Copyright 2000 The Atlanta Constitution
The Atlanta
Journal and Constitution
March 21, 2000, Tuesday, Home Edition
SECTION: Business; Pg. 1D
LENGTH: 456 words
HEADLINE:
Markets mixed; rate increase expected
BYLINE: Tom
Walker, Staff
SOURCE: CONSTITUTION
BODY:
The Federal Reserve is expected to raise
short-term interest rates again today, but that may have less impact on the
stock market than escalating bad news among key technology stocks.
Analysts believe the market has already discounted prospects that the
Fed will raise the federal funds rate by 25 basis points to 6 percent. That
would be the highest point for the overnight bank lending rate since May 1995.
The Fed has already raised rates a full percentage point in four moves
since last June in a pre-emptive strike against inflation.
While most
inflation news remains favorable, a number of recent reports on economic
strength, combined with increased energy and wage costs, apparently have primed
the Fed to raise rates again.
The Fed is expected to pay close attention
to the recent sell-off in technology stocks that gave the tech-loaded Nasdaq
composite index its third- worst one-day point loss on Monday and second-worst
last Tuesday.
"(Monday's) tech sell-off will be clearly seen as a
positive by Fed Chairman (Alan) Greenspan, who has clearly intimated his
concerns over soaring share prices," said Standard & Poor's strategist David
Kim.
Greenspan has expressed concern that rising stock prices are
responsible for much of the consumer spending that keeps the economy running
hot. He has suggested that maybe a decline in stock prices --- or a slower bull
market --- would be a good thing.
The Nasdaq may be giving Greenspan
what he wants.
The index, which rode investor demand to a five-month, 85
percent surge that ended March 10 at a new high, has since dropped almost 9
percent.
Analysts blame a combination of excessive valuation of share
prices, concern the government will tax Internet sales and
disappointing earnings news in certain sectors.
An example of the latter
occurred Monday, when e-business software maker MicroStrategy surprised the
market with news that it will restate earnings for the last two years to conform
to Securities and Exchange Commission guidelines. The share price fell $ 140 to
$ 86.75.
Anxiety that other technology companies would follow suit
spread through the sector, analysts said, hurting other stocks. A pessimistic
article in Barron's and another bad day for biotechnology stocks contributed to
the Nasdaq's slide.
But investors continued to move into old-economy
blue chips, giving the Dow Jones industrial average a boost of almost 1 percent.
The "flight to quality" in bonds also had the effect of lowing yields on
30- year Treasuries to their lowest point in six months, below 6 percent.
The Fed's policy meeting is the major economic event of the week,
although the government is due to release trade figures today and factory orders
Friday.
LOAD-DATE: March 21, 2000
