Fed chief Alan Greenspan offered his usual mixed messages about the state of the US economy Tuesday, and Wall Street responded with a suitably mixed performance.
Tech and Internet stocks were largely unbowed, but the broader market stumbled after Big Al observed that "equity prices are high enough to raise questions about whether shares are overvalued" -- a sentiment that breaks no new ground, but nevertheless sounded an alarm among investors.
The Dow Jones Industrial Average fell 8.26 points to close at 9544.42, while the Nasdaq Composite Index was up 32.47 at 2374.48. The S&P 500 shed 0.99 to 1271.15.
The word of the day is "stretched." Greenspan told the Senate Banking Committee, "After eight years of economic expansion, the economy appears stretched in a number of dimensions, implying considerable upside and downside risk to the economy outlook." He added that the Fed is ready "to move quickly in either direction."
In the same breath, though, Mr. G noted, "Our economy's performance should remain solid this year [and] the fundamental underpinnings of the recent US economic performance are strong."
So what does all that mean for interest rates? Go figure.
"I think he's going to take a neutral stance," said Steve Adams, managing director of Van Kasper & Co. "You're not going to see a cut, and you're not going to see an increase. They're going to let the thing take its course."
This seems to be the emerging consensus among the folks who get paid lots of money to predict the future. While recent economic stats have been strong, there's still little risk of inflation. At the same time, Greenspan sees the situation overseas, and especially in Japan, remaining precarious, which would suggest that this isn't the time to tighten monetary policy.
A survey of economic forecasters by the Federal Reserve Bank of Philadelphia finds that most now don't expect as much of a slowdown this year as they did a few months back. The average of 33 private forecasts places first-half growth at 2.85 percent, way ahead of the 1.7 percent tallied in the last quarterly poll.
Van Kasper's Adams believes stocks will remain volatile for the foreseeable future as traders continue searching for clues among earnings reports. "I don't think there's a sense of direction," he said. "The market is marking time."
Still, Rupert Murdoch's British Sky Broadcasting (BSY) advanced US$1.13 to $52 amid reports that the satellite service provider is in merger talks with France's Canal Plus SA -- a tie-up that would create Europe's biggest TV behemoth. Murdoch's News Corp. (NWS), which owns 40 percent of BSkyB, was up 19 cents at $29.38.
On this side of the Atlantic, cable outfit Adelphia Communications (ADLAC) shed $1.38 to $60.25 as it agreed to fork over more than $2 billion in cash and stock for rival FrontierVision Partners. The acquisition will add about 700,000 subscribers to Adelphia's East Coast base of nearly 2.4 million customers.
And here's the New York Post with an anonymously sourced story that USA Networks is negotiating with Cablevision Systems to buy the latter's American Movie Classics, Bravo, Independent Film Channel, and Romance Classics assets for about $2 billion. USA would use the additional channels to promote the Lycos online portal, the Post said, presuming the troubled Lycos deal goes through. Lycos would in turn give a greater Net presence to the TV properties.
USA Networks (USAI) rose $2.81 to $42.44, and Cablevision (CVC) was $1.75 higher at $66.25. Lycos (LCOS), soon-to-be parent of Wired News, climbed $4.38 to $94, boosted by a report that the company's online reach has increased by more than 27 percent to almost half of all Net users.
Anyway, what's really important here is that there's another auction service available online. Sharper Image (SHRP) gained $1.19 to $15.19 as it took the wraps off a new auction channel allowing customers to bid for goodies like the Turbo Groomer nose-hair trimmer and a portable AM-FM radio with built-in smoke detector.
For its part, Barnes & Noble (BKS) plunged 13 percent to $31 after warning that earnings won't be up to snuff for the latest fiscal year. The bookseller said it expects to report profit of 76 cents a share for the year ended 30 January -- 4 cents shy of estimates. The company noted that it's spending big bucks for its Internet division to compete with Amazon.com, and this is impacting its bottom line.
Tech stocks found reason to rejoice in Greenspan's observation that "the newer technologies have made capital investment distinctly more profitable." This one comment was sufficient to buoy the entire sector as the rest of the market floundered.
Microsoft (MSFT) also received a helping hand from Morgan Stanley Dean Witter's influential Mary Meeker, who said she doesn't expect the current antitrust trial to have much of an impact on Redmond's growth. The company's stock rose $6.63 to $155.44.
Micron Technology (MU) advanced $2.13 to $70.25 as Donaldson, Lufkin &, Jenrette upgraded its rating for the chipmaker's stock to "buy" from "market perform." Intel (INTC), meantime, was $1.44 higher at $134.25 after saying it expects e-commerce to exceed $1 trillion by 2002. Market researcher International Data Corporation sees that figure coming in around $68 billion this year.
Wireless carrier Nextel Communications (NXTL) slid $1.13 to $30.81 as it posted a fourth-quarter loss of $1.43 a share. Even though this represents a marked improvement over the firm's year-ago setback of $3.18, it was still 2 cents worse than analysts had expected.
Starbucks (SBUX) climbed $2.50 to $52.38 after announcing a two-for-one stock split. The company also said at its annual shareholders' meeting that it expects to open 500 outlets worldwide in the current fiscal year.
Lastly, an outfit called Corporate Executive Board (EXBD), which advises other companies on how to do business, set a fine example by surging 26 percent to $23.88 on its first day of trading. The firm debuted with 8.2 million shares initially priced at $19 apiece.
