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Dow falters; Nasdaq gains
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January 3, 2000: 5:42 p.m. ET
Blue chips, S&P 500 weighed by rate hike woes; Nasdaq posts record in volatile trade
By Staff Writer Jill Bebar
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NEW YORK (CNNfn) - U.S. blue chip stocks ended sharply lower Monday, pressured by fears of rising interest rates. However, the Nasdaq composite index managed a record close in a volatile session.
The Dow Jones industrial average tumbled 139.61 points, or 1.2 percent, to 11,357.51, and the S&P 500 index fell 14.03, or nearly 1 percent, to 1,455.22.
On the New York Stock Exchange, losers widely beat gainers 2,147 to 1,075 as trading volume reached an active 916 million shares.
The Nasdaq composite ended the day at a new high of 4,131.15 - a gain of 61.84 points or 1.5 percent. Trading was extremely volatile with the technology-heavy index trading in a 203-point range. Volume on the Nasdaq was an extremely heavy 1.5 billion shares.
Treasury yields rose to their highest levels in nearly two-and-a-half years. The benchmark 30-year bond lost over a point and a-half in price, raising its yield to 6.62 percent from 6.48 percent late Friday. In currency markets, the dollar was lower against both the yen and the euro.
"The bond market was so weak all day that it pushed the broader market lower. Investors weren't talking about if the Fed will raise rates, but how much," said Alan Skrainka, chief market strategist at Edward Jones.
Interest rate woes
The Dow industrials and S&P 500 took their cue from a weak bond market as investors expressed caution about upcoming monetary policy from the Federal Reserve. Many analysts expect the central bank to hike rates at its next rate meeting in early February.
"The higher bond yield is weighing on stocks. There is a perception the Fed is unhappy with how strong the U.S. economy is," said John Manley, equity strategist at Salomon Smith Barney.
"Despite higher interest rates, we're seeing an economy that is not slowing down," Manley added
Vince Farrell, chairman and chief investment officer at Spears, Benzak Salomon & Farrell, told CNNfn the bond market would have to improve in order for the bull market in stocks to continue.
(382K WAV) (382K AIFF)
Adding to the Fed concerns were bearish comments from Byron Wien, Morgan Stanley Dean Witter’s U.S. investment strategist. Wien told CNNfn there is a strong possibility the central bank will hike rates by more than a full percentage point by year-end.
Another Fed hike on the horizon?
Michael Carty, stock market strategist at New Millennuium Advisors, told CNNfn the Fed is likely to raise interest rates in February.
(388K WAV) (388K AIFF).
Stocks turned sharply lower after the 10 a.m. ET release of the National Association of Purchasing Management’s December report, which measures manufacturing activity. Although the report showed a slight cooling in overall manufacturing that normally placates inflation watchers, it also showed a slight increase in prices paid for materials used, reversing a decline in the prior month.
Financial services shares fell sharply. The sector is highly sensitive to interest rates due to the strong probability of borrowers defaulting on their loans when interest rates rise, therefore impacting corporate earnings negatively.
Among the Dow components, American Express (AXP) declined 9 to 157-1/4, Citigroup (C) retreated 3 to 52-11/16 and J.P. Morgan (JPM) fell 5-3/16 to 121-7/16.
Phil Dow, analyst at Dain Rauscher Wessels, said he was surprised at the overall markets’ weakness. "The market should rally given that we breezed through Y2K,” he said.
Amazing Amazon
The technology sector staged a comeback late in the session, lifting the Nasdaq composite to another record close.
Among Internet stocks, Amazon.com (AMZN) surged 13-1/4, or more than 17 percent, to 89-3/8. The Web site was the most-visited shopping site for the holiday period, according to Media Metrix, and was cited as the most popular e-commerce site in an Ernst & Young survey released over the weekend.
eBay (EBAY), which came in second in the survey, jumped 16-1/16, or nearly 13 percent, to 141-1/4 in wobbly trade.
However, Toys "R” Us (TOY) dipped 1/4 to 14-1/16. The U.S. retailer sells toys through its Web site toysrus.com, which had the highest disapproval rating in the Ernst & Young survey.
Other winners
Best Buy Co. (BBY) was among the day’s top performers, soaring 7-1/2, or nearly 15 percent, to 57-3/4 after Merrill Lynch Monday raised its 12-month price target on the stock. The No. 1 U.S. consumer electronics retailer recently announced an alliance with Microsoft (MSFT). But Microsoft edged down 3/16 to 116-9/16.
Elsewhere in the technology sector, Qualcomm (QCOM), performed well, advancing 3-3/16 to 179-5/16, extending recent phenomenal gains. The company was the best performer of all Nasdaq issues in 1999 and rose sharply last week after PaineWebber set a 12-month price target of $250, taking into account last week’s four-for-one stock split.
Other tech bellwethers provided support. IBM (IBM) rose 7-11/16 to 115-9/16, and Lycos (LCOS) gained 5-21/32 to 85-7/32 after the Internet portal said Monday it acquired a 14 percent stake in the privately held services firm Internet Commerce Services.
On the New York Stock Exchange, Xerox (XRX) surged 2-3/16, or nearly 10 percent, to 24-7/8 after it said it completed its purchase of Tektronix (TEK) for $925 million. Tektronix, a leader in color printing, advanced 7/8 to 39-3/4. Xerox competitor Hewlett-Packard (HWP), a member of the Dow industrials, added 3-11/16 to 117-7/16.
(Click here for a look at today’s CNNfn hot stocks.)
(Click here for a look at today’s CNNfn technology stocks.) 
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