Top Financial News
Sun, 04 Apr 1999, 8:47am EDT
Internet Shares, and a Small Group of Big Companies, May Power U.S.
Stocks
Internet Shares Seen Rallying: U.S. Stocks Outlook (Repeat)
(Repeats story from April 1, adds labor figures from 17th
paragraph.)
New York, April 4 (Bloomberg) -- The Internet and a select
group of big, fast-growing companies spurred U.S. stocks higher
in the first quarter, and there's no sign the leadership will
change anytime soon.
For the first quarter, the Standard & Poor's 500 Index
returned 4.9 percent. If stocks continue that pace, the
benchmark index would end 1999 with a 22 percent gain, giving
investors an unprecedented fifth straight year of gains of 20
percent or more. Investors who look far afield in hopes of
capturing those gains do so at their peril.
''For the moment, the game has not changed,'' said Marshall
Front, managing director of Trees Front Associates Inc., which
manages $1.8 billion in Chicago. ''We're going to see a
continued migration of money to companies that are able to
demonstrate superior growth.''
Superior growth doesn't necessarily mean profits. Most of
the Internet companies that led the rally so far this year earn
little or post outright losses. Still, investors are enamored of
the potential profits from the Internet and the prospects for
mergers in the industry.
Value stocks and small stocks will languish, said Front. He
owns Intel Corp. and Microsoft Corp. and recently added to his
holdings of Medtronic Inc., the world's largest pacemaker
company.
This week, the Dow Jones Industrial Average added just 9.99
points, after closing Monday above 10,000 for the first time.
The Standard & Poor's 500 Index rose 0.9 percent and the Nasdaq
Composite Index jumped 3 percent, its best showing since late
January.
The Russell 2000 Index of small stocks gained 1.2 percent,
its first weekly gain in three weeks, though it's down 5.5
percent for the year. The market was closed for Good Friday.
Earnings Due
Stocks could get a boost this week from the initial trickle
of first-quarter earnings.
Alcoa Inc., the world's largest aluminum producer, on
Wednesday will be the first of the 30 stocks in the Dow
industrials to report. Analysts expect 55 cents a share, down
from 62 cents in the 1998 quarter.
Also Wednesday, Yahoo! Inc. is expected to report a profit
of 8 cents a share, up from 2 cents a year ago. The No. 1
Internet directory agreed last week to buy Internet broadcaster
Broadcast.com Inc., pushing Broadcast.com shares up 16 percent.
Yahoo rose 4.9 percent for the week and now sells for 473
times this year's estimated earnings of 38 cents a share.
Also this week, Abbott Laboratories and Biogen Inc. report
on Thursday.
Analysts expect the companies in the S&P 500 to report 6.7
percent growth in earnings from operations for the quarter,
according to First Call Corp. Companies typically exceed
expectations, so the actual results should show 8 percent
growth, First Call said.
Even better, the number of companies warning that earnings
will be disappointing is well below the level of recent
quarters, First Call said. So far 161 companies have ''pre-
announced'' their first-quarter results, down from more than
1,000 in the fourth quarter.
In about 66 percent of the announcements, companies have
warned they won't meet expectations. Next week will be one of
the busiest weeks for first-quarter earnings warnings.
Economic Outlook
Investors also will be able to act on two key economic
reports this week, though all signs point to continued growth
with low inflation.
The Labor Department reported Friday that the U.S.
unemployment rate fell to a 29-year low of 4.2 percent in March
from 4.4 percent a month earlier.
Last months gain of 46,000 jobs, on top of a revised
increase of 297,000 jobs in February, fell below analysts'
forecasts of a gain of 147,000. Workers average hourly earnings,
a gauge of business costs, rose 2 percent -- or 3 cents -- to
$13.09 in March, also below expectation.
Bonds gained after the report showed wage gains aren't
picking up and payrolls grew at the slowest pace since the
economy lost 48,000 jobs in January 1996. The Treasury's
benchmark 30-year bond rose 3/4 poin, pushing its yield down 5
basis points to 5.62 percent.
Stock markets were closed for Good Friday, though the bond
market was open.
Economists surveyed by Bloomberg News expect 147,000 non-
farm jobs were created last month, and the jobless rate stayed
at 4.4 percent, near a 29-year low.
Next week, the producer price index will give investors
more information on whether inflation is picking up as the
economy perks along. Inflation pushes interest rates higher,
which hurts stock prices.
Economists expect producer prices rose 0.3 percent and were
unchanged when energy and food prices are excluded.
Trouble Ahead?
Investors expect more mergers like Yahoo's purchase of
Broadcast.com to boost Internet stocks in coming months. One
problem lurking in the online world: A potential slew of new
stock sales as companies and their financial advisers rush to
take advantage of the high valuations being accorded online
companies.
''The investment bankers will flood the market with
Internet stocks and the bubble will collapse,'' said Robert
Natale, a money manager for Bear Stearns Asset Management Inc.
''I give it three to six months.''
There are 211 initial public offerings in the pipeline, and
65 of those are Internet companies, according to Commscan LLC, a
New York research firm.
Natale earlier this month bought shares of the best-
performing S&P 500 stock of the first quarter, Sprint PCS -- the
cellular business of Sprint Corp. -- along with Outback
Steakhouse Inc. and BankAmerica Corp. for his $400 million S&P
Stars Portfolio. The fund returned 40 percent last year versus
29 percent for the S&P 500 and is beating the index again this
year. |
