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Market Wrap

Can we make it to 10,000?

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Can we make it to 10,000?

The market ended mixed today as investors took profits from the blue-chip issues and technology stocks resumed their market- leading role. Nasdaq components powered ahead and the S&P 500 index pushed higher to a new record close while the DOW consolidated in a run toward the 10,000 milestone. In the overall market, declining stocks outpaced gainers on both the New York Stock Exchange and the Nasdaq.

Investors are still confident after the U.S. employment report released Friday removed some fears of interest rate adjustments and Fed chairman Alan Greenspan, in an afternoon speech to a banking group, made no comment on U.S. interest rates outlook. He said the U.S. economy received a strong boost from capital gains generated by a booming housing industry and that likely helped spur consumer spending. In addition to sales, a wave of refinancings induced by low mortgage rates has also helped put more spending money in consumers' pockets. Many analysts believe the market averages do not accurately depict the current level of investor confidence and that was evident as buying levels remained high even in the wake of last weeks record rally.

Other banking moguls voiced their opinions on the current economic conditions. One commented that the U.S. central bank must remain vigilant against inflationary pressures that may stem from tight U.S. labor markets and many agreed that financial markets should not assume the Fed would put off raising interest rates until it actually saw a pickup in inflation. The Fed's overall goal is to keep the rate of inflation low and stable, and that means any action to change interest rates needs to be pre-emptive. Most also believe the economic outlook is favorable in the short-term and are confident that the recent rise in bond interest rates is a reflection of good "hands-off" policy, leaving the market to make the adjustments.

One of the top institutional analysts bolstered the broad market outlook by saying he expects stronger earnings growth from America's top companies in the next two years. He cited three main factors for the bullish view; robust 1998 fourth-quarter earnings, the favorable US economic outlook and the improving commodoties prices. With 488 of the S&P 500 firms reporting, profits are up 5% on average and this means earnings for the first half of the year are not likely to come in flat as previously forecast. However, even with the positive earnings outlook, he left his targets for the S&P500 index unchanged because bond yields will be higher, keeping stock valuations in check.

The big news today revolved around the INTC antitrust announcement that the Federal Trade Commission's lawyers have agreed to settle charges against the world's leading chip-maker just a day before it was to go to trial. The FTC had charged Intel with using its monopoly power to force three of its customers to turn over their patent rights. Intel's president and CEO, said the proposed settlement was a "win-win" arrangement that gives Intel value for its intellectual property. William Baer, director of the FTC's bureau of competition, said the commission is still investigating some "remaining issues" concerning Intel but hopes to resolve them. The news about the tech giant cheered investors, who bid up semiconductor and other technology issues.

The Internet group had its best performance in week! A tidal wave of Net enthusiasm may be the understatement of the day as shares of CMGI, CNET and E-Bay surged into the stratosphere. And baby internet issue 7th Street.com soared almost $4 after the company penned a deal with America Online to offer Internet multimedia training to AOL members. ONSL rose $15 after the Net auctioneer said its site hit its ten-millionth bid on Sunday, just two months after the reaching the nine-millionth bid. Among other movers: Amazon.com edged up 11/16 to 122 3/16 and YHOO, still running on fumes from a successful day-long analysts conference last Thursday, jumped $10 on an upgrade from Hambrecht and Quist.

A big merger day...

Allied Waste announced it will acquire Browning-Ferris Industries for $9.1 billion in cash and assumption of debt in a deal that combines the nation's second- and third-biggest trash-hauling Companies.

Fortis, the Belgium-Dutch financial group, said Monday that it's buying American Bankers Insurance Group for $2.6 billion, or $55 a share.

The CIT Group will acquire Newcourt Credit Group of Toronto for $4.2 billion in stock, creating the largest publicly-owned commercial financier with $50 billion in assets.

BMC Software agreed to buy New Dimension Software for about $650 million in cash as part of its strategy to expand through acquisitions. BMC will pay $52.50 for each New Dimension share.

Shares of Novell surged 15% percent after a published report said the software maker was rumored to be in "deep discussions" with Compaq Computer Corp to develop a new range of computer products

World Markets...

Latin American issue strengthened Monday after the the IMF issued its hotly anticipated set of new financial conditions for Brazil's loan package and Mexican stocks soared, led by advancing bank shares driven by expectations of lower interest rates. Under the IMF's revised loan program, Brazil will set limits for foreign exchange intervention by the central bank and the lending agency said it will release $4.9 billion, the second tranche of a $41.5 billion line of credit. That market is very undervalued right now and if Brazil is stabilizing, that will definitely help the financial groups. In London the blue chip FTSE 100 index closed little changed after a mixed and directionless session, as investors marked time ahead of the presentation of the UK budget on Tuesday. Investors expect Chancellor of the Exchequer Gordon Brown to unveil a fiscally neutral budget. In Frankfurt Germany's Xetra DAX fell as concern over the economy and the effects of the government's tax plan on corporate earnings dampened investors' appetite. German utility groups renewed attacks at the weekend over tax reform proposals they say would cost them millions of marks.

Oil prices were spurred to an eight-week high as talks between OPEC heavyweights Saudi Arabia and Iran reignited hopes the cartel might reach a consensus on more output cuts. A 20% rise in crude oil prices in the past three weeks is built mostly on speculation that the fractious members of the Organization of the Petroleum Exporting Countries (OPEC) can set aside their differences and agree to cut production for the third time in less than a year. Most experts belive a deal at the OPEC oil ministers' next meeting in Vienna on March 23 is possible but not likely and Venezuela's oil minister threw cold water on the prospect for a deal when he told oil unions in his country that he wouldn't agree to any more production cuts. It's another OPEC cliff-hanger and we have seen this before. OPEC has a history of building up the market again and again only to leave investors disappointed when the dust settles.

Good news for traders...

Early results looked good in a Wall Street test for signs of the "millennium bug" and experts said results from Saturday's dry run were "better than expected". (The real test is yet to come!) More than 170,000 mock trades went flying through Wall Street computer systems on Saturday with a light volume of calls and routine problems. The test went beyond stocks, also checking systems for trading options, mutual funds, corporate bonds, municipal bonds, mortgage-backed securities, government securities and money market funds. The securities industry as a whole is estimated to be spending up to $6 billion to ensure computer systems do not crash on New Year's Day.

Our 2nd seminar gets underway tonight and the OIN staff is looking forward to meeting all of the attendees. Jim is currently making the final preparations for the arrival of our guests and expects this event to eclipse the success of the the inaugural meeting in February.

Ray
Spreads/Combos editor

P.S. Futures are flat but investor sentiment is high so plan your trades, watch the favored issues in the strongest sectors and target all your entry points on the run to 10,000...Good Luck!

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