What Market Anticipates At Fed Meeting
Retail sales and consumer confidence
came in stronger than expected Friday, sending Treasury prices and the stock
market averages lower as the data reduced confidence in the likelihood of
aggressive rate-cutting when Federal Reserve policymakers meet next week.
The Dow Jones Industrials eased 0.8%,
the Nasdaq Composite 1.0%. Volume shrank on both New York and Nasdaq markets.
The Nasdaq booked the weakest volume session of the year.
The Commerce Department said retail
spending increased 0.8% in April to snap a two-month streak of declines. The
University of Michigan reported consumer sentiment rose in May to break a long
slide and indicating spending may remain resilient in the months ahead. The
consumer sentiment index rose to 92.6 from 88.4.
The VIX
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27.48.
Across the sectors, the Amex Internet
Index
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1.6%, the S&P Chemical Index
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1.2%.
Among the losing stocks, Ariba
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declined 15.3%, Agile Software
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9.5%.
The upside was limited to sub-1% gains
among the major sectors. The S&P Retail Index
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gain of 0.2%.
Schering-Plough
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on heavy volume due to speculation of a merger with Merck & Co
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despite denials from people close to both companies. Meanwhile Merck said it would buy genomics company Rosetta Inpharmatics
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$620 million. Merck lost 0.8%. Rosetta exploded 75.0%.
Reuters quoted analysts saying Merck
may next be on the prowl for Gene Logic
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about genes to pharmaceutical and biotechnology companies. Gene Logic ramped up
12.0%
Stock in California’s two largest
power utilities surged after Thursday’s decision by the state’s governor to
issue bonds to pay for power purchases. Edison International
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14.6%, PG&E
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A spate of strong retail reports
helped retailers forge ahead Thursday while the Dow managed a slight gain and
the big-cap techs failed to hold onto a gap-up open and ended in the red.
The Dow Jones Industrials closed up
0.4% while the S&P 500 lost 0.4% and the Nasdaq Composite 1.3%. The New York
Stock Exchange Composite gained 1.5%.
In the sectors, the S&P Retail
Index
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2.0%,the S&P Chemical Index
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Cyclical Index
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Mark Minervini, 1997 U.S. Investing
Champion and portfolio manager of the New York-based Firstmark Fund, sees in the
strong retail performance anticipation of economic recovery.
“Retail is discounting an
economic turnaround. However, this does not apply to all retail stocks,”
Minervini said. “The area that is really leading here is specialty retail
— companies like Columbia Sportswear
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Charlotte Russe
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some of the stocks that area doing the best and have emerged out of consolidations.”
The market action also signals a
strategy shift by the institutions, according to Minervini.Â
“The market has returned to an
earnings growth model. The market is back to rewarding earnings as opposed to
the way analysts were starting to value Internet stocks and dotcom stocks with
curve-fitting criteria to justify owning them,” Minervini said.
“Columbia Sportswear is an example. The company just doubled the First Call
estimates. Over the prior several years, their earnings were flat
year-over-year. So they’ve had an earnings breakout to the upside. On top of
that, the company also has nice expanding profit margins over the past four
years along with good top-line growth. They’re hitting on all cylinders.”
Among Thursday’s winners, discount retailer Kohl’s
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merchandise sales. The Gap
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better-than-expected April sales and predicted Q1 profits would exceed lowered
Wall Street expectations. Talbots
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same-stores increased 12.6%.
Caterpillar
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cyclicals. The stock moved up 2.8% into new high ground.
Among the losing sectors, the Amex
Biotechnology Index
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1.5%, the Amex Airline Index
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Sunrise Assisted Living
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fell 9.6%, Juniper Networks
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Among the Dow winners, WalMart Stores
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Home Depot
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