Blue-Chips Meander, Techs Jump as Greenspan Equivocates

Alan Greenspan speaks with a forked tongue. Maybe that's a harsh (and possibly illegal?) thing to say about the chairman of the Federal Reserve, but Greenspan does have an "on the one hand, one the other hand" way of speaking. Today, various market sectors responded very differently to his Humphrey-Hawkins testimony.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 8.26 -0.1% 9544.42 +3.9% S&P 500 0.96 -0.1% 1271.18 +3.4% Nasdaq 34.34 +1.5% 2376.35 +8.4% Russell 2000 1.19 +0.3% 399.01 -5.4% TSC Internet 23.55 +4.8% 514.53 +26.6% TSC E-Commerce 0.18 -0.2% 97.71 +14.8% TREASURY BOND CHANGE VALUE YIELD 30-Year 31/32 97 16/32 5.420%

The bond market tumbled, focusing on Greenspan's hints that the Fed's third rate cut last fall may have been overkill, and on his somewhat rote concerns about the possibility of inflation's reemergence (the economy "appears stretched in a number of dimensions"). The price of the 30-year Treasury bond fell 31/32 to 97 16/32, its yield rising to 5.42%.

Blue-chip stocks were stymied by the aforementioned, plus the statement "equity prices are high enough to raise questions about whether shares are overvalued." Technology stocks, meanwhile, stormed higher as Greenspan again effusively praised the sector. To wit:

"It seems likely that the synergies of advances in laser, fiber optic, satellite, and computer technologies with older technologies have enlarged the pool of opportunities to achieve a rate of return above the cost of capital. Moreover, the newer technologies have facilitated a dramatic foreshortening of the lead times on the delivery of capital equipment over the past decade, presumably allowing businesses to react more expeditiously to an actual or expected rise in nominal compensation costs than, say, they could have in the 1980s. In addition, the surge in investment not only has restrained costs, it has also increased industrial capacity faster than factory output has risen. The resulting slack in product markets has put greater competitive pressure on businesses to hold down prices, despite taut labor markets.

The role of technology in damping inflation is manifest not only in its effects on U.S. productivity and costs, but also through international trade, where technological developments have progressively broken down barriers to cross-border trade."

The Nasdaq Composite Index rose as high as 2386.48 in the wake of those comments and closed up 34.34, or 1.5%, to 2376.35.

Tech stocks were further aided by positive comments from Morgan Stanley Dean Witter analyst Mary Meeker about Microsoft (MSFT Quote), which rose 4.5%. The ongoing BancBoston Robertson Stephens Technology '99 Conference also provided a lift. (TheStreet.com is providing coverage of the confab.)

The Nasdaq got an additional boost from bellwethers such as Intel (INTC Quote) and Dell (DELL Quote). The Nasdaq 100 rose 1.6% although the Philadelphia Stock Exchange Semiconductor Index dipped 0.5%.

Internet Stocks, Except Brokers, Trade Up

While chip and equipment makers stumbled, the bulk of Internet stalwarts were notably higher, led by Amazon.com (AMZN Quote), Yahoo! (YHOO Quote) and Excite (XCIT Quote). Additionally, America Online (AOL Quote) rose 1.7% to a new all-time high of 89 1/2 on its first day of post-2-for-1-split trading.

TheStreet.com Internet Sector index jumped 23.55, or 4.8%, to 514.53. However, TheStreet.com E-Commerce Index slid 0.18, or 0.2% to 97.71 as online brokers tumbled.

The Dow Jones Industrial Average, meanwhile, fell to its low of 9473.24 immediately after Greenspan's testimony was released at 10 a.m. EST. The index recovered to as high as 9611.32 before 11 a.m., but slipped again and spent the afternoon in modestly negative territory. The Dow closed down 8.26, or 0.1%, to 9544.42. 'This is a sort of dissonant market where you got a few stocks hitting new highs and lots of others hitting new lows, which doesn't inspire confidence,' said IJL's Doug Myers. 'At the same time, it doesn't make me want to act like Chicken Little.'

Weakness in General Motors (GM Quote) as well as consumer staples Coca-Cola (KO Quote) and Procter & Gamble (PG Quote) prevented the Dow from building on yesterday's breakout session.

The S&P 500 closed off 0.96, or 0.1%, to 1271.18, unable to parlay into gains the strength in technology, as well as select drug makers such as Warner Lambert (WLA Quote) and financials such as BankBoston (BKB Quote).

