Major averages part ways

Major averages part ways

Techs sag while 3M, retail stocks help Dow

NEW YORK (CBS.MW) — The Dow Industrials and the Nasdaq parted ways in a session characterized by generally steady trading. The blue-chip barometer benefited from a healthy flow of buyers in the retail sector as well as a 5.7 percent jump in shares of 3M.while a drubbing in chip stocks hindered the Nasdaq.

Profit warnings and the recent oil muscle-flexing have put a lid on the market’s attempts to make any headway, hobbling old- and new-economy companies alike. On Thursday, November crude took a respite, dropping $1.24 to $34.00. President Clinton has been under pressure to tap U.S. petroleum reserves in order to avert higher oil prices.

“We remain in a very challenging environment. Investors had become accustomed to chasing momentum. But there have been leadership changes since the start of the year and it’s become harder to find the pockets of strength,” said Brian Belski, chief investment strategist at US Bancorp Piper Jaffray.

Inside the market, oil and oil service shares fumbled, as did financial and biotech stocks. Thursday’s steepest gains were seen in retail shares and the defensive drug sector.

The Dow Jones Industrials Average ($DJ) gained 77.60 points, or 0.7 percent, to 10,765.52.

Minnesota Mining and Manufacturing led the Dow higher, putting on 6.7 percent, or $5.44 to $87.19. The company (MMM) said Thursday that it expects annual sales growth of about 11 percent and per-share earnings growth of around 13 percent over the next three years.

The Dow’s other frontrunners included Home Depot, Wal-Mart, Merck and Johnson & Johnson. The index’s losers included J.P. Morgan, Hewlett-Packard, Intel and Eastman Kodak.

The Nasdaq Composite ($COMPQ) subtracted 68.57 points, or 1.8 percent, to 3,828.87 while the Nasdaq 100 Index ($NDX) fell 72.30 points, or 1.9 percent, to 3,718.15.

James Herrick, managing director of equity trading at Robert Baird & Co., believes it’ll be tough for the market to make any lasting progress during this pre-announcement period. Investors, he said, will be extremely selective as they navigate through the earnings season.

Belski believes that positive third-quarter earnings will ultimately be the catalyst to drive the stocks averages higher. But in the near-term, he sees more downside potential for the market.

The Standard & Poor’s 500 Index ($SPX) subtracted 0.2 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks dropped 1.4 percent.

Separately, volume checked in at 1.09 billion on the NYSE and at 1.60 billion on the Nasdaq Stock Market. Market breadth was shabby, with losers beating winners by 17 to 10 on the NYSE and by 24 to 15 on the Nasdaq.

Cohen still bullish

Goldman Sachs’ influential chief investment strategist, Abby Joseph Cohen, reaffirmed her year-end 2000 S&P 500 target of 1,575 and her mid-year 2001 target of 1,650 on the broad market index.

Cohen told clients she believes the fundamental backdrop for U.S. stocks and the economy remains extremely favorable. Investors have been alarmed by rising energy prices and the slumping euro, she said, but has maintained operating earnings-per-share estimates of $56 for 2000.

The potential for expansion without inflation has been lifted in the U.S. thanks to the strides made in productivity, Cohen said. She views the deceleration in gross domestic product to a 3 to 4 percent growth rate as healthy as it will assure a durable, non-inflationary rate of growth.

Cohen believes the euro is undervalued against the dollar and believes the currency argument that has been brought up by many companies will fade.

Individual movers

Goodyear Tire & Rubber (GT) was the latest in a series of companies reporting a shortfall in earnings due to the sagging euro and higher prices of energy and raw materials.

Goodyear said it expects to breakeven or report a small loss for the third and fourth quarters compared to Wall Street’s expectation for a 29-cent-per-share gain in the third quarter and earnings of 35 cents a share in the fourth quarter. Shares slipped $2.88 to $18.13.

Brokerage stocks took it on the chin following a disappointing earnings report from Morgan Stanley Dean Witter. The company (MWD) posted third-quarter earnings of $1.09 a share, missing the First Call estimate of $1.17 a share but ahead of the 83 cents made in the year-ago quarter. The stock (MWD) slid 6.8 percent, or $6.50 to $89.44. Earlier in the week, Lehman Brothers and Goldman Sachs unleashed their quarterly results, both surpassing the Wall Street consensus estimates. Lehman (LEH) fell $4.50 to $141.50 while Goldman (GS) lost $4.75 to $113.25.

Checking the indexes, the Amex Securities Broker/Dealer Index ($XBD) fell 3.3 percent while the S&P Bank Index ($BIX) eased by 1.3 percent.

Internet stocks were weighed down by EBay’s sell-off following a 17 percent jump on Wednesday. EBay (EBAY), off 7.0 percent, to $71.19, saw its rating lowered by CS First Boston to a “buy” from a “strong buy.” First Boston said the market was quick to react to EBay’s strong management presentation Wednesday, rising past its price target of $72. “Given this, the immediacy we felt investors should have had towards buying EBay is now somewhat diminished,” First Boston said.

The Goldman Sachs Internet Index ($GIN) lost 1.7 percent while Merrill Lynch’s Internet Holdrs (HHH) slipped 1.5 percent.

Retail stocks put on the best show Thursday, sustained by a better-than-expected earnings report from Bed Bath & Beyond (BBBY). The company reported earnings of 15 cents a share, beating analysts’ estimates by a penny. The stock jumped 16.1 percent to $24.38 and the S&P Retail Index ($RLX) climbed 3.6 percent. Among the Dow’s retail components, Wal-Mart (WMT) climbed 5.0 percent to $50.94 while Home Depot (HD) tacked on 4.1 percent to $55.19.

Telecom stocks continued to feel the repercussions of Sprint’s profit warning on Wednesday. The stock (FON) shaved $1 to $25.81 while its PCS unit (PCS) tumbled $3.50, or 10.5 percent, to $29.75. Shares of WorldCom (WCOM) also struggled, erasing 69 cents, or 2.5 percent, to $26.63.

After the close Thursday, Intel (INTC) warned that third-quarter revenue will fall below its previous expectations due to waning demand in Europe. The stock fell $1.58 to $61.48 ahead of the news.

See for post-market trading activity.

Treasury focus

Government prices climbed, with long-dated issues leading as lower oil prices encouraged buyers. A Treasury buyback of 30-year issues Thursday — its 13th this year — also supported the long end.

The 10-year Treasury gained 5/32 to yield ($TNX) 5.88 percent and the 30-year Treasury bond was up 18/32 to yield ($TYX) 5.92 percent.

On the economic front, Thursday saw the release of the Philadelphia Fed Index for September, which fell to 8.2 from 14.1. Meanwhile, weekly initial claims shaved 18,000 to 308,000. Finally, the Treasury budget data revealed a $10.4 billion deficit during the month of August. View Economic Preview, economic calendar and forecasts and historical economic data.

In the currency arena, the euro recovered after reaching a fresh low on Wednesday. Dollar/yen (C_JPY) edged up 0.1 percent to 106.66 while euro/dollar (C_EUR) climbed 1.1 percent to 0.8582.

The beleaguered euro and rising oil prices are expected to be the main topics of conversation at the G-7 meeting in Prague this weekend. In the meantime, U.S. Treasury Secretary Larry Summers reiterated a strong dollar remains in the best interest of the U.S.