Market stumbles on rate hike fears

Frontline Solutions, June, 2004 by Margot Crabtree

On its maiden voyage, the Frontline Ticker followed the stock market into negative territory. The ticker follows the fortunes of 46 public companies, collectively representing the supply chain industry. The ticker's index shed 46.95 points or 4.94% to close at 904.07 for the month ended April 30, 2004. Decliners overpowered advancers by a 33 to 13 count.

The stock market slid on fears that stemmed, ironically, from positive indicators. The upward trend of the economy and the positive earnings reports of companies in the first quarter of the year will likely cause the Fed to raise interest rates off their rock-bottom 1958 lows. Although market buzz says the Fed won't make the move until August, investors merely shrugged at robust corporate earnings and other favorable reports.

Some market watchers, however, said the Fed's anticipated move is to be expected. "The rash of data over the last month suggests the Fed will move sooner rather than later, so the market gets nervous," writes Kevin Caron, a market strategist at Ryan, Beck & Co., headquartered in Livingston, N.J.). "But ultimately it is the earnings that drive stock prices, not what the Fed does. And the longer-term prospects are for strong economic growth, higher earnings, and better stock prices."

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Shares of 3M forged ahead this session after the company beat analysts' estimates for first-quarter earnings. The company posted net income of $722 million, or $0.90 per share, compared with $502 million, or $0.63 per share, in the same quarter last year. Average consensus estimates reported by Thomson First Call were $0.87 per share. 3M also beat its own projections, raised in mid-March. The company added 4.61 points, or 5.63%, to close at 86.48. 3M was our top dollar gainer this month.

Although Siemens reported that net profits doubled in its second quarter, shares of the company slid 2.67 points, or 3.61%. Net profit for the quarter that ended March 31 came in at $1.43 billion, compared with $680 million earned in the comparable quarter a year ago. Analysts, however, were expecting profits of $1.67 billion. Investors also bailed out because of weakness in the company's transportation division, after a recall of its Combino railcars. Siemens closed at 71.38.

Metrologic crumbled this session despite reporting a gain in net income to $5.1 million, or $0.22 per share, up from $1.9 million, or $0.11 per share, earned in the same quarter last year. Metrologic rose about 950% last year, but stock prices are down about 48% from highs reached in January. The company said it expects sales in the second quarter to range from $39 million to $40 million, nearly flat compared with sales of $39.7 million in the first quarter. "It's a little puzzling," writes stock analyst James Ricchiuti of Needham & Co (New York, N.Y.). "They had a very strong earnings report, but I think it's possible that people looked at the strength of the first-quarter results and then saw the guidance for the June quarter ... and possibly reacted to that." Shares of Metrologic dropped 7.70 points, or 32.91%, and ended the session at 15.70. Metrologic was our top dollar and percentage loser.

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Margot Crabtree is an independent stock researcher at Trade Trends Inc., a financial information provider in Louisville, Colo. Reach her at stockindex@frontlinetoday.com.