The Russell 2000, however, gained 1.18, or 0.3%, to 399.

"This is a sort of dissonant market where you got a few stocks hitting new highs and lots of others hitting new lows, which doesn't inspire confidence," said Doug Myers, vice president of equity trading at Interstate/Johnson Lane in Atlanta. "At the same time, it doesn't make me want to act like Chicken Little. Techs are doing better, some of the banks did better, and retailers like Nike (NKE Quote) did well. At the same time, Coca-Cola is off [2.6%]. You've got all this tempest-in-a-teapot-type behavior and you end up down 8."

Because of Greenspan's testimony it was "not a business as usual type of market," Myers said. "What he was trying to say is, 'The Fed has decided to not do anything but continue to monitor the situation and take appropriate action when necessary,' but he's not paid to go in there and say that. That causes the type of market that gives you the seesaw action and you don't feel like you got anywhere."

In New York Stock Exchange trading, 781.2 million shares traded while declining stocks led advancers 1,710 to 1,261. In Nasdaq Stock Market activity, 917.2 million shares were exchanged while losers led 2,143 to 1,999. New 52-week lows led new highs 81 to 45 on the Big Board and by 82 to 48 in over-the-counter trading.

Greenspeak Leaves Bonds Floundering

Regarding Greenspan's testimony, Peter Canelo, U.S. investment strategist at Morgan Stanley Dean Witter, said: "I didn't find anything I didn't expect. As far as I'm concerned, it was a masterful job of saying very little."

As for the market's reaction, Canelo focused on fixed-income. The long bond's move beyond its recent trading range between 4.95% to 5.40% puts the bond market "at a critical point," the strategist said. "If we don't quickly recoup [recent losses], you have to assume the trading range in bonds has gone up and that will restrain the [stock] market. The market is a little nervous here, they don't want to see bonds fall apart."

Still, as long as bond yields remain below 6% they will only "restrain" stocks, rather than auguring a big correction, Canelo said. "I still think stocks will outperform bonds, and it's happening. My guess is the market can make marginal new highs, but I don't think we're going to blow away to 10,000."

Furthermore, a period where stocks and bonds "decouple" with stocks outperforming "is exactly what you'd expect in a period of excessive monetary expansion," he said. "There's no way [the Fed] can ease because money supply is going through the roof -- they don't have to pump it up anymore."

Despite acknowledging a bubble in asset prices exists from the "liquidity explosion," Canelo remains bullish on stocks. He notes equities continued to rise in 1987 even though the Fed raised rates seven times and argues "we're now approaching moderate overvaluation" vs. "egregious levels" reached in 1987.

Among other indices, the Dow Jones Transportation Average fell 9.86, or 0.3%, to 3221.71; the Dow Jones Utility Average slid 2.48, or 0.8%, to 296.27; and, the American Stock Exchange Composite Index rose 0.89, or 0.1%, to 700.92.

Elsewhere in North American equities, the Toronto Stock Exchange 300 fell 49.81, or 0.8%, to 6454.74 and the Mexican Stock Exchange IPC Index slipped 11.51 to 4231.67.

Tuesday'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.)

New American Healthcare (NAH Quote) plummeted 4 5/8, or 62.2%, to an all-time low of 2 13/16 after the company lowered its earnings estimates through fiscal 2000 due to pricing pressures, lower volume growth and a slowdown in physical recruitment. For the fourth quarter, New American now expects a loss of 10 cents a share compared with previous estimates for a profit of 8 cents. Credit Suisse First Boston cut the stock to hold from buy. Last night, the company's chairman and chief executive, Robert H. Martin, resigned. President Thomas W. Singleton will replace Martin as chief executive; Paul B. Queally, a director, will become chairman.

Mergers, acquisitions and joint ventures

Adelphia Communications (ADLAC Quote) lowered 1 7/16 to 60 1/4 after agreeing to acquire FrontierVision Partners for about $1 billion in cash and stock and $1.11 billion in debt.

Alamo Group (ALG Quote) skidded 2 1/4, or 19.2%, to an all-time low of 9 1/2 after saying a deal under which Woods Equipment planned to acquire the company for $18.50 a share fell through.

