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Nasdaq just misses record
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January 18, 2000: 5:46 p.m. ET
Tech shares jump, led by Microsoft, but rate woes hurt Dow
By staff writer Jake Ulick
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NEW YORK (CNNfn) - Technology stocks rallied Tuesday, bringing the Nasdaq composite index within a whisper of a record high, as anticipation of a strong earnings report from tech bellwether Microsoft lifted the index's biggest movers.
But the Dow Jones industrial average tanked as bond yields soared to two-and-a-half-year highs, damping enthusiasm for several of the big financial services firms comprising the index.
"The Nasdaq has at least the Microsoft report to look forward to, which should be strong," said Terrence Gabriel, stock market strategist at Global IDEA.com.
It was. After the close of trading Tuesday, the world's biggest software maker posted quarterly earnings of 47 cents a share, 31 percent above the year-ago period, and 5 cents higher than the consensus of analysts surveyed by First Call Corp.
Microsoft, the biggest Nasdaq mover with a 12 percent weight, jumped 3 percent ahead of the news, helping to lift the index 66.54 points, or 1.64 percent, to 4,130.81. That's less than a point below its 4,131.15 record close Jan. 3. Breadth was positive, with advancers leading decliners 2,462 to 1,806.
But the Dow lost 162.26 points, or 1.38 percent, to 11,560.72, dragged lower by American Express, Citigroup and J.P. Morgan - all financial stocks sensitive to higher interest rates.
"I think what's happening with blue chips is concern about rising interest rates; we see the yield on the 30-year bond now at almost 6.75 percent." Sam Stovel, senior investment strategist at Standard & Poor's, told CNNfn's Street Sweep, "Tech stocks are really not all that interest-rate sensitive. They are not borrowing the way traditional brick-and-mortar companies do."
The broader S&P 500 fell 10.01 points, or 0.68 percent, to 1,455.15.
More stocks fell than rose, with decliners on the New York Stock Exchange beating advancers 1,805 to 1,277.
The negative breadth on the Big Board comes despite a solid start to the fourth-quarter earnings season, which kicked in to high gear Tuesday. Of the 55 S&P 500 companies that have reported results so far, 68 percent posted better-than-expected profits, according to First Call.
Volume was heavy Tuesday, with more than 1 billion shares changing hands on the New York Stock Exchange.
In other markets, bond prices declined, sending the yield on the benchmark 30-year bond to a more than 2-1/2 year high of 6.74 percent. The dollar rose against the yen but was little changed versus the euro.
Highs yields hurt
Rising bond yields weighed on financial stocks, with Dow members J.P. Morgan (JPM) falling 4-11/16 to 123-5/16, American Express (AXP) dropping 7-5/16 to 151-9/16 and CitiGroup (C) losing 1/16 to 57-15/16.
Higher rates can bring a slowdown in lending and underwriting, key businesses for financial services firms. And with the economy showing few signs of slowing down, analysts expect the Federal Reserve to launch at least two interest-rate hikes starting next month to slow the economy and pre-empt rising inflation. Higher rates raise borrowing costs, hurting corporate profits.
Losses to J.P. Morgan and CitiGroup come despite better-than-expect fourth-quarter results. Morgan saw profits of $2.63 per diluted share, well above estimates of $2 a share. CitiGroup, the nation's biggest financial services firm earned $2.61 billion, or 75 cents a diluted share. Separately, Citigroup (C) said it would acquire the investment banking division of Schroders PLC Tuesday for $2.21 billion.
Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum, expects stock prices this week to be torn between strong earnings and fears of rising interest rates.
"It's going to be push-pull this week," Hyman said. "Will earnings be strong and drive the Dow to 12,000, or will higher rates work to push the Dow lower?"
Still, Larry Jones, market strategist at Kenwood Group, says higher rates won't drag the market down.
"The earnings outlook is still strong," Jones said. "Even with rising interest rates we think it will be OK because rates are going higher because the economy is strong, not because of rising inflation."
Microsoft leads the way
Microsoft (MSFT) jumped 3-1/16 to 115-5/16 ahead of its strong earnings report.
Anticipation of Microsoft results was a driving force behind tech stocks' Tuesday gains, as Kirlin Holdings market strategist Tony Dwyer told CNNfn's "Talking Stocks". (290K WAF) (290K AIFF).
Some of the Nasdaq's biggest movers also jumped. Cisco (CSCO) gained 4-7/16 to 112. Oracle (ORCL) gained 4-7/16 to 111-1/4. Sun Microsystems (SUNW) jumped 3/8 to 81-3/4
Earnings roundup
Among other major companies reporting results, Motorola (MOT) fell 6-3/4 to 144-1/4 after logging earnings late Monday of $514 million, or 82 cents per share, just ahead of Wall Street's estimates.
Pfizer (PFE) dropped 1/2 to 36-1/2 after saying it earned $954 million excluding one-time items, or 25 cents per diluted share, beating of forecasts.
(For a roundup of the day's earnings, click here.)
The week's first deals
In addition to earnings, several deals captured investors' attention. Shares of fiber-optic equipment maker JDS Uniphase Corp. (JDSU) rose 3-1/2 to 195-11/16 after announcing plans late Monday to merge with E-Tek Dynamics Inc. (ETEK) in an all-stock deal valued at roughly $15 billion. E-Tek soared 42-1/2 to 178-3/8.
El Paso Energy Corp. (EPG), the owner of North America's largest natural-gas pipeline system, fell 2-1/8 to 35 after saying Tuesday it will acquire Houston-based Coastal Corp. (CGP) in a deal valued at about $16 billion, rose 3 to 39.
In other mergers, SmithKline Beecham (SBH) and Glaxo Wellcome (GLX) fell after they agreed to merge Monday in a stock swap worth nearly $76 billion, creating the world's largest drug maker. SmithKline American depositary shares dropped 8 to 62; Glaxo American depositary receipts retreated 5-15/16 to 54-1/16.
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