After swinging away at nothing but fastballs, it was inevitable that Wall Street would get thrown a curve. The market took a pounding Friday as inflation at the consumer level registered its biggest increase in more than eight years.
While any uptick in consumer prices would send a shiver through traders, this latest news was especially startling in that it follows a slew of recent economic stats indicating inflation was nowhere to be found.
Not so.
The Dow Jones Industrial Average plunged 193.87 points to close at 10913.32, and the Wired Index was 17.58 lower at 645.10. The Nasdaq Composite Index fell 54.13 to 2527.87, and the S&P 500 was down 29.76 at 1337.80.
"Nothing stays static," said Allan Roness, research director at JW Genesis Securities. "At this point, with unemployment so low, something had to give."
Give it did. Fueled in large part by a big jump in oil prices, the consumer-price index rose 0.7 percent last month, according to the US Labor Department. Even subtracting the volatile energy and food sectors, core consumer prices were up 0.4 percent, or twice what economists had been forecasting.
The bond market wasted no time in responding. As the price of the bellwether 30-year Treasury bond tumbled, its yield surged to the highest level in about a year. Stock traders promptly began selling off shares to lock in profits from recent gains, and many shifted money to Treasuries.
While the entire market got creamed, the Dow's fall was all the more precipitous in that the blue-chip index had soared to a record high only a day earlier following release of numbers suggesting that inflation at the producer level remained a distant prospect.
There were a few half-hearted stabs at bargain hunting as share prices fell to fire-sale levels, but most traders threw in the towel around mid-day. Afternoon trading was relatively subdued, with many on the Street apparently deciding to get an early start on the weekend.
So now the guessing game begins in earnest: Will they or won't they? By that, of course, it's meant that traders are scratching their heads trying to figure what Greenspan & Co. will do with interest rates when the Fed's policy-making committee meets next Tuesday. The growing consensus is that rates are due for a hike, sooner or later.
"I don't know if they'll do it this time," JW Genesis' Roness said. "But they'll probably do it next time.
"If the market corrects sharply, that could take care of a lot of this," he added. "People would become more careful about what they do with their money, and prices would come down."
By "sharply," Roness means the Dow losing at least 10 percent of its value. "At this stage," he noted, "that would be over 1,000 points. I don't know if that's in the cards."
Let's hope not. Meantime, an Internet outfit called Alloy Online (ALOY) probably is wondering what it did wrong in a past life to get stuck with such a rotten day for an IPO.
A day before, you will recall, high-speed access provider Copper Mountain Networks saw its share price triple in its trading debut. Alloy, operator of a youth-oriented site, had to settle for its stock advancing a mere 33 percent to US$20 after arriving with 3.7 million shares starting at $15 each.
A company called Scient (SCNT) fared a bit better. The e-commerce consulting firm surged 63 percent to $32.63 as it sold 3 million shares at an initial price of $20 apiece. Scient isn't exactly a Net play, but it's close. And in many ways, having a business that's related to the Net but not wholly reliant on it is a definite plus, profit-wise. Scient's client list includes the likes of eBay and First Union.
Priceline.com (PCLN) remains much adored by industry watchers. The purveyor of cut-rate airline tickets and hotel rooms climbed $11.31 to $132.81 after Merrill Lynch boosted its revenue estimates for the company. "Priceline.com's stock appears extraordinarily expensive, but the company's early growth suggests to us that it could eventually grow into its valuation," said analyst Henry Blodget.
Or it could just be extraordinarily expensive.
Merrill Lynch also extended a helping hand to Oracle (ORCL), which saw its share price drop Thursday amid nervousness that the company may come up short in the earnings department. It's now rebounded 87 cents to $23.88 as the brokerage called Oracle's stock "significantly undervalued" for any investor with sufficient patience to wait out Y2K worries. Oracle also was upgraded by Prudential Securities to "strong buy" from "accumulate."
Elsewhere in tech, 3Com (COMS) attracted plenty of attention as speculation grew that the networking company is ripe for acquisition. These rumors have been floating around for a while, but were rekindled by Business Week noting that Lucent Technologies and Sweden's Ericsson may be prime suitors. 3Com gained $1.93 to $28.50.
Iridium (IRID), the once-bright satellite communications provider, fell 28 percent to $10.44 as the company said it had brought in investment bank Donaldson, Lufkin & Jenrette to help it restructure $800 million in debt. Iridium has stumbled both in attracting subscribers and in placing new satellites in orbit, and will have to work hard to win back investors' trust.
Lastly, an object lesson in the value of hanging out with the right crowd. Pegasystems (PEGA), a developer of e-commerce software, jumped 30 percent to $6.53 after America Online said it would use the company's applications to automate billing inquiries.
Traders tipped their hats to this apparent vote of support from the world's biggest online service, and chose to ignore the fact that Pegasystems also reported a first-quarter loss of 29 cents a share, or almost twice as much as expected. Talk about accentuating the positive.