America West (AWA Quote) fell 3 1/4, or 15.2%, to 18 1/8 after last night saying it's no longer considering acquisition offers from other airlines. The stock surged last week on market chatter that United Airlines parent UAL (UAL Quote) made a takeover offer for the company. UAL slipped 1/4 to 61 3/4. TheStreet.com's Holly Hegeman wondered if this was really the end of merger talks for AWA in a story last night.

CalEnergy (CE Quote) shaved off 3/16 to 29 1/16 after saying it's selling 50% of its ownership interests in CE Generation, the holding company for 14 of CalEnergy's U.S. generating facilities, to an affiliate of El Paso Energy (EPG Quote) for $259.6 million. El Paso lifted 15/16 to 35 1/4.

News Corp. (NWS Quote) brought in 1/8 to 29 5/16 on word Rupert Murdoch's British Sky Broadcasting, which is 40% owned by News Corp., is in talks with France's Canal Plus about a merger that could create a TV superpower in Europe.

Zenith National Insurance (ZNT Quote) jumped 1 3/4, or 7.6%, to 24 15/16 after last night agreeing to sell its CalFarm Insurance unit to Nationwide Mutual Insurance for $272 million in cash.

Earnings/revenue reports and previews

Barnes & Noble (BKS Quote) sliced off 4 9/16, or 12.8%, to 31 3/16 after last night confirming its year-end earnings will miss estimates. The nation's largest bookseller also said it expects to report retail sales of $1.03 billion in the fourth quarter, up 7.2% from $960 million last year.

Biomatrix (BXM Quote) vaulted 3 5/8, or 7%, to 55 13/16 after reporting fourth-quarter earnings of 61 cents a share, 11 cents ahead of the three-analyst outlook and above the year-ago 9 cents.

Bright Horizons (BFAM Quote) shed 3 1/8, or 13%, to 21 even after meeting fourth-quarter earnings estimates of 13 cents a share last night.

Columbia/HCA (COL Quote) took in 3/8 to 18 3/4 after posting fourth-quarter earnings of 4 cents a share, far short of the 16-analyst view of 23 cents but a reversal of the year-ago loss of 63 cents.

Dollar General (DG Quote) hopped up 2 5/16, or 8.4%, to 29 7/8 after reporting fourth-quarter earnings of 36 cents a share, beating both the 13-analyst estimate of 33 cents and the year-ago 30 cents.

Fossil (FOSL Quote) grew 2 1/4, or 7.5%, to 32 1/8 after posting fourth-quarter earnings of 58 cents a share, topping the six-analyst forecast for 46 cents and the year-ago 32 cents.

Home Depot (HD Quote) sloughed off 15/16 to 60 9/16 after posting fourth-quarter earnings of 27 cents a share, beating the 24-analyst view by a penny and up from the year-ago 20 cents.

Intel added 1 1/2 to 134 1/4 after estimating the e-commerce industry's total annual revenue will reach $1 trillion by 2002.

Limited (LTD Quote) dropped 5/16 to 37 3/16 after recording fourth-quarter earnings of $1.07 a share, in line with the 18-analyst view and up from the year-ago 96 cents.

Manpower (MAN Quote) picked up 2 9/16, or 11.5%, to 24 13/16 after last night posting fourth-quarter earnings of 53 cents a share, a nickel ahead of estimates.

MascoTech (MSX Quote) climbed 13/16, or 5.5%, to 15 9/16 after last night topping fourth-quarter earnings forecasts by a penny with a profit of 36 cents a share.

Middleby (MIDD Quote) tumbled 29/32, or 20.1%, to 3 5/8 after last night reporting a fourth-quarter net loss of 40 cents a share, including several charges and write-downs. The two-analyst outlook called for operating earnings of 1 cent vs. the year-ago profit of 16 cents. The company also said it is not in compliance with existing covenants under its revolving credit line.

Nextel Communications (NXTL Quote) gave up 1 1/8 to 30 13/16 after recording a fourth-quarter loss of $1.43 a share, 2 cents wider than the 18-analyst estimate but narrow than the year-ago loss of $1.48.

Nordstrom (NOBE Quote) decreased 2 3/16, or 5%, to 41 11/16 after last night posting a 5.4% drop in fourth-quarter same-store sales. The retailer also posted fourth-quarter earnings of 47 cents a share, matching the 20-analyst estimate and topping the year-ago 38 cents.

PacifiCare Health Systems (PHSYA Quote) expanded 4 3/4, or 7.6%, to 67 1/4 after posting fourth-quarter earnings, excluding extra gains, of $1.18 a share, ahead of the year-ago loss of $2.78.

