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Fed in focus as stocks gain
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August 21, 2000: 4:47 p.m. ET
Intel draws buyers to Nasdaq and Dow; investors waiting for the Fed
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NEW YORK (CNNfn) - U.S. stocks held gains Monday as investors sat on the sidelines ahead of Tuesday's Federal Reserve meeting on interest rates while traders bought Intel after Lehman Brothers made positive comments about the chip makers future.
"It's just been a very quiet day," said Alan Skrainka. "Nobody wants to make a big bet prior to tomorrow's decision. People are pretty convinced that the Federal Reserve won't make a change to rates but they want to see the statement. It doesn't make a lot of sense to make a big commitment today when you have such an important meeting tomorrow (Tuesday)."
Barry Hyman, chief market strategist for Ehrenkrantz King Nussbaum, told CNNfn's In the Money that even though this is usually a weak time of the year for stocks, the markets are positioned for gains because the Fed is finished raising rates. (390K WAV) (390K AIFF)
 The Nasdaq gained 22.81 to 3,953.15. The Dow rose 33.33 to 11,079.81, while the S&P 500 advanced 7.76 to 1,499.48.
While market action was mostly positive ahead of Tuesday's Fed meeting, volume remained light as most investors opted to sit on the sidelines ahead of the Fed's statement.
Market breadth was mixed. On the New York Stock Exchange, decliners beat advancers 1,475 to 1,334, as more than 729 million shares changed hands. On the Nasdaq, winners nudged out losers 2,025 to 2,000, as more than 1.2 billion shares were traded, its eighth lightest trading day of the year.
In currencies, the dollar rose against both the yen and the euro. Treasurys were slightly lower.
Focus on the Fed
While the majority of analysts expect no interest rate hike to be announced Tuesday, they said all ears will be tuned in to the language of the Federal Open Market Committee's statement for signs of what the policy-making body is thinking.
"Attention will be focused on the statement that follows the 2:15 p.m. ET rate announcement, as it will give us a better indication on the Fed's future course of action. Noteworthy is that the tendency has been for the market to rally ahead of the Fed meeting and to sell-on-the-news after the announcement," Larry Wachtel, market analyst with Prudential Securities, wrote in a note to clients. "While the market is advancing, it is on light volume due to this being a Monday in the slow month of August in front of tomorrow's economic policy uncertainty."
After six interest rate hikes since June 1999, most of the incoming economic data has been pointing to a slowing economy. This has calmed some of the skittishness harbored by investors who worried that more rate hikes could hurt their investments.
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"If he (Fed Chairman Alan Greenspan) doesn't raise rates and goes to neutral, the market is going to go crazy; if he doesn't raise rates but stays tight, everyone will say it's expected -- so why be a hero ahead of this meeting?" said Larry Rice, chief strategist at Josephthal & Co. "I expect he's going to do nothing and maintain a very vigilant bias. I think he's going to be on the (lookout) for inflation."
Intel surge spurs buyers
Company-specific news was leading the market action but participation remained scant, analysts said. "It's a very tentative-type market where people are going to opt for safety and wait it out," Rice said. "I think there's just a lack of conviction here."
The story of the day, Intel (INTC: Research, Estimates), gained 1-1/2 to 72-1/16 after Lehman Brothers raised its earnings estimate to $1.74 a share from $1.70 for 2000, and to $1.90 a share from $1.85 for 2001, citing the chip maker's ability to ship more processors.
The chip maker led the day's rally but was well off its high of 74-1/16 as traders put some money on the sidelines.
"We've had a pretty good run in the semiconductors recently and I think a lot of people decided to take some profits," said Bill Meehan, chief market analyst at Cantor Fitzgerald. "There wasn't much going on when it was going higher. Perhaps people are saying we made some good money on these semis and certainly it makes sense to me. I wouldn't trade this market until I see what the Fed says."
Also boosting the Dow were defense stocks, which attracted buyers. Boeing (BA: Research, Estimates) surged 2-1/16 to 47-3/4, Honeywell (HON: Research, Estimates) gained 1-1/4 to 36-11/16, and United Technologies (UTX: Research, Estimates) advanced 2 to 63-1/2.
Explaining the interest in the defense sector, Westfalia Investments' director of research Peter Cardillo said, "I just think they're very cheap. There's no core news for this to happen -- I just think a lot of these stocks have been badly beaten down and investors are starting to get around to looking at them."
 Retailers tempered some of the Dow's gains.
Wal-Mart Stores (WMT: Research, Estimates) fell 1-13/16 to 49-1/16 after a weekend British press report said U.K. drugstore chain Boots could be the target of a $9 billion takeover by the world's largest retailer. The Dow's other major retail component, Home Depot (HD: Research, Estimates), shed 1-3/8 to 50.
In other company news, more than 50,000 strikers at Verizon Communications (VZ: Research, Estimates) were due back at work Monday in New England and New York, although more than 30,000 strikers remain out in the company's mid-Atlantic region after an agreement with some of the locals late Sunday.
Shares of Verizon gained 5/16 to 42-3/4.
Deals in oil and financials
Transocean Sedco Forex (RIG: Research, Estimates) slid 4-3/16 to 53-1/2 after saying it is acquiring top rival R&B Falcon (FLC: Research, Estimates) in deal valued at $5.8 billion in stock plus debt, creating the world's largest offshore drilling contractor and No. 3 oil services company. R&B shares ended unchanged at 25-3/16.
 Seattle-based thrift Washington Mutual (WM: Research, Estimates) fell 3/4 to 32-1/16 after announcing it is buying Texas thrift Bank United Corp. (BNKU: Research, Estimates) for $1.5 billion, in what would be the last sale of a major thrift acquired by financial buyers during the 1980s savings and loan crisis. Shares of Bank United fell 1-1/2 to 40-7/8. 
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