) mulled a similar move. The news couldn't help Dresdner buck the market though, and its shares slid 2 marks to 69.9 marks.
Option position-squaring Thursday boosted Adidas-Salomon (FADS) stock 9 percent, but it came straight back Friday, sliding 9 marks to 176 marks.
It took a while, but investors warmed to Munich Re's financial wheeler dealing with fellow insurer Allianz (FALV). Munich Re (FMUV2) stock closed at 730 marks, up 19 marks.
The Zurich market turned its back on trade inspection group SGS, after the latter unveiled a major restructuring. The stock dropped 81 francs to 1,287 francs.
UBS endured a volatile day, closing in negative territory at 421 francs, down 6 francs.
Bombs Fail To Halt Asia Rise - Markets ignore second wave of attacks against Iraq; Clinton impeachment threat
The major Asian markets all closed higher Friday, ignoring the impeachment proceedings against U.S. president Bill Clinton and continued air strikes against Iraq.
Japan climbed 0.5 percent by its close while Hong Kong finished 1.4 percent higher. Singapore closed up almost 3 percent.
Regional traders were little affected by continued U.S.-U.K. bombing of the Iraqi capital Baghdad.
After shrugging off the impact of the first wave in Thursday trade, Asian markets followed the lead given by Wall Street and European bourses and moved higher.
In doing so they also ignored this weekend's expected vote by the U.S. House of Representatives to impeach U.S. President Bill Clinton and reports that South Korean forces had sunk a North Korean submarine .
Australia added 0.34 percent by its close while the Philippines climbed 0.43 percent. Thailand closed 1 percent higher and Malaysia up 1.4 percent.
Korea dropped 0.76 percent. Taiwan lost 0.2 percent while Indonesia finished off 0.4 percent.
Tokyo's benchmark Nikkei average closed 0.48 percent or 67.3 points higher at 14,194.29 but trade was quiet once more. It was down 1.5 percent on the week.
In Tokyo, Robert Sasaki, head of Jardine Fleming's quantitative strategy group, said news from overseas was not driving the market.
"If the Gulf war becomes a real war then it is an issue," he said. He said tension in Korea would also need to escalate for it to hurt Japanese stocks.
Sasaki shrugged off the impact of the political crisis in the U.S. too. He said most people expect the House to vote to impeach, but don't expect it to pass in the Senate.
Corporate and political news was thin, leaving most stocks drifting in a narrow range.
Banks and exporters, such as auto stocks, edged up, while oil stocks eased.
Nissan Diesel was the biggest gainer, adding 12.7 percent to 222 yen on optimism that DaimlerChrysler is closer to taking a controlling stake in the firm.
Computer systems manufacturer Mitsuba was the biggest decliner, losing almost 10 percent to 436 yen.
Hong Kong stocks also rallied, adding 1.42 percent or 142.92 points to 10,226.23. It was up 2.75 percent on the week.
Heavyweight HSBC Holdings led the market higher, climbing 2.11 percent to HK$194. H shares added 1.3 percent while red chips were flat.
Property developer New World Development was doing even better, adding 4 percent to HK$19.6.
Utility CLP Holdings added 40 cents to HK$38.4.
"Today was surprisingly impressive," said South China Brokerage sales trader Charles Atkins. "We sense a general flight to quality at the moment. HSBC was certainly a laggard and we are seeing buying there and in the utilities."
Hong Kong banks cut interest rates by 25 basis points after the market closed, sending London's Hang Seng reference index up 70 points.
Singapore stocks rose too, jumping 2.91 percent or 39.77 points to 1,405.96. The Straits Times index finished the week mostly unchanged after heavy falls in recent days.
The climb came despite a credit rating downgrade for four local banks from Moody's Investor Services. The two banks affected on the STI both climbed. OCBC added 10 cents to S$6.5 while DBS climbed 10 cents to S$7.85.
"It was really euphoria that the western markets were not too distracted by the Gulf conflict and that's really enough," said Salomon Smith Barney sales trader Mark Julliem.
"The dominant factors are all leading to buying equities: collapsing interest rates, an earnings recovery in Asia by 1999/2000 and foreigners looking to buy funds going into the new year."
Claims by South Korean forces that they had sunk a North Korean submarine took the KOSPI down just 0.76 percent. Taiwan eased 0.21 percent.
Malaysia ended 1.41 percent higher while Thailand climbed 0.97 percent. Indonesia finished off 0.4 percent.
Philippines climbed 0.43 percent. while Australia closed firmer, adding 0.34 percent.
Resource Prices Crash BHP - Profits fall 45 percent as commodity price slump hits many Broken Hill lines
MELBOURNE - The Broken Hill Pty. Co. Ltd. said Friday that first half profit slumped 45 percent and then swamped investors with announcements designed to show that new boss Paul Anderson was intent on a major restructuring.
Crashing prices and depressed demand for BHP's key commodities -- steel, copper and oil -- and the unexpected closure of the Bass Strait oilfields drained the bottom line, as analysts had expected.
"Never before has BHP experienced market conditions where prices for so many of its major products have fallen to this extent at the same time," said chief executive Anderson, less than one month into his new job.
The earnings slide to A$436 million (US$270 million) was in line with analysts' forecasts, which ranged from A$420 million to A$447 million for the six months to end-November.
As a result, BHP's shares were largely unmoved after the profit announcement. They were trading down seven cents at A$11.60 just before and after the results were released.
Later, the market was impressed with BHP's plan to rid itself of the Beswick shareholding, an overhang from the corporate cowboy days of the 1980s when the company was under threat from the late Robert Holmes a Court. Beswick, which is controlled by BHP, is regarded with disdain by institutional investors.
BHP shares were 48 cents higher at A$12.15 at 2:58 p.m. local time.
"In the profit result, there were no surprises. It was very much within expectations," said Macquarie Investment Management's resources analyst, John Bugg.
BHP tempered the poor profit result with announcements it had sold its Groote Eylandt manganese mine in northern Australia and Tasmanian ferro alloy plant to Billiton Plc for A$601 million, and possibly as much as A$653 million.
It also sold three small power plants in Western Australia and New Zealand and its 11.8 percent stake in the Goldfields gas pipeline to Duke Energy Corp. for A$509 million.
"It's more of a signal of the strategic changes that will be happening over the next few years, and a better indication of the ongoing strategies of the company," said Bugg, adding BHP aimed to pare itself to have fewer but larger, more manageable assets.
At the same time, BHP went ahead with a streamlining of its world minerals, coal, ferrous minerals and copper units into one minerals division under Ron McNeilly, who was BHP's acting chief executive before Anderson was appointed.
Anderson said last month when he was named the new head that he wanted to reshape the company into three main businesses, comprising steel, minerals and petroleum.
BHP said the shutdown of the Bass Strait fields off the coast of southeastern Australia after the explosion in late September at the Longford oil and gas plant, operated by partner Esso Australia, took a A$60 million toll on earnings.
As a result, the petroleum division, which was the star performer last year, saw its earnings sink by 63 percent to A$147 million.
Analysts highlighted the performances of the coal and ferrous minerals divisions, which defied the slides elsewhere.
The coal division posted a half year profit of A$190 million, up 53 percent from the first half last year with lower unit costs in Queensland and New South Wales in Australia and in Indonesia.
BHP ferrous minerals delivered a 52 percent rise in profit to A$235 million, with the help of lower iron ore operating costs, higher U.S. dollar iron ore prices, a favorable exchange rate, an asset sale in the first quarter.
Hit by depressed prices and lower sales, the copper division's profit fell by A$2 million to A$68 million, and profit from the integrated steel and steel products units fell 33 percent to A$167 million.
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