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Market Wrap

Waiting for Greenspeak?

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        01-24-2001        High      Low     Volume Advance/Decline
DJIA    10647.00 -  2.80 10680.30 10619.70 1.29 bln   1439/1407
NASDAQ   2859.15 + 18.76  2892.36  2828.32 2.57 bln   2072/1742
S&P 100   714.33 +  2.29   717.20   710.71   totals   3511/3149
S&P 500  1364.30 +  3.90  1369.75  1357.28           52.7%/47.3%
RUS 2000  502.25 +  0.19   505.15   501.34
DJ TRANS 2942.18 - 59.82  3003.01  2935.33 
VIX        24.56 +  0.70    25.54    24.33
Put/Call Ratio      0.53

Investors spent the day running in place while waiting for the green light from the Fed chief. The markets got mixed news from the various earnings reports but with the Employment Cost Index and with words coming down from the mountain expected tomorrow there was no rush to buy. The good news? There was no rush to sell either. Just another sign in a long line of bullish signs.

Unfortunately the news after the bell was not as bullish as we would have hoped. The earnings monster rose from its slumber and took a bite out of the fiber optic sector. Corning (NYSE:GLW) announced earnings that beat the street by a whopping six cents but then warned that sales going forward would be weaker due to slowing telecom spending. The slow down in orders was expected to pickup in the fall but that did not pick up the stock. GLW was down -$5 in after hours.

SDLI also announced earnings that beat the street by four cents. They also announced that they were delaying the JDSU merger due to anti-trust scrutiny. After the merger the combined company would control up to 80% of the pump laser market. This would not pass the trust concerns and they are expected to sell that business to Furukawa Electric Co from Japan. The merger is still expected to take place by the end of February but investors did not like the news and dropped Nasdaq:SDLI for a -$13 loss in after hours trading.

Nasdaq:AMGN also announced earnings and missed street estimates by one to three cents depending on how analysts decide to apply a one time $25 million contribution. AMGN dropped -$2 in after hours trading and analysts came to their rescue quickly. They said you don't want to own AMGN for their current products but for the products in the pipeline which should increase earnings considerably in the future. Some products were weaker however as some customers are switching to other cheaper drugs.

Etrade (Nasdaq:EGRP), announced earnings that doubled the analysts expectations of a penny. The bright side was account growth. With over 3.6 million accounts Etrade is now the second largest online broker. They added +244,000 accounts last quarter which was more accounts than most online brokers have in total. They have almost doubled their accounts since the two million reported last year at this time.

Lucent, failed again. What is a quarter without a Lucent warning and earnings miss? Nyse:LU posted a larger than expected -$.30 loss and announced they are laying off 10,000 employees or 8% of their work force. They are planning to reduce costs by $2 billion for 2001 by contracting their products instead of doing their own manufacturing. This is a plus for companies like NYSE:CLS and NYSE:JBL which already have contracts with Lucent to produce a wide range of products.

NYSE:MCD suffered from mad cow disease and for the first time in its 34 year history posted lower earnings than the prior period. McDonalds said that fear of Europe's mad cow disease had slowed hamburger consumption and raised the cost of beef. In reality it is the greasy French fries you die from not the hamburger! Bypass anyone?

Nasdaq:SNDK also reported earnings that missed street estimates and SNDK got hammered with a -$11 loss in after hours. Claiming higher inventory and slower sales could impact the next two quarters investors were not happy. NYSE:AOL gained +1.60 after announcing another 2000 job cuts in an effort to streamline the merged AOL/TWX companies.

All the earnings listed above are nothing more than market noise and the real event is still the Greenspan Humphrey-Hawkins testimony on Thursday and the ECI report. The markets are slowly backing off the 50 basis point cut theory and they will be dissecting every word and inflection of Thursday's Greenspeak to decide if even a 25 point cut is still in the cards. It is a proven fact that Greenspan wants to continue using the huge budget surplus to pay down the national debt instead of a tax cut. Manufacturing is in a recession and other sectors are close but a tax cut would help stimulate a new expansion by giving investors a reason to spend. With existing housing sales expected to come in at -2.3%, a number protected by lower interest rates, the slow down is apparent but still not critical. The market rebound from Jan lows may have already doomed another rate cut and with the junk bond market thriving again Greenspan may decide to take a more passive policy instead of the aggressive moves everyone wants.

Tune in tomorrow and read between the lines for hints, clues, guesses or even out right obfusca-speak. (Art Cashin for plain English, structured in such a way to confuse and misdirect the listener.) The Employment Cost Index will be announced before the Greenspan speech and is expected to be up +1.1%. A higher number could raise fears of inflation from a too tight job market and temper his "all is well" direction.

As you can tell by the markets lack of direction today, nobody wanted to take any serious positions before the Greenspeak event and the ECI. If Greenspan accidentally says something that analysts take as confirmation of another 50 basis point cut then expect the market to react positively for the next three days. Conversely, if he creates a feeling of "the economy is okay but we will keep watching" then the market is likely to retreat and regroup until after the meeting. Plan accordingly!

On Monday the NYSE makes a major change. All 3,522 stocks will be going decimal. Currently there are only 159 stocks trading in the test group but with no major problems the exchange has decided to go all the way. Do you even remember the CNBC ticker in fractions? How quickly we adapt to change.

Enter passively, exit aggressively!

Jim Brown

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