It was a day of rest for the markets on Monday. The bulls' push higher in Friday's trading took so much energy that the big name market averages all paused or slipped backwards. The Dow Jones Industrials ended the session with a 51-point loss but managed to close above previous resistance of 8525. The NASDAQ Composite did rally higher intraday and traded near the 1520 level twice before falling back towards the close. The S&P 500 index merely consolidated sideways with a little bit of profit taking and two bounces at the 925 level.
Chart of the Dow Jones Industrials
Chart of the NASDAQ Composite
Lack of any significant earnings or economic news coupled with traders waiting to hear from the FOMC tomorrow held the U.S. markets on hold. Meanwhile, overseas exchanges traded up on Monday in response to the breakout in American indices last Friday. The London FTSE 100 jumped 1.87% or 75 points to 3952. The German DAX 30 added almost 1% or 27 points to 3013. Even the French CAC 40 rallied 1.12% or 33 points to 2996. Ignoring new cases of SARS or celebrating the small number of new infections over the weekend was the Chinese Hang Seng index, which rose 108 points or 1.23% to 8916. Japan's NIKKEI 225 index followed suit with nearly a 44-point gain to 7907 and the Singapore Strait Times outperformed them all with a 2% gain to 1325.
Back home the headline numbers don't tell the whole story. Overall market internals looked pretty good. The INDU and the SPX may have ended in the red but most major market sector indices were green on Monday. Exceptions to this rule was the $FPP Forest & Paper Product sector, down 1%. The DFI and DFX defense sector indices were both down only 1 point. This was probably due to small red candles on BA, LMT and NOC, of which NOC actually affirmed its profit targets for 2003 before the bell this morning. Also closing in the red were the BIX and BKX banking indices, both down less than 1%. These two financial indices had broken out above tough resistance on Friday and the pull back today merely looked like some profit taking. The BIX remains above resistance at 290 and the BKX remains above resistance at 800. Considering how much of the S&P 500 is comprised of financial stocks the three and a half points lost on the SPX is not bad.
The U.S. exchanges advance-decline ratio was positive. The NYSE saw almost 16 advancers for every 12 decliners. The NASDAQ witnessed nearly 18 advancing stocks for each 13 decliners. New 52-week highs appear unbeatable. They have continued to pummel new 52-week lows and Monday was no exception with 350 new highs and only 34 new lows. Overall volume was 1.7 billion on the NYSE and 1.87 billion on the NASDAQ. More importantly, up volume on the NYSE was 996M to 728M in down volume. The NASDAQ fared better with 1,267M in up volume over 587M in down.
Mixed Economic Signals
The economic calendar this week is a lot more open that last week's reporting but Wall Street remains eager (or apprehensive) about each report. Today's results were a bit mixed. The most significant was the ISM non-manufacturing index or the services index. The service sector makes up a huge 85 percent of the U.S. economy. Yet surprisingly most economists still put more weight in last week's manufacturing report, which is older and more tested indicator. Last month (March) the ISM came in at 47.9. Estimates for April were 48.7. Numbers under 50 mean the sector is contracting and over 50 it is expanding. The quick end to the Iraqi conflict appears to have helped push the ISM number for April to a surprising 50.7. This is great news and reflects the huge jump in consumer confidence seen last week as well. Contrasting this bit of good news was the Challenger, Gray & Christmas report. This private research group has been measuring planned layoffs in the U.S. Today's numbers showed a 71% jump in management's desire to trim their payrolls. Remember, these are planned layoffs, not actual firings, and they could be carried out over time or through early retirements. However, March's planned layoff number was 85,396. April's report revealed that businesses had planned for 146,399 layoffs. The job market is already a weak spot in the economy and this doesn't offer any encouragement.
Of course the big economic "report" this week that everyone will be watching is the Federal Open Market Committee meeting tomorrow. Alan & Company will once again be expected to share their opinion on the economy and the overall risks to economic growth. Last time the Fed met together they actually chose to pass claiming that the war's affect on the economic climate had caused too much interference and they would have to wait and share their opinion later. Well, this is "later" and Wall Street doesn't want to hear how Greenspan can't "full categorize" any risks to the economy. Once again the markets look to Alan for succor and woe to the bulls should he disappoint. While almost no one expects the Fed to lower rates tomorrow many are expecting to hear the FOMC change to an easing bias.
Speaking of green one cannot ignore the failing U.S. greenback. Monday's trading session saw the dollar fall to a four-year low against the euro. The intraday "low" for the dollar was $1.13 per Euro before falling to $1.129. The dollar hasn't been this weak against the euro since February 1999. Foreign investors' faith in the U.S. appears to be failing under the growing shadow of our trade deficit. If the economy doesn't start to pick up steam soon this sell-off in the dollar will only get worse.
It has been no secret on Wall Street that Barry Diller's USA Interactive (USAI) has had acquisitions plans. I believe it was only 12 to 18 months ago that analysts uncovered USAI's plan to spend up to two billion in acquisitions. I've haven't been keeping track of the dollar amounts but we do know USAI has recently agreed to buy Expedia (EXPE) and Hotels.com (ROOM), both online travel-related services. Today's merger news that USAI would buy Lending Tree (TREE), the online mortgage lender, is a bold step into the financial services and real estate sectors. Diller must feel pretty strongly about it as USAI is offering a stock-for-stock deal worth $734 million. Shares of TREE jumped 41 percent to $20.71 by the close.
Tuesday will see some more big earnings announcements. Leading the pack will be networking giant, Cisco Systems (CSCO). In the software sector we'll see Electronic Arts (ERTS). For the insurance-financial sector it will be Prudential (PRU). The consumables candidate will be Gillette (G). Of course the big focus will be on the Fed meeting. Don't expect a lot of action until the interest rate decision is known. Let's hope that Alan has been able to clear up the reception on his crystal ball.