Stocks End Flat On Rate Cut Nervousness
Respectable earnings reports from brand name technology companies fueled brief spurts of buying throughout the session, but Wednesday ended relatively flat as investors fretted over the central bank's next move on interest rates.
Tim Ghriskey, senior portfolio manager at Dreyfus Corp. said the big reason for the flat market today was anticipation over Federal Reserve Chairman Alan Greenspan's Senate testimony tomorrow. He is expected to speak on fiscal issues, but investors will be analyzing his speech to get a sense of what kind of rate cut he might enact at the central bank's policy-setting meeting on January 30 and 31. Wednesday's sideways trading was also a result of a report on employment costs due out tomorrow.
Ghriskey expects that a 25 basis point cut in short-term rates would spark a modest rally in the market while a 50-point cut would result in a big rally. On the other hand, no cutting by the Fed at its next meeting would spell a market correction. In the end, interest rate cuts are a quick fix for a jittery stock market. "What we need is much better visibility on the economy. Right now we just don't know how deep the slowdown goes and when a recovery occurs," Ghriskey said.
With no economic data reports on the docket today, profit reports were the center of attention. The earnings season is now at its peak and investors have been hit mostly with bad news. But some results announced after the closing bell Tuesday provided the Street with hope for a better second half of the year. U.S. stocks have gained 15% since the beginning of the year, a sharp contrast to last year's loss of 40%.
"Although we're starting to see some stronger-than-expected earnings from some companies, the overwhelming evidence is that we're clearly in an economic slowdown -- as such the Fed will undoubtedly lower interest rates, loosening the money supply," Thomas Barry, manager of Bjurman Micro Cap Growth Fund told Standard & Poor's AdvisorInsight. Barry said that the Fed is likely to commit to a series of rate cuts this year, which "means we are likely entering a very favorable environment for the overall market."
No. 1 personal computer maker Compaq Computer Corp. (CPQ ), high-speed communications chip company Broadcom Corp. (BRCM ) and software maker Siebel Systems Inc. (SEBL ) released commendable earnings reports.
Uplifting reports also came from data storage firm EMC Corp. (EMC ) and computer maker NCR Corp. (NCR ).
Compaq's decent results helped boost the Dow Jones U.S. Computer Index by 1.0%. Meanwhile Intel (INTC ), which was the most actively traded issue on the Nasdaq, led the Philadelphia Semiconductor Index up 1.4%. The Dow Jones Internet Index also had a gainful morning, rising 6.0%.
Lucent Technologies Inc. (LU ), the world's largest telecommunications equipment maker, posted a fiscal first-quarter loss and said it will slash 10,000 jobs, and take up to $1.6 billion in restructuring charges as part of a plan to recover from recent profit shortfalls and product-development missteps. Despite the bad news, Lucent stock gained about 4.3%.
Tech issues led the Dow Jones Industrials Average while McDonald's Corp. (MCD ) and pharmaceutical stocks fell back. Dow component DuPont Co. (DD ), the No. 1 U.S. chemical company, fell back slightly after it reported fourth-quarter earnings fell 15% because of surging energy and raw material costs, although it outpaced Wall Street estimates.
McDonald's was the biggest loser on the Dow after its fourth-quarter net income missed Wall Street's expectations, as European sales were hampered by public concern over mad cow disease. The Nasdaq Composite ended up 18.76 points, or 0.66%, to 2,859.15. The Dow Jones average was virtually unchanged, shedding 2.84 points, or 0.03%, at 10,661.61. The broader Standard & Poor's 500 index edged up 3.90 points, or 0.29, to 1,364.30.
U.S. treasuries finished lower in anticipation of Fed Chairman Alan Greenspan's Senate Budget Committee testimony Thursday. Although he is set to talk about fiscal issues, Wall Street will be listening for clues to his next move. Speculation over how much the Fed will cut interest rates at the next FOMC meeting also weighed on the treasury market.
Stocks in the News
Oil giant and Dow industrials component Exxon Mobil (XOM ) reported fourth quarter earnings per share from operations of $1.46 compared with $0.77 on 17% higher revenues.
Network data storage device maker Network Appliances (NTAP ) was downgraded to an investment rating of market outperformer by Goldman Sachs. Analyst Laura Conigliaro dropped the company from her firm's list of stocks it recommends to purchase.
European markets were trading higher. London's Financial Times-Stock Exchange 100 index closed up 49.70 points, or 0.80%, at 6,264.40 following reports that U.K. manufacturing confidence rose to a 9-month high and exporter confidence rose for first time in a year. In Germany, the DAX Index ended down 15.74 points, or 0.23%, at 6,706.67. Meanwhile, France's CAC 40 gained 60.59 points, or 1.04%, at 5,900.32.
Markets in Asia finished lower. After seven straight positive sessions, Japan's Nikkei ended down 91.08 points, or 0.65%, to close at 13,893.58, on profit-taking, continued bearish sentiment over the slightly stronger yen, political bumbling politicians and disappointing earnings from computer companies. Hong Kong's Hang Seng Index finished with a loss of 55.06 points, or 0.34%, at 16,044.21on Tuesday. The Hong Kong market will be closed Jan. 24th through 26th for the Lunar New Year Holidays.
By Amy Tsao