Fed chief Alan Greenspan shook his finger at Wall Street's sky-high stock valuations Wednesday, and the market, at first, responded by rallying even higher. But, like naughty children, traders eventually succumbed to daddy's scolding and ended the session by cleaning out their portfolios.
The late-afternoon sell-off made for a mixed finish, with blue chips losing ground but many tech stocks holding firm.
The Dow Jones Industrial Average shed 19.31 points to close at 9335.91, while the Wired Index was 7.78 higher at 631.16. The Nasdaq Composite Index gained 7.05 to 2415.22, and the S&P 500 was up 4.62 at 1256.62.
"Greenspan is trying to jawbone a result rather than taking the steps to achieve a result," said Peter Russ, chief investment strategist at Laidlaw Global Securities. "Unless he raises interest rates, I think irrational exuberance will keep winning out."
It sure looked that way right up to the closing minutes. But investors finally paid heed to the Fed boss' warning in an appearance before Congress that "the level of equity prices would appear to envision substantially greater growth of profits than has been experienced of late." He also said that financial markets have been made "fragile" by global economic turmoil, although the US economy is still "sparkling."
Investors had latched on to that last appraisal for the bulk of the session, along with Greenspan's observation that "signs of an appreciable slowdown as yet remain scant." But fears of slower growth prevailed in the end.
Tech stocks were one of the few holdouts.
Microsoft (MSFT) advanced US$6.88 to $162.50 after reporting that its quarterly profit rose 75 percent to 73 cents a share -- crushing the Street's anticipated 59-cent total. Microsoft now claims a market value of $405.2 billion, making it the first US company to top $400 billion, and bringing Bill Gates' personal worth to more than $85 billion.
Of course, not everyone is convinced that even mighty Microsoft is worth this much moola. "The market is valuing the company as if it could be worth $800 billion in three years," said Laidlaw's Russ. "Even if it could double its earnings over the next three years, are we really going to pay 40 times earnings for that growth?"
Greenspan would say no.
Texas Instruments (TXN) climbed $6.63 to $99.63 after posting quarterly earnings of 59 cents a share, beating estimates by a nickel. And Ascend Communications (ASND), now being acquired by Lucent Technologies, gained 50 cents to $89.94 after reporting a 47-percent increase in profit to 31 cents a share, which was in line with expectations.
On the Internet front, Lycos (LCOS) was the hot pick for much of the day amid speculation that the company is ripe for acquisition following AtHome's $6.7 billion buyout of Excite. But the company's shares lost ground as investors soured to high-priced Net stocks. Lycos, soon-to-be parent of Wired News, ultimately shed $8.13 to $104.81.
Other portal players also weren't able to sustain momentum. Yahoo (YHOO) slipped $35.81 to $287.19, and Infoseek (SEEK) was down 14 percent at $66.56. Excite (XCIT), which had jumped 63 percent following news of its buyout, fell 12 percent to $96.63.
Real-world auction house Sotheby's Holdings (BID) lost $2.88 to $38.63 after announcing that it'll add an Internet component -- Sothebys.com -- to its franchise. Meanwhile, electronic retailer Onsale (ONSL) was down $4.13 at $46.13 as it revealed plans to sell hardware at wholesale cost (plus a $10 purchase fee), and to rely only on advertising revenue to pay the rent.
Boy, what's that about? One company whispers the magic words "auction" and ".com," and another comes up with an ingenious way to lose even more money on the Net. You'd think investors would be lined up for a piece of that action.
Speaking of losing lots of money, online ad agency DoubleClick (DCLK) fell 19 cents to $87.75 after posting a fourth-quarter loss of 25 cents a share, which was still a penny better than expected by analysts.
Another big deal in telecom: SBC Communications (SBC) will shell out $1.67 billion for Comcast's cellular business, garnering an additional 800,000 customers. SBC slid 50 cents to $58.50, while Comcast (CMCSA) was up 19 cents at $66.31.
General Motors (GM) watched its quarterly profit from operations drive 55 percent higher to a record $3.25 a share, splattering the $2.61 expected by analysts. Its stock advanced 94 cents to $88.94. Meanwhile, AMR (AMR), parent of American Airlines, slid $4.44 to $59.81 after posting a lower-than-expected profit of $1 a share.
Lastly, the big tobacco companies all got burned after President Clinton said the federal government is about to chase them down to recover the cost of treating smoking-related illnesses. Philip Morris (MO), RJR Nabisco Holdings (RN), Loews (LTR), British American Tobacco (BTI) -- each took a pounding.
Gosh, it's getting so a company can't murder its customers without Uncle Sam sticking his nose in. What's the world coming to?
