Wall Street spent the morning still fretting about the prospect of higher interest rates, but decided by mid-afternoon Monday that a vibrant US economy could just as easily mean stronger corporate profits as it could a higher risk of inflation.
Share prices rebounded from earlier lows and were starting to flirt with positive territory for the first time of the session. It looked like the bargain hunters were unable to hold back any longer.
The Dow Jones Industrial Average rose 20.64 points to 9327.22, and the Nasdaq Composite Index was up 10.04 at 2298.07. The S&P 500 eased 2.03 to 1236.30.
In one of those perversities that show how Wall Street is different from Main Street, investors were largely disappointed in the morning by news that the US economy is doing just great. The thinking here is that rates inevitably will rise as a hedge against inflation, even though there hasn't been a hint of inflation on the horizon for many months. Bonds took another spill, and stocks followed them southward.
To civilians, it's anything but bad that the Commerce Department found that personal income grew 0.6 percent in January, and personal spending was up 0.3 percent. These stats were both ahead of economists' estimates, and indicate that the United States is fending off the instability that has rocked Asia and Latin America. Icing the cake, the National Association of Purchasing Management released figures showing that the manufacturing sector is expanding beyond expectations.
The Street, however, surveyed the landscape and saw nothing but land mines waiting to explode. Sentiment might be improving, if ever so slightly, but traders know they aren't yet out of the woods.
One of the biggest worries is the personal computer industry, which previously had been regarded as an engine of high-tech growth that would drive the entire economy forward. Now investors are wondering if the PC crowd has had its day in the sun.
"There's a general feeling that PCs won't be as necessary in the future," said William Kurtz, an analyst with HG Wellington & Co. "There's some suspicion that smart appliances might eventually take over."
This, of course, is looking way down the road to a new era of info-tech that hasn't even hit the radar screens of most consumers. But Kurtz believes that investors are trying to stay ahead of the curve, and are already anticipating an eventual decline in PC demand as households shift to next-generation smart TVs and other such goodies.
"From an investment point of view, there's a feeling that changes are coming to the industry," he said.
Meanwhile, it's business as usual. After warning that its sales slipped in January, Compaq Computer (CPQ) lost US$1.88 to $33.50. The world's largest PC maker said it will fight back by cutting prices for some models by as much as 11 percent. Still, Salomon Smith Barney lowered its first-quarter earnings estimate for the company to 30 cents a share from 34 cents.
For its part, Intel (INTC) fell $2.88 to $117.06 as Donaldson, Lufkin & Jenrette downgraded the chipmaker's stock to "market perform" from "buy." DLJ analysts told clients that "PC market growth in the March quarter is not as robust as earlier indications had suggested." They trimmed their fiscal 1999 earnings estimates for Intel to $4.50 a share from $4.65.
Underlining the notion that attention is shifting from the PC and to the TV, Conexant Systems (CNXT) advanced 31 cents to $17.31 after unveiling an all-in-one chip that it says could reduce the cost of cable modems by about 25 percent. The processor is intended to help usher in an array of digital interactive services at speeds up to 1,000 times faster than a 56 Kbps analog modem.
Speaking of fast movers, Quantum (QNTM) accelerated 18 percent to $19.44 after saying it plans to divide its common shares into two separate tracking stocks intended to chart both its disk drive and network storage operations. If approved, current shareholders would receive a half share of the disk-drive business and one share of the storage-systems unit for each share of existing Quantum stock.
This is apparently the first Silicon Valley firm to use tracking stocks as a way of placing higher value on its more successful activities. Probably not the last.
