Waiting For Alan Greenspan To Speak
In a volatile but positive day for the markets, the NASDAQ Composite rose for a second day in a row, adding 45.7 points, or 2%, to finish the session at 2,308.2. Perhaps investors feel that the downside risk here is minimal. Wayne Angell of Bear, Stearns and Company stressed the need for another inter-meeting cut and set an 80% chance for a move before March 20. With renewed optimism that the Federal Reserve may cut interest rates very soon, the Dow Jones Industrial Average gained 200.2 points, or 1.9%, to close at 10,642.1. Almost 1.1 billion shares traded hands on the New York Stock Exchange, while 1.8 billion traded on the NASDAQ Stock Market. Breadth was decidedly positive, with advancers outpacing decliners by 21 to 9 on the NYSE and by 24 to 13 on the NASDAQ. Respectable gains took place in mid and small cap stocks, as reflected by the Russell 2000 Small Cap Index (RUT), up 2.3%, and the Midcap Index (MID), up 2.5%.
Holding the dubious honor of being the only tech sector to drop today, semiconductors were led downward by Texas Instruments (NYSE:TXN -1.00) when they said that lower demand for technology products due to the economic slowdown will result in lower-than-anticipated revenue for 1Q which is 20% less than that of the sequential 4Q. Customers continue to cancel or reschedule backlog orders. Their cost-reduction plan includes the temporary idling of manufacturing facilities, shortened workweeks in certain areas, a hiring freeze, cuts in discretionary spending, and a voluntary retirement program. The PHLX Semiconductor Index (SOXX) dropped 1.4% to 599.85.
Microsoft (NASDAQ:MSFT +2.81) held on to most of its gains upon news of the beginning of antirust arguments in the new administration, despite the surfacing of a Wall Street Journal report that the company is negotiating with the Federal Trade Commission to settle charges that advertisements targeting Palm's hand-held devices were false and misleading. Citing lawyers close to the case, the WSJ article said the FTC found that Microsoft's "Can Your Palm Do That?" campaign deceptively highlighted features that weren't available unless buyers spent more to upgrade to wireless capability. Apparently, the wireless requirements were contained in nearly unreadable print at the bottom of the ads.
Shares of Cisco Systems (NASDAQ:CSCO -0.94) suffered from Credit Suisse First Boston's note that they have lowered their earnings estimates for the second half and for fiscal 2002, as well as their price target due to the slowing U.S. economy. The firm said Cisco's results should be "somewhat buffered" from the slowdown by large deals in the service provider market, allowing it to avoid weaker dot.com and CLEC customers. "CLEC" stands for competitive local exchange carriers, such as AT&T (NYSE:T +0.89) and Sprint (NYSE:FON +0.02). Also, Cisco's diverse product line helps it to compensate for areas where growth is slowing.
Heard about any more job cuts lately? Citing the U.S. economic downturn and turmoil in the telecommunications industry, 3Com is (NASDAQ:COMS +0.47) is cutting 1,200 jobs to boost profitability. Shares gained 5.2% to $9.50.
The Dow felt the affects of Procter & Gamble's (NYSE:PG -3.92) warning this morning that it may miss estimates for the second half of its fiscal year due to the impact of the devaluation of the Turkish lira. P&G is Turkey's twelfth largest business with over $400 million in annual sales. P&G shares lost 5.2% to $71.11.
The most active stock on the New York Stock Exchange was Nokia (NYSE:NOK +1.41), which climbed 6.6% to $22.75 despite downgrades from Goldman Sachs and Merrill Lynch. The mobile phone giant secured a contract worth about $230 million to supply GSM 900 and GSM 1800 network expansion to Chinese operator Fujian Mobile Communications Company. Goldman lowered its rating to Market Performer from the Recommended while Merrill lowered its assessment to intermediate-term Accumulate from Buy. Merrill said it remains a long-term believer in growth opportunities in the communications equipment sector but it expressed concern that Nokia will not be able to meet its internal revenue growth objectives of 30 to 35% in the first half of 2001 due to a soft handset market. The firm also thinks it will be difficult for Nokia to reach 20% margins in its mobile phone business due to intense price pressure.
