Blue-chip stocks kissed right up against a milestone high Tuesday, but the lofty altitude left traders feeling queasy.
Wall Street retreated from its earlier gains in the late afternoon and ended the session on a sour note. Confidence remains high that the market is set for a big run at record territory, but clearly it's going to take a little extra oxygen to scale that particular peak.
The Lycos soap opera, meanwhile, took yet another twist, sending the portal's shares rocketing skyward.
The Dow Jones Industrial Average fell 33.85 points to close at 9693.76 after earlier coming only a point shy of the 9800 mark, while the Wired Index was 1.18 higher at 608.43. The Nasdaq Composite Index shed 4.68 to 2392.94, and the S&P 500 was down 2.89 at 1279.84.
Stocks rallied in the morning as the US Labor Department reported that productivity of American workers increased at a 4.6 percent annual rate during the final quarter of 1998, the best such showing in six years. With wages holding steady, traders read these latest stats as a sign that inflation remains nowhere to be seen, and that the Fed thus will refrain from hiking rates.
Al "The Investor's Pal" Greenspan chimed in with a speech lauding US economic expansion. "Growth of output has remained vigorous, unemployment is lower than it has been in nearly 30 years, and yet, despite the tautness in labor markets, there have been no obvious signs of emerging inflation pressures," the Fedmeister said.
And Ralph Acampora, Prudential Securities' influential market guru, told clients that he feels the Dow and S&P are through the worst of recent volatility. "In our opinion," he wrote, "the components in the Dow look spectacular."
Will the Dow reach 10,000 in the near future? Many analysts think so. But not just yet.
In the meantime, some of the biggest action was to be found in Lycos' (LCOS) corner, where the portal's stock was soaring 15 percent to US$96.25. The rise stems from David Wetherell, CEO of venture-capital firm CMGI, quitting Lycos' board to protest what he called the "inadequate" terms of the company's merger with USA Networks. CMGI is Lycos' largest investor.
Wetherell said that by exiting Lycos' board, he would be "free to explore the best options available to Lycos shareholders, including the possibility of Lycos remaining independent." Or, including the possibility of forcing Barry Diller, head of USA Networks, to revisit the deal and come up with a higher valuation of what Lycos brings to the table.
"CMGI is saying that Lycos is worth a lot more, and the shareholders are of a belief that Lycos can renegotiate a better deal," said Rob Martin, an analyst with Friedman, Billings, Ramsey. "The concept that Diller's assets are worth more than Lycos is what CMGI's balking at.
"They're not in disagreement with the synergies of the deal," he added. "They just disagree with the price."
Lycos' stock has tumbled in recent weeks amid growing dissatisfaction with the terms of the merger, under which Lycos would be joined with USA's electronic-retailing properties. In a separate deal, Lycos is now in the process of acquiring Wired News' parent company.
In the day's other rude awakening, Advanced Micro Devices (AMD) fell $1.63 to $17.31 after warning that production snafus will cause the chipmaker to report a "significant" first-quarter loss, and that it will cut about 300 jobs in coming months. The Street already was braced for an estimated quarterly loss of 9 cents a share, so AMD now can be expected to come up well short of even that mark. The company's shares have dropped almost 40 percent since the start of the year.
Microsoft (MSFT), on the other hand, gained $2.81 to $161.81 after the Seattle Times reported that the software titan and Justice Department are looking for ways to settle the government's antitrust case against the company. If so, this would follow a similar such compromise with Intel, which announced a pending settlement of its own case on Monday.
Parametric Technology (PMTC), the leading maker of software for computer-aided manufacturing, rose $1.50 to $19 after acquiring developer Auxilium for $79 million. Parametric said the purchase gives it "middleware" applications that will serve as a bridge between its design programs and those running computer networks.
Among the dot com crowd, an outfit called Rowe.com (ROWE), which helps companies manage online business libraries, surged 53 percent in its trading debut to $24.50. The company sold 3.1 million shares at an initial price of $16 each. Heads up, day traders: Next week iVillage, FlashNet Communications, and Multex.com are each slated to go public.
Online directory operator Go2Net (GNET) jumped 27 percent to $84.88 as it received a "strong buy" rating from ING Baring Furman Selz, which expects the stock to reach $100 within a year. For its part, online shopping service iMall (IMAL) was up 88 cents at $14.69 after saying it will purchase payment service Pure Payments for approximately $6.2 million.
As we all know, the Street digs a good belt-tightening. Sony (SNE) climbed $8.19 to $94 after announcing it will slash its 170,000-employee workforce by 10 percent, buy out several subsidiaries and close more than a dozen factories. The cuts come as Japan continues struggling with chronic recession, and as Sony focuses on a new generation of networked smart appliances.
Disney (DIS) slid $1.88 to $34.56 as Goldman Sachs lowered its 1999 earnings estimate for the Mouse House to 81 cents a share from 85 cents. Analyst Richard Simon said lower-than-expected earnings from movies and TV shows will impact Disney's bottom line for the next couple of years.
Lastly, RJR Nabisco Holdings (RN) is trying to go legit. The company's stock slipped 6 cents to $28.56 on word that it will sell its overseas tobacco business to Japan Tobacco for almost $8 billion, and that it will separate its US cigarette operations from its food division.
Maybe we can soon feel OK again about eating Oreos.
