It's Gotta Make Compaq Feel Small: Market Rallies Despite Warning

Monday, Monday ... and a triple.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 165.67 +1.6% 10,339.51 +12.6% S&P 500 10.29 +0.8% 1358.64 +10.5% Nasdaq 5.76 +0.2% 2598.81 +18.5% Russell 2000 6.46 +1.6% 412.32 -2.3% TSC Internet 58.51 +8% 790.44 +87.3% TSC E-Commerce 3.77 +2.9% 135.59 +59.3% TREASURY BOND CHANGE VALUE YIELD 30-Year 8/32 97 3/32 5.449%

For the third consecutive week, stocks emerged from the weekend in furious fashion, sending major market proxies to record highs. Today's ascent was the most impressive, however, as it not only overcame but overwhelmed a profit warning from Compaq (CPQ Quote), which fell 22.2%.

The Dow Jones Industrial Average led its younger counterparts out of an early-morning forest fertilized by worries about Compaq's announcement. After dropping as low as 10,096.69 early on, the Dow broke back into positive territory shortly after 11 a.m. EDT and barely paused thereafter. The index climbed as high as 10,340.62 in the final hour of trading before closing up 165.67, or 1.6%, at another all-time high, 10,339.51.

Dow gainers were led by American Express (AXP Quote) and General Electric (GE Quote).

Following the Dow's lead, the S&P 500 overcame an early decline to as low as 1333.07 to establish its fourth consecutive record, up 10.29, or 0.8%, to 1358.64.

"I think today's market activity nearly mirrors what happened with stocks in February where you saw a push to the defensive growth side of the equation while the Nasdaq and high growth part of the equation faltered," said Brian Belski, chief investment strategist at George K. Baum in St. Louis. "You have financials, cyclical stocks, retailers and even some healthcare stocks stepping up to the plate today, picking up the slack so to speak."

Indeed, the S&P 500 was led by a variety of names in those respective groups. The American Stock Exchange Broker/Dealer Index rose 4.1%; the Morgan Stanley Consumer Index gained 1.5%; the Morgan Stanley Cyclical Index rose 1.7%; and the Philadelphia Stock Exchange Gold & Silver Index climbed 3.5%.

Belski also observed that "old, hard-line cyclical stocks," such as International Paper (IP Quote), Caterpillar (CAT Quote) and DuPont (DD Quote), were the Dow's biggest percentage gainers.

"You have people talking about the narrowness of breadth -- I don't agree," the strategist said. "The evidence is today, when you have other groups stepping up. Everyone is so lost within tech that when tech falls almost no one is talking about these different stocks rising to the forefront."

Retailers such as Wal-Mart (WMT Quote) have been "taken for granted" despite a "great period of outperformance," he noted.

The Nasdaq Composite Index did lag its blue-chip counterparts, but managed to climb from its morning nadir of 2526.84, rise as high as 2606.24 and finish up 5.76, or 0.2%, to a record 2598.81.

MCI WorldCom (WCOM Quote) was the best performer of traditional tech heavyweights, but others suffered in the wake of Compaq's announcement.

Intel (INTC Quote) lost 6.5% following a downgrade by BancBoston Robertson Stephens. Elsewhere, Dell (DELL Quote) and Gateway (GTW Quote) each lost 4%, Lucent (LU Quote) fell 6.1% and EMC (EMC Quote) dipped 3.2%.

Thus, the Nasdaq 100 fell 0.6%, the Morgan Stanley High-Tech 35 lost 2.8% and the Philadelphia Stock Exchange Semiconductor Index lost 5.5%.

While traditional tech leaders struggled, online plays again proved invulnerable.

TheStreet.com Internet Sector index jumped 58.51, or 8%, to an all-time high of 790.44. TheStreet.com E-Commerce Index gained 3.77, or 2.9%, to a record 135.59.

Net leviathans America Online (AOL Quote) and Yahoo! (YHOO Quote) sat out the rally, but they proved an exception.

