DAILY WRAP-UP
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Nasdaq and small cap stocks headed lower in heavy trading Thursday as
cautious investors tried to glean what the Federal Reserve's interest-rate
cut means for the U.S. economy and stocks.
After gaining strongly in the previous session, small cap indexes ended
lower in Thursday's trading. The leading Russell 2000 Index dropped 7.19,
or 1.5%, to 477.20, while the Wilshire Small Cap 1750 lost 14.86 points, or
2%, to 744.55. The S&P 600 subtracted 3.36 points, or 1.5%, to 215.80.
A day after the Fed dropped a virtual bomb on Wall Street by lowering the
federal-funds rate, the interest rate banks pay one another for overnight
loans, investors struggled with what the 50-basis-points cut will mean for
corporate earnings.
The lack of any clear direction along with knowledge that any capital
expenditures inspired by the rate cut are still months away kept investors
in a selling mood. The surprise nature of the rate cut, which caught
analysts off guard, spooked investors who thought the Fed may be seeing
tough times ahead for the U.S. economy something months of economic data
have been pointing to.
"The Christmas selling season was the worst in 10 years, auto companies
have had cascading declines in demand and layoffs have already begun," said
Michael Holland, chairman of Holland & Co. "That's what the markets have
been reflecting, and what the Fed is responding to."
In a note to investors, esteemed Goldman Sachs & Co. investment strategist
Abbey Joseph Cohen reiterated her end-of-2001 price target for the broad
S&P 500 at 1650. "Our valuation work indicates that the S&P 500 is roughly
20% undervalued based on the 1347 closing price on Jan. 3," Cohen wrote.
"The case for rising stock prices has strengthened," she said. "Equities,
overall, are undervalued. Federal Reserve decision-makers have shown that
they are 'on the job,' further reducing the risks of economic decline."
Despite Cohen's bullish words, markets headed lower after briefly crossing
win/lose lines earlier in the session. Tech issues ended lower, as the
Nasdaq Composite Index fell 49.73, or 1.9%, to 2566.96, after closing
Wednesday up 14%, its largest percentage and point increase in Nasdaq's
29-year history.
Chip stocks headed lower after jumping nearly 18% in the previous session.
In choppy trading, the Philadelphia Semiconductor Index of large cap issues
subtracted 16.43, or 2.5%, to 653.80, while the broader S&P 500 increased
its losses, dropping 14.22 points, or 1.1%, to 1333.34.
The Dow Jones Industrial Average reversed earlier gains, which saw the blue
chip index cross the 11,000 level for the first time in four months, and
ended lower at 10,912.41, off 33.34, or 0.3%.
Within economic news, the Census Bureau reported earlier this morning that
factory orders rose a greater-than-expected 1.7% in November, above
October's downwardly revised 4% decline. Despite the
larger-than-anticipated increase, analysts noted that the increase didn't
undo October's decline.
Also this morning, the Labor Department reported weekly
initial-unemployment claims rose 16,000 to 375,000 in the week ending Dec.
30 from the previous week's upwardly revised 359,000. Analysts had expected
the figure to ring in at 350,000.
Among small cap stocks, Resonate Inc. (NASDAQ: RSNT) fell 66.7% after the
software maker said it expects to report fourth-quarter revenue 25% below
analyst expectations. In afternoon trading, shares stood at 3 3/4, off 7 1/2.
Vitria Technology Inc. (NASDAQ: VITR) fell 50.4% in Thursday trading after
the e-commerce-software company said it expects to report a fourth-quarter
loss of 1 cent to 3 cents a share. The company was expected to earn 1 cent,
according to Zacks Investment Research. Shares traded at 3 31/32, off 4 1/32.
Transkaryotic Therapies (NASDAQ: TKTX) said U.S. regulators want additional
data about Replagal, the company's drug to treat Fabry disease, before it
sees U.S. Drug Administration approval. The pharmaceutical company's shares
lost 9.1%, or 3 5/16, to 33 1/4 in Thursday trading.
Redbook Instinet Research reported its Redbook same-store sales index rose
0.2% in December compared with a 3.5% gain in November. The research firm
said December's performance was the softest in the indexes 7-year history
and the softest for any recorded month, adding that the "weakness was
broad-based and remarkably consistent."
In commodities news, February natural gas futures doubled early day gains,
adding 78 cents, or 9.5%, to $8.96, but still off the highs for the
session. In trading on the New York Mercantile Exchange, February crude oil
futures moved upward by 14 cents, or 0.5%, to $28.14. February gold
rejoined earlier losses and was lower by 90 cents, or 0.3%, to $268.40,
after dropping 70 cents in the previous session.
In Canadian markets, the Toronto Stock Exchange TSE 300 Index dropped 32.1
points, or 0.4%, to 8905.70, surrendering early day gains. The Canadian
Venture Exchange headed higher again for the fourth straight day, adding
20.9, or 0.7%, to 2947.50, after gaining 19 points in the previous session.
In currency markets, the Canadian dollar retreated 0.1% to US$0.6673 from
US$0.6677, while in late New York trading the euro retested six-month highs
and advanced to US$0.9486.
