Investment Opinion
FOOL PLATE SPECIAL

Employment Up, Market Down

When the Labor Department reported that "nonfarm payrolls" had completely blown away economist estimates this morning, massive institutions feared a preemptory Federal Reserve rate hike to continue the long campaign against inflation. Thus began a shift in their asset allocations, causing stocks to plummet in a wave of selling. Most major market indexes were down big in early trading, with the New York Stock Exchange putting the breaks on computer-guided block trading and also instituting the side-car rule.

"Nonfarm payrolls" measure the change in the number of people employed in a given month, taking out seasonal agricultural workers. When nonfarm payrolls rose by a much-greater-than-expected 348,000 in May, it caused many institutions to conclude that growth in the economy was accelerating. Institutions are afraid of accelerating growth because it could prompt the Fed to hike interest rates in order to slow the inflationary growth. Estimates had been for only a 165,000 increase, just to give you a sense of why the institutions are running scared this morning.

Trying to read the mind of the Fed is an age-old pastime of Wall Street. This is because when the Fed hikes rates, it makes bonds much more attractive to institutions looking to guarantee a fixed return year after year, and causes them to decrease their exposure to the stock market. Although these temporary blips are scary, individual investors with time horizons of longer than two to five years should view them as opportunity and not disaster. Add to this the fact that recent changes in the way nonfarm payrolls are calculated have the "net impact of the post-benchmark revisions [increasing] employment rates further", according to Bureau of Labor Statistics Commissioner Katharine Abraham in testimony to Congress, and this blip might just be an anomaly.

UPS

AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> got a helping hand from Steve Eskenazi this morning, who put his second "strong buy" rating on the shares in the last month after the pounding the stock has taken over the last few days. Shares rallied $1 5/8 to $48.

Wayne Huizenga's REPUBLIC ENVIRONMENTAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RESI)") else Response.Write("(NASDAQ: RESI)") end if %> did a heck of a lot better today than his Miami Panthers did last night, moving up $1 3/4 to $23 3/4 after announcing a two-for-one stock split.

Initial public offering (IPO) CHS ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CHSE)") else Response.Write("(NASDAQ: CHSE)") end if %>, a distributor of computer hardware and software, bucked the market trend and rose $1 1/2 to $14 on its first day of trading. It opened at $12 1/2, though, after being priced at $15 last night.

DOWNS

INTERNATIONAL BUSINESS MACHINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> dropped $3 1/8 to $98 1/8 this morning after the company held a meeting with analysts yesterday where it cited continued pricing pressures, an inability to meet sales targets and the strong dollar as reasons why analysts should lower their numbers. Merrill cut its numbers while Smith Barney went as far as to cut its rating.

DIGITAL EQUIPMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DEC)") else Response.Write("(NASDAQ: DEC)") end if %> continued to slide on estimate slicing and rating slashing, falling another $1 1/8 to $45 3/8 after yesterday's round of cuts was kicked off by Goldman Sachs.

HUMANA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUM)") else Response.Write("(NYSE: HUM)") end if %> got smashed this morning, plummeting $4 3/4 to $18 3/8, after the company lowered its second quarter earnings per share (EPS) expectations to $0.18 from $0.22, causing a whole bunch of sell-side analysts to break out the scissors and downgrade the health maintenance organization.

Security provider CHECKPOINT SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKP)") else Response.Write("(NYSE: CKP)") end if %> continued to sink lower, down $1 3/8 to $33 5/8, driven by a strange conjunction of the Cabot Market Letter's perceived problems and profit-taking from its recent surge. Another Cabot baby, ZOLTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZOLT)") else Response.Write("(NASDAQ: ZOLT)") end if %>, slipped $2 to $64 as well.

Software tools developer PURE SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRSW)") else Response.Write("(NASDAQ: PRSW)") end if %> announced that it would be buying software-testing concern ATRIA SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ATSW)") else Response.Write("(NASDAQ: ATSW)") end if %> in a stock-for-stock deal that actually valued Atria at less than it closed at yesterday, causing Atria shares to fall $3 1/4 to $60 3/4 this morning.

MERCURY INTERACTIVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MERQ)") else Response.Write("(NASDAQ: MERQ)") end if %> might be down $1 1/8 to $12 3/8 today because of the Pure-Atria merger -- Mercury is a major competitor of Pure Software and definitely loses if Pure's visions of becoming the Cisco of the software building industry come to pass.

Drug developer ANESTA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NSTA)") else Response.Write("(NASDAQ: NSTA)") end if %> clunked down $4 to $13 1/4 when it announced this morning that it was filing to issue three million more shares to get working capital, implying shareholder dilution.

Yesterday's rating of "market performer" from Schreoder Wertheim for WET SEAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WTSLA)") else Response.Write("(NASDAQ: WTSLA)") end if %> is not helping the shares this morning, which slipped $2 to $23 today in heavy trading.

NUKO INFORMATION SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NUKO)") else Response.Write("(NASDAQ: NUKO)") end if %> dropped another $7/8 to $16 3/4 three days after the high-profile XDSL deal with WESTELL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSTL)") else Response.Write("(NASDAQ: WSTL)") end if %> was announced.

Randy Befumo (MF Templar), a Fool
Selena Maranjian (MF Selena), another Fool

Transmitted: 06/05/96