A bevy of DOT and E-Commerce index components hit new highs, including @Home (ATHM Quote), CMGI (CMGI Quote), Excite (XCIT Quote), Ameritrade (AMTD Quote) and E*Trade (EGRP Quote).

Additionally, RealNetworks (RNWK Quote) rose 18.6% on word of its partnership with IBM (IBM Quote) to develop standards for online music transmission. IBM, meanwhile, fell 1.5% and was the Dow's biggest drag.

Among secondary Net names, big gains were sported by AboveNet (ABOV Quote), Net.B@nk (NTBK Quote), and Go2Net (GNET Quote), among others.

Small-Cap Revival?

Overshadowed somewhat by the turnaround performance of the "Big Three" averages, the Russell 2000 was the best performer for the second straight session, rising 6.46, or 1.6%, to 412.32.

"No doubt this has been a big-cap dominated race, but the move in the Russell in the last three or four weeks is promising," Belski said. "Last week was pivotal because it broke out through 400. I think we're starting to see some semblance of a broadening out."

In New York Stock Exchange trading, 814.5 million shares were exchanged while gainers led losers 1,669 to 1,308. In Nasdaq Stock Market activity 1.16 billion shares were exchanged -- the fourth straight plus-billion-share session -- while losers led 2,107 to 1,945. New 52-week highs bested new lows 120 to 70 on the Big Board and 156 to 124 in over-the-counter trading.

"Compaq disappointed the Street by a huge margin and initially we came under pressure," said Anthony Conroy, head of stock trading at Bankers Trust. "But when you looked at it, it was company specific. The market is on a tear. You have slow growth, low inflation and steady interest rates -- it's almost the optimal equation for a healthy stock market."

Conroy observed the emergence of once-catatonic cyclical stocks and believes the trend will continue.

"People compare Amazon.com (AMZN Quote) to Caterpillar [and] historically [Cat] looks cheap," he said. "The economy is just so healthy and these are the companies that are going to do better."

However, "valuations are certainly high, no matter how you measure 'em," the trader warned. "The market is technically overbought, but that doesn't mean it can't go higher."

Barring a "major problem" -- such as "another Russia" or ground troops being deployed in Kosovo -- higher is where the markets will go, he said. "Everything looks great."

Among other indices, the Dow Jones Transportation Average fell 34.51, or 1%, to 3335.89; the Dow Jones Utility Average rose 2.42, or 0.8%, to 298.75; and the American Stock Exchange Composite Index gained 7.82, or 1.1%, to 735.32.

The price of the 30-year Treasury bond rose 8/32 to 97 3/32, its yield dipping to 5.45%.

Elsewhere in North American equities, the Toronto Stock Exchange 300 rose 49.11, or 0.7%, to 6938.88 and the Mexican Stock Exchange IPC Index jumped 98.40, or 1.9%, to 5303.28.

Monday's Company Report

By Heather Moore
Staff Reporter

(Earnings estimates from First Call; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.)

Compaq, the world's largest PC maker, tumbled 6 7/8, or 22.2%, to 24 1/16 following Friday's warning that it expects first-quarter earnings of 15 cents a share, less than half the 33-analyst forecast of 31 cents. Today, Morgan Stanley Dean Witter downgraded the stock to neutral from outperform; BancBoston Robertson Stephens cut it to buy from strong buy; Goldman Sachs dropped it to market performer from its recommended list; and Credit Suisse First Boston kept its buy rating on Compaq but lowered its 1999 earnings estimate for the company to $1.25 from $1.70 a share.

In sympathy, Dell lost 1 3/4 to 41 13/16 and Gateway (GTW Quote) lost 2 7/8 to 69 7/8 after Salomon Smith Barney downgraded it to neutral from buy. Hewlett-Packard fell 1 1/4 to 68 3/8 after BancBoston Robertson Stephens analyst Daniel Niles lowered it long-term attractive from buy. Intel gave up 4 1/4, or 6.5%, to 61 1/4 after the firm dropped it to long-term attractive from strong buy.

