Going Out on a High Note

Traders ended the week still uncertain about the potential fallout of Monday's AOL Time Warner merger announcement. Even as markets gained big Friday, companies involved in the deal - or bandied about as the likeliest to benefit - saw their stocks decline.

TheStreet.com's Internet Sector index rose just 0.94 percent as the Nasdaq gained 2.71 percent to close at 4064.27. The Dow saw a gain of 1.21 percent to close at 11722.98, a new record.

The equity markets are finally broadening somewhat, a fact pointed out by Fed chairman Alan Greenspan in his speech last night. The speech seemed to confirm Wall Street's opinion, already priced into the market, that a half-point rise in interest rates is forthcoming over the next two quarters. So, despite Greenspan's inflation rhetoric, the markets pretty much took his inflation rhetoric in stride. Indeed, traders seemed almost relieved at having their fears confirmed.

Along with that broadening has come volatility. The markets - especially the technology, media and Internet sectors - have spent the past two weeks in whipsaw mode, driven in part by the merger announcement and the beginning of earnings season.

On Friday, though, tech stocks got a nice boost from Intel, which reported fourth-quarter profits that outdid expectations by a wide margin. Shares gained $12, or 13.18 percent, to $103.06. Excluding acquisition charges, Intel earned 69 cents per share, surpassing even the high end of analyst estimates. The news boosted the chip sector and made up a big part of the Nasdaq's gain.

But all the cheer didn't spread into the Net sector. Traders are still working out how to react to the AOL Time Warner merger. On Thursday, even AOL gained after three days of heavy losses. But its shares headed down again Friday, dropping $2.50, or 3.82 percent, to $63.

Time Warner fell as well, losing $1.50, or 1.77 percent, to close at $83.25.

That's largely thanks to profit taking, as Time Warner shares are still up 28.5 percent since the merger announcement.

On Thursday, investors poured money into stocks they thought would benefit from the merger, either via increased business or more mergers. On Friday, most of them lost ground. ExciteAtHome, which gained more than 19 percent on merger speculation Thursday, headed down by $2, or 4.7 percent, to close at $440.56.

RealNetworks, which popped big on Thursday after Deutsche Banc Alex. Brown analyst Larry Marcus initiated coverage with a "strong buy" rating, dropped $6.81, or 4.46 percent, to close at $145.88.

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