Alan Greenspan, chairman of the Federal Reserve, has hinted that stocks are overvalued, but on Saturday, Warren Buffett, the billionaire sage investor from Omaha, said most of them are. The result was a lot of fast shuffling on Wall Street as institutional investors faced the end-of-month deadline for first-quarter performance reports.
The 30-stock Dow Jones industrial average, trading for the first time with four substitute components, ended a seesaw day with a gain of 20.02 points, at 6955.48, on New York Stock Exchange volume of 494 million shares.
But losing stocks held a 2-to-1 edge over winners among NYSE-listed issues. The Nasdaq composite index fell 13.54, to 1279.43.
Computer-technology stocks suffered much of the selling. The technology stock index at the Chicago Board Options Exchange fell 2.18 points, or 1.1 percent, to 187.77. Among computer-technology stocks, semiconductor giant Intel and computer-networking leader Cisco Systems slipped as the most-active Nasdaq issues.
A general fear that stocks are overpriced–a point made by Buffett in his annual letter to shareholders of his Berkshire Hathaway holding company–focused attention on many of the high-flying technology stocks. And the fear that the Federal Reserve will stage a preemptive strike against inflation by boosting short-term interest rates next week added to the malaise, said David Wu, technology stock analyst for ABN-AMRO Chicago Corp.
“If you’re scared of the Federal Reserve, you sell stocks that have gone up a lot,” he said. “If you’re nervous about the market, would you buy technology stocks? People were scared (Monday), and they were selling technology. It’s really nothing very profound.”
International Business Machines led the Dow industrials lower with a drop of $4.12, to $139.50. Micron Technology slumped in after-hours trading after the company posted fiscal second-quarter results.
The new stocks in the Dow 30 had mixed results. Travelers Group, which replaces Westinghouse Electric, fell $1.37, to $51.62; Hewlett-Packard, succeeding Texaco, gained 25 cents, to $55.62; Johnson & Johnson, replacing Bethlehem Steel, closed unchanged at $57.87; Wal-Mart Stores, replacing Woolworth, added 25 cents, to $28.87.
Philip Morris and other tobacco stocks fell after the U.S. Supreme Court refused to take up a Florida Supreme Court decision letting the state sue cigarette makers for Medicaid-related costs.
Treasury bonds eroded sharply in early trading, pushing the yield on the benchmark 30-year Treasury bond to 7 percent at mid-day–the highest level since late September. But the 7 percent yield attracted buyers, prompting a recovery in blue-chip stocks and bonds late in the day.
The central bank’s Federal Open Market Committee, which sets monetary and interest-rate policy, is due to meet next Tuesday. As usual, the buildup to the meeting involves an intense guessing game about what the Fed will do to short-term interest rates.
Sentiment is growing that the Fed will push rates higher, if only to assert its independence from political forces urging no action.
James Kochan, director of fixed-income asset management at Robert W. Baird in Milwaukee, said “to delay (an interest-rate hike past March 25) would increase the risk that the economy continues to gather momentum and that, eventually, Fed tightening would be more severe and more prolonged.”
Not everyone agrees. David Munro, an economist at High Frequency Economics in Valhalla, N.Y., said no data supports a rate hike. “It would be overly preemptive to tighten this month on the fear that inflation might begin to heat up next winter, which a policy change now would have its full impact,” he said.
Dis-Advanta: Advanta, one of the nation’s leading credit card issuers and a darling among investors who like the generous profits the credit card industry has produced in recent years, took it on the chin Monday.
Advanta, based in Spring House, Pa., fell $8.50, to $31.87, in heavy trading after the company said higher credit card loan delinquencies will cause the company to post an unexpected $20 million loss in the first quarter.
Advanta, the nation’s ninth-largest credit card issuer, said it may sell its business and announced that its chief operating officer, David Brooks, resigned after just two months on the job.
Last week, the American Bankers Association reported that the level of past-due credit card loans hit a record-high 3.7 percent in the fourth quarter.
Moody’s Investors Service on Monday cut its credit rating on Advanta and its bank subsidiaries, saying, “Advanta’s credit card losses have accelerated at a rapid pace.” The worst loans appear to be the company’s most recent loans, a sign of poorly managed growth, Moody’s said.
Local news: Baxter International’s chief financial officer, Harry Kraemer, said he expects first-quarter sales growth to be less than expected but said he agreed with the Wall Street consensus forecast for profits in the first quarter and full year. Analysts expect Deerfield-based Baxter to earn 55 cents a share in the quarter, up 8 percent, and $2.37 a share for the year, up 12 percent, according to First Call.
– Sabratek, Niles, a provider of infusion-therapy systems to the health-care industry, fell $2.25, to $22.50, after the company said it plans to sell 1.7 million more shares to the public. Company insiders plan to sell an additional 532,028 shares. Sabratek has 8.1 million shares outstanding.
– DeKalb Genetics, DeKalb, a developer of agricultural seeds and swine breeding stock, fell $4.62, to $56.37. The company said it knew of no reason for the drop.
