Stock Watch

Posted: 12/2000

Stock Watch

High Wholesale Prices Spark Inflation Fears

Rising wholesale prices in September, boosted by high energy costs and
continuing consumer demand, sent inflation fears spiraling, further fueling
fears of interest rate hikes when the Federal Reserve meets again.

The Labor Department’s Producer Price Index (PPI) rose 0.9 percent, after
falling 0.2 percent in August. Analysts had expected the PPI to rise 0.5
percent. The core PPI, excluding the more volatile food and energy sectors,
still rose 0.3 percent, ahead of the expected 0.1 percent. The major culprit was
energy prices.

"These are horrible numbers, and the real horrible number is the core
rate," said Peter Cardillo, director of research at Westfalia Investments.
"This is what the market is fearful of–if we got this kind of hike in the
PPI, that means it will probably be passed on to the consumer."

The Dow Jones Industrial Average tumbled 688.20 points, or 6.30 percent, and
closed at 10238.80 at the end of our trading session (Oct. 15). The Nasdaq
Composite was hammered as investors looked for more stable valuations than those
in the formerly high-flying techs, and the index lost 544.95 points, or 14.21
percent, closing at 3290.28. The PHONE+ Stock Index also headed south, losing
568.39 points, or 12.84 percent, ending at 3859.50. Declining issues overpowered
advancing issues by a whopping 116 to 17.

As the telecom sector slid into negative territory, McLeodUSA Inc. (
rose 3.88 points, or 32.12 percent, ending at $15.94. Analysts surveyed by First
Call/Thomson Financial expected McLeod to lose $0.26 per share in the third
quarter, and to lose $0.25 per share in the fourth quarter.

Shares of ICG Communications Inc. (
were pummeled after the company warned that profits and revenues would be lower
than expected this year and next. After the warning, the company was hit by
several top-level resignations and a slew of shareholder lawsuits alleging
securities fraud. ICG shed 3.63 points, or 92.80 percent, and ended at $0.28.

PRIMUS Telecommunications Group Inc. (
lost 4.97 points, or 46.49 percent, and ended the month at $5.72. Analyst Vik
Grover at Kaufman Bros. LP reiterated his "strong buy" rating on
PRIMUS, but cut his target price from $73 to $50 per share. Merrill Lynch
analyst Craig Irvine downgraded PRIMUS to long-term "accumulate" from
long-term "buy," but maintained his near-term rating of

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