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Stocks Mixed on Fed Cut; Yields Inch Higher

November 18, 1998|From Times Staff and Wire Reports

Financial stocks rallied on news of the latest Federal Reserve Board interest rate cut Tuesday, and the red-hot Internet stock sector surged again--though it's doubtful Net investors paid much attention to the Fed, analysts conceded.

Overall, the market ended mixed, with most stocks closing lower even as key indexes mostly gained.

Losers slightly edged winners on the New York Stock Exchange, while losers had a 4-3 advantage on Nasdaq. Trading remained relatively subdued.

The Dow industrials eased 24.97 points to 8,986.28 after rising immediately after the Fed's rate cut announcement.

The Nasdaq composite, boosted by Net issues and some major tech names, gained 16.84 points, or 0.9%, to 1,878.52.

But the Russell 2,000 index of smaller stocks fell 0.3% to 389.43, continuing the marked weakness in the small-stock sector over the last week.

The Fed's latest quarter-point cuts in its key short-term interest rates are "good for the market in that lower rates mean less competition from the fixed-income markets for investors' dollars," said Joe Stocke, a senior portfolio manager at Meridian Investment Co.

Lower rates also are good for corporate profits in that companies' borrowing costs may decline.

Indeed, major banks cut their prime lending rates on Tuesday from 8% to 7.75%.

Still, the only surprise on Wall Street on Tuesday would have been if the Fed hadn't cut rates, so well-anticipated was this move.

"A lot of this has already been priced into the market," said Stephen Dalton, who manages $1.2 billion in growth stocks for First Union Corp.'s Capital Group.

The Treasury bond market, too, had expected another rate cut, betting that the Fed would try to maintain the relative calm that has descended on global markets since the panic of early October.

Shorter-term bond market yields fell on Tuesday, but longer-term yields edged higher.

Central banks around the world have joined the Fed in cutting rates in recent weeks. In October overall, 18 central banks cut rates, and as many as 13 have done so in November, according to International Strategy & Investment Inc.

Foreign stock markets have jumped along with the U.S. market since late September. But on Tuesday, European markets were mostly lower despite widespread expectations of the Fed's move. Asian markets were mixed.

In Latin America, the Brazilian market gained 4.1%, but others were weak.

Among Tuesday's U.S. market highlights:

* Financial stocks gained on hopes that the Fed's move will forestall additional market turmoil, despite lingering concerns about the global economy's health in 1999.

Merrill Lynch jumped $2.81 to $66.31, Citigroup gained $1.19 to $45.31 and AIG rose $1 to $89.

* In the Internet sector, big winners included Yahoo, up $3.50 to $176.75; America Online, up $4.13 to $150.75; Inktomi, up $8.81 to $132; Amazon.com, up $22.25 to $148.50; and EarthLink, up $4.31 to $56.06.

But some recent high fliers continued to sink, including EarthWeb, down $11.25 to $51, and Theglobe.com, down $8.31 to $40.44.

* Also in the tech sector, Hewlett-Packard, the No. 3 computer maker, dropped $6.06 to $60.06 after warning that first-quarter earnings may fall and fiscal 1999 sales won't meet forecasts as it struggles with increased competition and weakness in Asia and Latin America.

Retail investors have been pouring money into Hewlett-Packard since May, according to Bloomberg Analytics, even as institutional investors took money out.

* DaimlerChrysler, formed from the merger of Chrysler and Germany's Daimler-Benz, fell 44 cents to $83.88 on its first official day of trading.

* Ceridian rose $3.50 to $58.88. The information-services company said it purchased closely held Work/Family Directions's LifeWorks unit for an undisclosed price to add to its workplace efficiency products.

* Envoy jumped $7.50 to $39.94. The electronic processor of health-care claims cut its losses for 1996 and '97 to reflect accounting changes that resulted in a decrease in the purchase price allocated to acquired in-process technology.

Market Roundup, C13

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