While I would not exactly call it Merger Monday, interesting partnerships are appearing out of the woodwork. EMC Corporation (NYSE:EMC +0.00) and Toyota Motor Corporation (NYSE:TM +0.81) announced a three-year sponsorship agreement for Toyota's Formula 1 racing team. EMC's logo will appear on Toyota's Formula 1 racecar. EMC's stock has been down with last week's announcement that they may miss their $12 billion revenue target for 2001.
In another alliance, i2 Technologies (NASDAQ:ITWO +5.94) joined with Intel (NASDAQ:INTC -0.44) to speed up deployment of i2's e-marketplace and supply chain management applications powered by Intel-based servers. The agreement covers joint sales and marketing programs, i2 product roadmap alignment, on-site Intel engineering technical services and support and "how-to" guides. Although financial terms were not disclosed, i2 rallied 5.9% to $35.50, still 68% off of its 52-week high.
The Federal Reserve approved a request by Charles Schwab Corporation (NYSE:SCH +0.43) and its wholly owned subsidiary U.S. Trust Corporation to acquire Minneapolis-based Resource Companies, Inc., along with its subsidiary bank, Resource Trust Company. Resource Companies, Inc. operates only in Minnesota and represents less than 1% of total deposits in banks and other financial institutions in the state, the Fed detailed. After the acquisition, Schwab would remain the 43rd largest commercial bank in the United States, with total consolidated assets of $35.6 billion.
A division of Enron Corp. (NYSE:ENE -0.44) called Enron Energy Services has signed a $1.3 billion energy management agreement with drug manufacturer Eli Lilly and Company (NYSE:LLY +1.44). Enron will manage Lilly's supply of electricity and natural gas for facilities in Indiana and operate and maintain energy assets and upgrade the infrastructure. Enron's services are expected to increase efficiency at Lilly facilities.
The CBOE Gold Index (GOX) rallied 6.8%, and has added 16.3% in the past three trading sessions, reaching the highest level since September of 2000. Stocks in the sector include Newmont Mining (NYSE:NEM +1.11), Barrick Gold (NYSE:ABX +0.82), and Coeur D'Alene Mines (NYSE:CDE +0.07). April gold futures gained $4.70 to $266.80, helped by news out late Friday that Comex gold inventories fell 22,135 ounces to approximately 1.67 million ounces.
On the economic report front, sales of existing homes fell in January to their lowest level in a year. The National Association of Realtors reported that sales declined by 6.6% to a seasonally adjusted annual rate of 4.65 million. Economists expected the annual rate to increase to 5 million. Americans are obviously less confident about our economy, even while the Federal Reserve is lowering interest rates. We can all relate to the other current factors in home buying decisions, such as stock market volatility, higher energy prices and slower job growth.
The fun begins tomorrow. The U.S. Consumer Confidence Report for February has the potential to move the markets because everyone knows that Mr. Greenspan will pay a great deal of attention to it. Bear, Stearns and Company expects confidence to fall to 106.0 from 114.4 in January because a similar decline has already been reported in the University of Michigan's consumer sentiment report. They also note that a very close relationship exists between consumer confidence and the NASDAQ.
Our first look at capital spending in 1Q appears in Tuesday's Durable Goods Orders Report for January. Orders are expected to have fallen 4.5% in the month. Bear, Stearns and Company expects that the 150% surge in aircraft orders in December and November partially reversed in January. Both orders and shipments of non-defense capital goods are expected to have declined, suggesting another decline in business equipment spending in Q1 after the 4.7% drop in Q4.
Wednesday brings us Mr. Greenspan's testimony on Monetary Policy before the House Financial Services Committee at 9:30 am ET. Join the market in attempting to determine what each of his comments really mean. I know I will understand him if he happens to say something about lowering interest rates now instead of waiting until March 20. On Friday, Mr. Greenspan testifies on Current Fiscal Issues before the House Budget Committee.
Bear, Stearns and Company looks for the NAPM survey of business conditions in February to fall for the 12th consecutive month, from 41.2 to 40.5. (For comparison, the NAPM index bottomed out at 39.2 during the last recession.) Many feel that such a decrease will result in an interest rate cut very soon after this Thursday report.
Has the NASDAQ reached a bottom? I am not convinced because we really have not yet seen the capitulation selling that shakes out the final round of sellers allowing the market to turn around. Now that investors are paying attention to real earnings, and rightfully so, the market should reflect anticipated improvements about six months ahead. Watch your favorites, and be ready for the change in sentiment.