Mergers, acquisitions and joint ventures

AboveNet Communications shot up 45 7/16, or 43.4%, to an all-time high of 150 1/4 after signing a deal to co-locate DoubleClick's (DCLK Quote) Web servers at AboveNet's Internet Service Exchanges. Terms of the deal were not disclosed. DoubleClick picked up 17 5/8, or 13.7%, to an all-time high of 146 1/2.

Big Entertainment (BIGE Quote) rocketed up 16 5/8, or 106.4%, to an all-time high of 32 3/8 after CBS (CBS Quote) agreed to invest in Internet company hollywood.com as part of a joint venture. CBS slipped 1/4 to 44 11/16. Big Entertainment will own 65% of the venture and CBS will own 35%. The new venture will receive $100 million in promotion, branding and content from CBS and its radio and outdoor subsidiary, Infinity Broadcasting (INF Quote), over seven years. Big Entertainment recently announced an agreement to buy hollywood.com from Times Mirror (TMC Quote).

In a separate deal, CBS will receive 50% of the equity of storeRunner, which operates storeRunner.com, in exchange for about $100 million of promotion and branding support on CBS media over a six-year period. And in a third separate deal, Gaylord Entertainment (GET Quote) surged 4 7/8, or 20.9%, to 28 1/4 after CBS agreed to buy a Dallas TV station from the company for $485 million.

Equitex (EQTX Quote) climbed 5 1/2, or 30.8%, to an all-time high of 23 7/16 after announcing plans to buy First TeleBanc. After the deal, Equitex will change its name to Net1Bank and will apply for the symbol NBNK.

Ford (F Quote), the world's second-largest automaker, picked up 15/16 to 61 1/2 after agreeing to buy Kwik-Fit of Britain, a vehicle maintenance and light-repair chain, for $1.6 billion in cash.

Frontline Communications (FCCN Quote) jumped 3 1/16, or 22.7%, to an all-time high of 16 7/8 on word Covad Communications (COVD Quote) agreed to provide digital subscriber lines service to Frontline's customers in the Northeast. Terms of the agreement weren't disclosed. Covad rose 19, or 23.3%, to an all-time high of 100 1/2. Separately, PSINet (PSIX Quote) vaulted 8 5/8, or 16.6%, to an all-time high of 60 1/2 after Covad agreed to offer PSI customers high-speed Internet access and alternative phone services.

Newport News Shipbuilding (NNS Quote) shed 3 1/16, or 10%, to 27 11/16 after The Wall Street Journal said the Pentagon is expected to block General Dynamics' (GD Quote) $1.4 billion acquisition of the company. General Dynamics tacked on 2 7/16 to an all-time high of 69.

U.S. Office Products (OFIS Quote) increased 1 7/8, or 48.4%, to 5 5/8 after its Mail Boxes Etc. unit and eBay (EBAY Quote) signed a five-year agreement for eBay's members to receive electronic-commerce shipping services from Mail Boxes and iShip.com. eBay sloughed off 6 3/16 to 176 5/8.

RealNetworks expanded 38 5/8, or 18.6%, to an all-time high of 247 after setting a pact with IBM to develop an application that will enable consumers to receive and process music and related data from the Internet using IBM security features. IBM lost 2 7/8 to 183 7/16.

Sprint (FON Quote) hopped up 5 3/8 to an all-time high of 114 1/8 after agreeing to acquire People's Choice TV (PCTV:OTC BB) for $8 a share in cash.

Earnings/revenue reports and previews

Segue Software (SEGU Quote) skidded 1 1/4, or 18.9%, to an all-time low of 5 1/2 after restating third-quarter results after "certain sales practices" did not comply with the company's policies.

Spectrian (SPCT Quote) dwindled 1 9/16, or 15.2%, to 8 7/8 after warning it sees a fourth-quarter loss of $1.75 to $1.95 a share due to weak market conditions for some of its wireless telecommunications products and push-outs of some orders. The six-analyst forecast called for a loss of 75 cents vs. the year-ago loss of 93 cents.

