Fed chief Alan Greenspan, repeating that the US economy is "stretched in a number of directions," warned the House Banking Committee on Wednesday that "something will give at one point or another." He didn't have to wait long for proof.
Stocks fell sharply in the late afternoon after posting cautious gains earlier in the session. Although Mr. G was basically rehashing what he'd told the Senate Banking Committee a day earlier, investors chose this time to focus more on his worries that share prices are too high, and his commitment to raising interest rates should the economy start to overheat.
As sentiment became increasingly nervous, traders opted to bail out of share holdings and lock in whatever profits they'd accrued over the past few days. Jitters were fueled as well by a sudden sell-off in the bond market. The 30-year Treasury bond yield hit its highest level in months.
The Dow Jones Industrial Average declined 144.75 points to close at 9399.67, and the Nasdaq Composite Index was down 36.97 at 2339.38. The S&P 500 shed 17.77 to 1253.41.
"Our judgment," Greenspan royally opined, "and it is a judgment we recognize has got uncertainties associated with it, is that the level of consumption growth, which has been extraordinarily strong, will slow down." He added that "the dramatic expansion in capital investment will slow down to a more long-term sustainable path."
"It was all ambiguous," said Hugh Johnson, chief investment officer at First Albany, "but if there was a side of the fence he was leaning toward, it was tightening [monetary policy]."
He added that the "slight tightening lean" in Greenspan's comments suggests that interest rates may go up a tick when the Fed's policymaking committee meets next month.
Investors, and especially money managers, realize that current share prices are overvalued, Johnson noted. "But the buy-on-weakness mentality is very much alive and well," he said. "This is something very dangerous. Stocks will remain overvalued, and investors will keep finding excuses to look the other way."
The wait-and-see mood stemming from Greenspan's testimony early in the session was fortunate for Charles Schwab (SCH), which saw its online trading system crash for about an hour in the morning, well before things got busy. Even so, Schwab's stock lost US$4.25 to $68.56.
CNET (CNET) shed $7.63 to $116.38 after saying it will cough up $11.5 million in cash to purchase Winfiles.com, an online software service. Investors seem to be wary of CNET's recent shopping spree. Just a couple of days ago, the company spent almost $6 million for AuctionGate Interactive, and recently acquired NetVentures, an e-commerce software maker.
Infoseek (SEEK) slipped 25 cents to $71 even as it launched a new online shopping service -- GO Shop -- which adds a retail component to its Go Network portal. On the other hand, discount clothing purveyor Bluefly (BFLY), slated to be prominently featured on GO Shop, surged 25 percent to $12.81. And Disney (DIS), Infoseek's Go Network partner, was up 13 cents at $35.
Amazon.com (AMZN) fell $4.25 to $110.94 after saying it purchased a 46 percent stake in Drugstore.com, an online distributor of over-the-counter and prescription medications set to debut Thursday. Whatever else, Amazon is well on its way toward converting its vast electronic bookstore into an all-purpose department store.
Software maker Bea Systems (BEAS) jumped 8.2 percent to $17.25 after posting pro forma quarterly profit of 5 cents a share, a penny higher than estimates. The company's stock was subsequently upgraded by Goldman Sachs, BT Alex. Brown, and Dain Rauscher.
Meantime, business-application developer Brio Technology (BRYO) dropped 26 percent to $17.63 after saying it will shell out about $300 million for rival Sqribe Technologies. Credit Suisse First Boston downgraded Brio's stock to "buy" from "strong buy."
It was inevitable: Gateway (GTW) announced it will offer a year's worth of free Net access to buyers of its personal computers. You want to bet other PC makers are quick to jump on the bandwagon? Still, Gateway's stock slipped $3.38 to $79.13 as investors mulled the firm's roughly $21 million investment in online computer retailer NECX.
Elsewhere in tech, Dell Computer (DELL) slid $3.81 to $83.25, and International Business Machines (IBM) was $3.38 lower at $173.56. Intel (INTC) fell $3.88 to $130.38, and Microsoft (MSFT) was down $2.56 at $152.88.
Radio Shack owner Tandy (TAN) eased $1.13 to $56.38 despite reporting better-than-expected quarterly income of $1.02 a share. Cable-TV operator Cablevision Systems (CVC), meanwhile, gained 63 cents to $67 even as it fell shy of estimates with a loss of $1.22 a diluted share. The company is forecasting growth in subscribers and revenue.
In telecom, Qwest Communications International (QWST) rose $2.25 to $61.19 after saying it expects to meet analysts' estimates for 1999 and 2000. And Skytel Communications (SKYT), a wireless messaging provider, shed $1.50 to $17.13 even as Prudential Securities upgraded the company's stock to "strong buy" from "hold."
DaimlerChrysler (DCX) climbed $4.19 to $100.94 after CS First Boston reiterated a "buy" rating for the automaker's stock. Separately, a Japanese news service reported that DaimlerChrysler has reached a tentative agreement to purchase a stake in ailing Nissan Motor, but a Nissan spokesman was quoted as saying this was "pure speculation."
FedEx parent FDX (FDX) gained $3.56 to $93.44 as Schroder & Co. boosted its rating for the company's stock to "outperform significantly" from "perform in line." Analyst Gary Yablon said FDX's share price should reach $120 within a year.
Greeting-card giant American Greetings (AM) plunged 32 percent to $23.81 after warning that its fiscal 2000 profit will be way below analysts' expectations. The company, now restructuring its operations, said earnings could come in at just $2 a share before charges. The Street had been looking for $2.97.
And Petsmart (PETM), the largest US pet-supply retailer, tumbled 19 percent to $7.25 after disappointing analysts with quarterly earnings of 15 cents a share. BT Alex. Brown downgraded the firm's stock to "buy" from "strong buy."
Greeting cards, pet supplies -- a tough day indeed when even nice guys like these are getting pushed around.
