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Wall St. watches Fed
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June 29, 1999: 6:45 a.m. ET
Profit warnings, deal news also will keep investors preoccupied
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NEW YORK (CNNfn) - An anxious Wall Street awaited a verdict on the future of interest rates Tuesday as the Federal Reserve prepared to kick off a two-day meeting, while a wave of corporate news and profit warnings also gave investors some food for thought.
Early indications suggested that U.S. stocks were set to open slightly lower. S&P futures on the Globex exchange system were down 2 points at 1,342. That's little changed from fair value for the S&P futures -- a formula that takes into account interest and dividend effects -- which was estimated by London traders at 1,343.57. Typically, one point of difference between the futures index and fair value equals eight points on the Dow Jones industrial average as trading begins.
On Monday, the Dow industrials jumped 102.59 points, or nearly 1 percent, to close at 10,655.15, as investors put aside fears of rising interest rates and blue chips rallied. The Nasdaq composite rose 49.80 points, or 1.95 percent, to 2,602.45, while the S&P 500 index gained 16.04 points to 1,331.35.
In Asia Tuesday, Tokyo paved the way as most markets in the region finished slightly higher. The Nikkei 225 index rose 172.21 points to end at 17,782.79, a rise of 0.98 percent on the strength of heavy institutional buying.
In morning trading in Europe, most bourses advanced cautiously. But in London, the benchmark FTSE 100 slipped half a percent to 6372.8. The CAC 40 in Paris continued its recent recovery to gain 0.43 percent.
In the Treasury market, the price of the benchmark 30-year U.S. bond was down 2/32, boosting the yield to 6.08 percent. In the currency markets, the dollar was down 0.44 at 121.06 Japanese yen. The dollar stood at $1.0353 against the euro.
All of Wall Street's eyes will be trained on Washington, as the Federal Open Market Committee (FOMC) launches its highly anticipated meeting. Most Wall Street economists are predicting the Fed will approve an increase of a quarter point on short-term interest rates to keep inflation at bay.
Already on edge, Wall Street will have a bit of additional economic news to digest. After the market opens, the Commerce Department will release data on new home sales for May. Sales are expected to dip to 956,000, down from 978,000 a month earlier, according to analysts surveyed by Reuters. Also due out is the Conference Board's index on consumer confidence in June, which analysts predict will rise to 136.3 from 135.8 a month earlier.
In the news, Internet investment firm CMGI (CMGI) plans to make an announcement Tuesday related to Compaq Computer Corp. 's (CPQ) AltaVista unit, sources have told CNNfn. The sources declined to elaborate on the specifics of the announcement, but published reports last week said CMGI would pay up to $3 billion in stock for a controlling stake in AltaVista and two other Compaq Web sites. On Monday, CMGI rose 3-7/16 to 97-11/16, while Compaq was unchanged at 22-5/16.
Telecom stocks are one sector that could be particularly active during the day's session amid a wave of corporate news.
SBC Communications Inc. (SBC) and Ameritech Corp. (AIT) reportedly may be required to invade competitors' markets as a condition for receiving regulatory approval for their $78 billion merger, The Wall Street Journal reported Tuesday.
Citing people familiar with the situation, the newspaper said the unusual requirement is part of a broad settlement package of about two dozen conditions in a move to help open local phone markets to competition. An announcement from the FCC could come as early as Tuesday, the Journal said.
Meanwhile, Frontier Corp. (FRO) announced late Monday that its board is continuing to evaluate a revised buyout proposal from long-distance carrier Qwest Communications (QWST). Qwest is also making a bid for US West (USW), trying to court both telecom companies away from current suitor Global Crossing Ltd. (GBLX).
Frontier, hit by falling prices and a customer loss, also warned that second-quarter and year-end revenue and earnings will fall short of Wall Street's expectations. Frontier said second-quarter results will be in the area of 20 cents to 22 cents per share, falling short of First Call Corp.'s earnings estimate of 28 cents per hare.
Trading could be active in a number of companies that issued profit warnings late Monday. Philip Morris Cos. (MO), the world's largest tobacco company and a component of the Dow industrials, predicted lower-than-expected earnings of $3.30 a share in 1999 on declining international sales of its cigarettes. Philip Morris was expected to earn $3.32 a share for the year, according to the consensus estimate of analysts polled by First Call.
Also, disk drive maker Seagate Technology Inc (SEG) warned that fourth-quarter earnings will fall short of estimates because of weak sales and falling prices. Seagate said it now expects earnings per share to be in the range of 32 cents to 37 cents. First Call Corp. had projected fourth-quarter earnings to be 49 cents per share.
Meanwhile, Newport News Shipbuilding Inc. (NNS) said its second-quarter earnings likely will beat analysts' estimates by between 2 cents and 4 cents per share on the basis of stronger margins in its core business.
In other news, Xerox Corp. (XRX) reportedly plans to announce Tuesday that it has signed a manufacturing agreement with 3M (MMM) in a move to turn its electronic paper technology -- a kind of reusable electronic display -- into a commercial product. Xerox said the product will not be on the market in the short term.
On the earnings front, General Mills Inc. (GIS) is expected Tuesday to post earnings of 66 cents per share for the fourth quarter, according to the First Call consensus estimate. Also, dairy products and pickle maker Dean Foods (DF) is expected to post fourth-quarter profit of 65 cents a share.
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