Service Experts (SVE Quote) stumbled 5 11/16, or 28.9%, to an all-time low of 14 after warning it expects first-quarter earnings near the year-ago 19 cents a share, citing continuing warm weather and additional fixed overhead. A 10-analyst forecast called for earnings of 28 cents. The company also reported fourth-quarter earnings of 31 cents a share, in line with the 11-analyst forecast and above the year-ago 24 cents.

Stone Energy (SGY Quote) dwindled 1 7/8, or 7.4%, to 23 1/2 after last night saying it will take a $89 million fourth-quarter charge from low commodity prices.

Tel-Save.com (TALK Quote) lost 1 11/16, or 14.1%, to 10 1/4 after last night posting a fourth-quarter net loss of $1.56 a share, including restructuring charges and an investment write-down. The single-analyst view called for operating earnings of 10 cents vs. the year-ago loss of 32 cents. The company said it expects to post positive earnings in the first quarter.

U S West (USW Quote) sank 4 9/16, or 7.3%, to 57 5/8 after warning its 1999 earnings will grow by 10% -- less than expected -- because of a $300 million effort to eliminate network bottlenecks. The company said the move is a response to aggressive actions by competitors, including AT&T's (T Quote) plans to enter four of U S West's major markets -- Denver, Portland, Ore., Salt Lake City and Seattle.

Westvaco (W Quote) slipped 9/16 to 22 3/16 after reporting first-quarter earnings of 21 cents a share, excluding a 4-cent gain, missing the seven-analyst forecast for 25 cents and falling below the year-ago 32 cents.

Offerings and stock actions

Best Buy (BBY Quote) advanced 5 3/16, or 5.8%, to 95 3/16 on leftover enthusiasm from yesterday's news that the stock will split 2-for-1.

Corporate Executive Board (EXBD Quote), which provides research and analysis on corporate strategy and operations, jumped 4 13/16, or 25.3%, to 23 7/8 after Salomon Smith Barney priced its 8.1 million-share IPO top-end last night.

Educational Video Conferencing (EVCI Quote) brought in 2 3/4, or 22.9%, to 15 after Prime Charter priced its 1.2 million-share IPO this morning at $12 a share.

TheStreet.com Inc. (TSCM:Nasdaq), publisher of this Web site, filed a registration statement with the Securities and Exchange Commission for an IPO.

Analyst actions

Salomon Smith Barney raised a handful steel stocks saying the flat-rolled market has improved dramatically over the past month. After the firm pushed them up to buy from neutral, Bethlehem Steel (BS Quote) rose 9/16, or 7.1%, to 8 1/2; National Steel (NS Quote) rose 1 15/16, or 28.7%, to 8 11/16; and USX-US Steel (X Quote) rose 1 3/16 to 25 15/16.

Citigroup (C Quote) flourished 2 3/4, or 5%, to 58 3/16 after Donaldson Lufkin & Jenrette lifted the stock to buy from market perform. Warburg Dillon Read increased its first-quarter earnings estimate for the company to 81 cents a share from 75 cents.

Immunex (IMNX Quote) shot up 20 7/8, or 15.2%, to 158 9/16 after Lehman Brothers restarted coverage with an outperform.

Micron Technology (MU Quote) excelled 2 3/16 to 70 5/16 after DLJ upgraded it to buy from market perform.

Miscellany

Corning (GLW Quote) advanced 4 3/16, or 8.3%, to an annual high of 54 1/2 after saying it sees worldwide demand for optical fiber and photonic products growing about 20% this year. The company cited greater demand for bandwidth, increased Internet usage and deregulation.

Maximus (MMS Quote) slid 4 1/8, or 11.7%, to 31 1/16 on no discernible news. The company said it knew of no reason for the drop and that its fiscal 1999 earnings estimates of $1.27 a share, as well as the company's long-term objective of 30% earnings growth, continue to be achievable.

SouthTrust (SOTR Quote) popped up 3 1/16, or 8.1%, to 40 25/32 on news it will replace Oryx Energy (ORX Quote) in the S&P 500 after the closing bell Friday. Oryx, which is being acquired by Kerr-McGee (KMG Quote), added 1/8 to 10 13/16.

Whittaker (WKR Quote) soared 2 7/16, or 13.8%, to 20 1/16 after the company said late yesterday that it hired two investment-banking firms to explore strategic alternatives.