As expected, the Dow Jones Industrial Average turned tail and fled Tuesday after its first-ever close above the 10000 level, giving up almost half its gains from the day before.
This was due in part to winded investors pausing to catch their breath, as market watchers like to say, and to Dow component Coca-Cola taking much of the fizz out of Wall Street's bubbly enthusiasm.
Also as expected, the Fed decided to leave key interest rates unchanged as the US economy keeps powering forward without any hint of inflation waiting in the wings. Greenspan & Co. kept the federal funds overnight bank lending rate at 4.75 percent, and the discount rate on emergency loans at 4.5 percent. The former is the biggie, affecting corporate bonds, credit cards, and home mortgages.
The Fed offered no clue, however, as to its thinking, which leaves traders in the dark as to future rate changes. The Dow in turn fell 93.52 points to close at 9913.26, and the Wired Index was 1.39 higher at 636.55. The Nasdaq Composite Index shed 12.55 to 2480.29, and the S&P 500 was down 9.42 at 1300.75.
"The market always pulls back in situations like this," said Ulric Weil, an analyst with Friedman, Billings, Ramsey. "When we had Coke's announcement after the close on Monday, it was obvious the market would go down."
Coke (KO) graciously waited until the blue-chip index had logged its milestone five-digit finish before warning that worldwide sales may decline as much as 2 percent in the first quarter, due mostly to weak demand in Europe and Latin America. Goldman Sachs promptly cut Coke from its recommended list, and the company's stock shed US$1.50 to $63.31.
Would the Dow have remained atop 10K if Coke had revealed its bad tidings earlier in the day? Probably not.
Tech shares were the one bright spot for much of the session, before slipping into the minus column just before the closing bell. America Online (AOL) paced the pack, advancing $13.19 to $145.56 as it detailed its burgeoning e-commerce alliance with Sun Microsystems (SUNW).
New products will include applications for messaging and email, and for online billing. They're slated to start shipping early next year, and will almost surely, and not coincidentally, steer as much business as possible in the direction of both Sun and AOL. Sun's shares were up $1.44 at $125.94 on the news.
Friedman's Weil thinks AOL will reap most of the benefits from the alliance. "This will unleash a flood of e-commerce business coming to them," he said. "This anticipation is what is fueling Wall Street."
Well, there were one or two other factors at work. Amazon.com (AMZN) jumped $15.06 to $164.69 as it took the wraps off a new auction service. Pacific Crest Securities raised its rating for the company's stock to "strong buy" from "buy," and observed that Amazon is on track to resemble a "Wal-Mart of the Web in less than 10 years." Analyst Steve Weinstein predicted that Amazon's share price could rise as much as 800 percent in that time.
Who knows? The company might even turn a profit as well.
Yet another sky-high Internet IPO also provided some cheer. Priceline.com (PCLN), which allows users to bid for airline tickets and hotel rooms, blasted 331 percent higher to $69 after debuting with 10 million shares initially priced at $16 each.
Priceline benefits from a leadership position in its particular market niche, as well as an aggressive (and rather annoying) ad campaign featuring Captain Kirk himself, William Shatner. It's also losing money hand over fist, but, hey, you can't have everything.
AboveNet Communications (ABOV), meanwhile, surged 32 percent to $106.81 after announcing a two-for-one stock split. The company, which provides Internet connectivity for e-commerce outfits, said the split will affect all shareholders of record as of 14 April. AboveNet went public last December at an initial price of $13 a share.
Newly christened Fatbrain.com (FATB) -- as of Monday, it was still plain old Computer Literacy -- dropped 15 percent to $24 even as it reached marketing accords with Microsoft and Deja News. The online purveyor of technical books and manuals doesn't seem to have inspired investors with its snappy new name.
For its part, online computer retailer Cyberian Outpost (COOL) fell 9.8 percent to $19.56 after reporting a pro forma quarterly loss of 34 cents a share, which was still 4 cents better than expected and a considerable improvement over the company's 48-cent setback a year ago. Darryl Peck, Cyberian's CEO, said the company's strategy is to focus on "providing superior service and comprehensive product selection."
Now there's a novel business model.
Nettaxi (NTXY), an online community builder, climbed 13 percent to $14.56 after saying it will purchase Plus Net for about $70 million. Plus Net operates a portal and search engine, which Nettaxi will use to allow its "citizens" to chase down topics within the company's own Web sites.
In telecom, Iridium World Communications (IRID), operator of the first satellite-based phone network, tumbled 16 percent to $16.75 after Merrill Lynch downgraded the company's shares to near-term "neutral" from "accumulate." Analyst Thomas Watts said Iridium will need to come up with $1 billion over the next two years to cover expenses, which won't go over well with Motorola and other venture partners.
Bike maker Huffy (HUF) -- boy, remember them? -- also took a spill, falling 12 percent to $13.44 after warning that first-quarter earnings will be as low as 8 cents a share due to increased labor costs. Analysts had been looking for 30 cents.
Lastly, USA Floral Products (ROSI), the world's largest distributor of flowers and plants, wilted 38 percent to $6.75 after it too warned that first-quarter results won't make the mulch. The company said slumping sales will mean its income will be about half the anticipated 47 cents a share. Several brokerages downgraded USA's stock.
The company did say it's looking to expand online sales, but day traders wouldn't take the bait.
