Wall Street posted solid gains Wednesday after the Fed, as expected, opted to leave key interest rates unchanged.
Greenspan & Co. are keeping a wary eye on the US economy's steroid-charged growth, but they're apparently more concerned about jeopardizing that vitality by raising rates too soon, especially with Asia and Latin America still wandering in the fiscal wilderness. Nevertheless, most traders are now expecting the Fed to announce a rate hike in coming months.
The Dow Jones Industrial Average gained 92.69 points to 9366.81, and the Nasdaq Composite Index was 30.16 higher at 2493.58. The S&P 500 rose 10.10 to 1272.09.
The policy-making Federal Open Market Committee decided to keep the federal funds overnight bank lending rate at 4.75 percent, where it has stayed since being lowered a quarter-point last November. The discount rate on emergency loans from the central bank also holds firm at 4.5 percent.
While inflation isn't much of a worry at present, traders know that if share prices keep soaring, Fed chief Alan Greenspan is almost sure to try and rein in that buy-buy-buy spirit and restore some order to financial markets.
"There will be a bias toward a downward trend [for the stock market]," said Ulric Weil, an analyst with Friedman, Billings, Ramsey. "Until the middle of the year, things won't get out of hand. In the second half, all bets are off."
Tech and Internet shares will experience the greatest volatility in weeks ahead, he added. With these stocks having led the market's recent run-up, they'll likely be out in front as well for any subsequent trip south.
Investors demonstrated their high hopes for the tech sector by punishing Cisco Systems (CSCO) for not coming through with a much-hoped-for stock split. The network-systems leader slipped US$1.45 to $110.94 despite topping estimates with a 33 percent increase in quarterly profit to 36 cents a share. This prompted Lehman Brothers to raise its 12-month price target for the company's shares to $125.
Internet stocks received a boost after Yahoo Chief Executive Tim Koogle told a global economic forum that, even at current sky-high valuations, the Net business still holds enormous promise and will rain wealth upon long-term investors. This, of course, isn't anything new from a leading industry figure, but traders took the upbeat forecast as a validation of their commitment to driving Internet shares through the roof.
For its part, Yahoo (YHOO) advanced $35.13 to $358.06 after announcing a tie-up with Gateway to offer co-branded, personalized Web pages to computer buyers. Gateway (GTW) was 31 cents lower at $78.19.
America Online (AOL) rose $5.25 to $172.75 as it inked a five-year pact with Bank One's First USA unit to market credit cards online. The deal, which potentially adds as much as $500 million to AOL's pockets, will make First USA the exclusive card purveyor to the service's 15 million-plus members. First USA already is the largest provider of Visa and Mastercards in the United States.
Underlining the no-room-for-error importance of reliability, ETrade Group (EGRP) saw its stock drop $3 to $55.25 as the online broker's system crashed twice, once in the morning and again in the afternoon, following a software change. Online trades now account for a quarter of all retail stock activities, according to the Securities and Exchange Commission, and the total number of electronic brokerage accounts should surpass 10 million by the end of the year.
In telecom, MCI WorldCom (WCOM) shed 88 cents to $78.06 even as it unveiled an accord with Bell Atlantic to provide local phone service to residential customers in New York. Separately, MCI said it's planning to get back into the Internet-services business, and will detail its ambitions sometime next week. MCI Communications was forced by regulators to discard its online resources last year as a precondition for its merger with WorldCom.
Qwest Communications International (QWST) climbed $3.88 to $64 after posting fourth-quarter profit of 3 cents a share, excluding one-time charges. This beat analysts' expectations by a penny, and was accompanied by a threefold hike in revenues. At the same time, Qwest said it had landed a $1 billion job upgrading the US Treasury Department's communications system -- its largest-ever commercial contract.
The Street digs a good belt-tightening. Mobile-phone maker Qualcomm (QCOM) advanced $4 to $66.63 after saying it will give about 700 employees the boot and take a $20 million restructuring charge. Merrill Lynch, liking the sound of that, upgraded its near-term rating for the company's stock to "accumulate" from "neutral."
Qualcomm workers probably never saw it coming. Just last month, the company reported a 20 percent increase in quarterly revenue to $941 million -- the highest amount in its 13-year history. Nice.
A pat on the back to International Business Machines (IBM), which has come up with a talking Web browser for the visually impaired. (Can't wait to hear it chew through this column.) Still, Big Blue was down $1.56 at $175.19 as investors cashed in on recent tech gains.
Dell Computer (DELL) fell 75 cents to $107.88, and Microsoft (MSFT) was 81 cents lower at $166.81. Intel (INTC), on the other hand, finished $4.13 higher at $138.69.
Biotech firm Incyte Pharmaceuticals (INCY) jumped 23 percent to $27.75 after Johnson & Johnson said it would purchase more of the company's genetic data. Incyte also said its 1998 revenues totaled almost $135 million, up 50 percent from a year earlier.
Time Warner (TWX) rose $2.69 to $63.94 after revealing a fourth-quarter loss of 17 cents a diluted share. At least this was a couple of pennies better than expected, and the media giant was able to point to a bunch of one-time charges for having erased its year-earlier profit. The company's revenue was up 7 percent.
Looks like the lizards helped. Anheuser-Busch (BUD), maker of Budweiser, said its quarterly earnings were up 15 percent at 35 cents a diluted share, topping estimates by 2 cents. The firm's stock, however, went flat, sliding $1.06 to $68.94.
Goodyear Tire & Rubber (GT) inflated $1.63 to $52 after announcing a global alliance with Sumitomo Rubber, which sells Dunlop-brand products in major markets. The deal may lead toward Goodyear's eventual takeover of the Japanese company. Separately, Goodyear reported quarterly income of 74 cents a share, in line with estimates, and said it would hand pink slips to about 2,800 workers as a cost-cutting move.
Lastly, recliner king La-Z-Boy (LZB) rose 56 cents to $18 after posting record quarterly profit of 33 cents a share, handily whipping the expected 25 cents. The company said its plant productivity is increasing, which will help it meet future growth in demand.
Further proof that we don't we replace our parents, we become them. Sansabelt slacks, anyone?