In other earnings news:

Upside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
BB&T (BBT Quote)	1Q	48c	47c	41c	20	+1 1/8	38 9/16
Bear Stearns (BSC Quote)	3Q	$1.42	$1.15	$1.09	5	+3/4	50 3/8
Dow Jones (DJ Quote)	1Q	44c	38c	40c	9	+2 3/4	50 7/8
Fastenal (FAST Quote)	1Q	41c	40c	33c	6	4 1/2	42 5/8
Gannett (GCI Quote)	1Q	64c	62c	56c	13	+1 9/16	64 3/4
Genentech (GNE Quote)	1Q	44c	34c	32c	11	+2 11/16	87 1/2
Intermet (INMT Quote)	1Q	47c	44c	43c	4	+1/4	14
Jakks Pacific (JAKK Quote)	1Q	25c	15c	8c	6	+1/16	19 3/4
Ruby Tuesday (RI Quote)	3Q	35c	31c	27c	7	+9/16	17 5/8
Willamette Industries (WLL Quote)	1Q	28c	20c	20c	14	+1 5/16	39 11/16

In-Line Reports
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
Hibernia (HIB Quote)	1Q	21c	21c	26c	14	+5/8	12 1/8
Novellus (NVLS Quote)	1Q	25c	25c	60c	18	-7 1/2	56 1/4

Offerings and stock actions

theglobe.com (TGLO Quote) dropped 6 15/16, or 8.8%, to 72 1/8 after filing with regulators for a 4 million-share offering. TSC columnist James Cramer offered his thoughts on the offering in a piece this morning.

Analyst actions

Caterpillar more than inched its way up, rising 2 5/8, or 5.4%, to 51 3/8, after Merrill Lynch upgraded it to near-term accumulate from neutral.

Curative Health Services (CURE Quote) tanked 3 1/4, or 41.3%, to an annual low of 4 11/16 after BT Alex. Brown lowered it to buy from strong buy.

Charles Schwab (SCH Quote) surged 9, or 7.1%, to an all-time high of 135 after Morgan Stanley Dean Witter lifted the stock to outperform from neutral and raised its 1999 earnings estimate for the company to $1.37 from $1.34 a share. Elsewhere in the sector, E*Trade rose 5 3/4, or 6.4%, to 96; National Discount Brokers (NDB Quote) rose 15 15/16, or 34.2%, to an all-time high of 62 9/16; and Ameritrade rose 26 7/8, or 23.3%, to an all-time high of 142 1/4. Still elsewhere, Net.B@nk jumped 38 1/2, or 32.1%, to an all-time high of 158 1/2 after its CEO estimated that the company could have as many as 55,000 accounts by the end of the year. And Toronto-Dominion (TD Quote), which jumped 4, or 7.4%, to an all-time high of 57 7/8, also popped up on enthusiasm about e-commerce.

Miscellany

A handful of companies had Barron's to thank for a pop in their stocks today: Saks (SKS Quote) expanded 2 1/8, or 8.3%, to 27 11/16 on word from the weekly that the company plans to save $100 million by consolidating back office functions, acquiring leased shoe departments and taking over outsourced credit-card and real-estate operations; Tyco (TYC Quote) added 1 15/16 to 76 1/2 on word its growth is expected to be helped by recent acquisitions and the company's CEO; and Qualcomm (QCOM Quote) excelled 15 3/8, or 10.6%, to an all-time high of 160 7/8 after a global mutual fund manager called the company one of his top picks.

Altera (ALTR Quote) sloughed off 4 13/16, or 6.9%, to 65 1/16 after a federal appeals court ruled in favor of Advanced Micro Devices (AMD Quote) in a suit between the companies. The court said Altera is not licensed to eight Advanced Micro patents covering programmable logic devices now owned by its Vantis unit. AMD gave up 9/16 to 15 1/16.

MGI Pharmaceuticals (MOGN Quote) climbed 1 15/16, or 21.5%, to 11 after saying studies of its MGI 114 show that the drug may be able to inhibit the growth of human cancer cells.