Tech-Led Rebound Soothes Wall Street's Raw Nerves

Like a 20-something returning home after years of independence, investors at first tentatively and almost begrudgingly returned to the familiar and comfortable today. By day's end, however, they realized the joy of Mom's home cooking, a.k.a. technology stocks.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 8.02 +0.1% 10,448.55 +13.8% S&P 500 16.69 +1.3% 1306.17 +6.3% Nasdaq 64.03 +2.7% 2409.64 +9.9% Russell 2000 2.93 +0.7% 415.34 +1.6% TSC Internet 35.14 +6.3% 595.95 +46.6% TREASURY BOND CHANGE VALUE YIELD 30-Year 2/32 96 4/32 5.515%

Traditional tech and Internet bellwethers caromed off yesterday's drubbing in solid fashion, joined on the upswing by fellow growth mavens such as drug makers and retailers. Meanwhile cyclical stocks struggled, transports tumbled and market internals worsened.

After an initial hesitation, the Nasdaq Composite Index responded to yesterday's 138-point hemorrhaging by racing to as high 2408.44 around 2 p.m. EDT. The index then misfired a bit but regained its groove in the final stanza of trading, closing up 64.03, or 2.7%, to 2409.64.

The one-if-by-land, two-if-by-tech index was paced by familiar favorites, notably Dell (DELL Quote) and Sun Microsystems (SUNW Quote). The large-cap Nasdaq 100 rose 3.2%.

Meanwhile, Microsoft (MSFT Quote) rose 2.6% ahead of its profit report. After the close, the software behemoth reported third-quarter profits of 35 cents a share, up from 25 cents a year ago and 3 cents ahead of the 21-analyst First Call consensus.

Among New York Stock Exchange-traded tech bellwethers, Compaq (CPQ Quote) and Gateway (GTW Quote) enjoyed strong gains, while LSI Logic (LSI Quote) jumped 9.6% after posting better-than-expected profits. But Texas Instruments (TXN Quote) slid 4.8% despite beating Street expectations. The Morgan Stanley High-Tech 35 gained 2.1% and the Philadelphia Stock Exchange Semiconductor Index rose 1.4%.

After early timidity, Internet favorites were less restrained. Paced by America Online (AOL Quote) and Amazon.com (AMZN Quote), TheStreet.com Internet Sector index rose 35.14, or 6.3%, to 595.95. 'Traditionally there have been two emotions in the market: fear and greed,' said Ladenburg Thalmann's Tony Dwyer. 'Those emotions are now panic and euphoria. You should buy panic in tech stocks and sell euphoria in cyclicals.'

Elsewhere, Inktomi (INKT Quote), DoubleClick (DCLK Quote) and Exodus Communications (EXDS Quote) rose more than 20% apiece after Goldman Sachs added them to its recommended list. Additionally, E*Trade (EGRP Quote) rose 21.6% after posting a narrower-than-expected second-quarter loss.

On the flip side, Network Associates (NETA Quote) shed 28.3% after last night's disappointing earnings report.

Back on the blue-chip front, the S&P 500 overcame an early drop as low as 1288.28 to close up 16.69, or 1.3%, to 1306.17, snapping a five-session losing streak. In addition to the aforementioned tech plays, the index was aided by resurgent drug makers.

Stronger-than-expected earnings from Johnson & Johnson (JNJ Quote) and in-line (but optimistic) reports from Schering-Plough (SGP Quote) and American Home Products (AHP Quote) helped reinvigorate the group. The American Stock Exchange Pharmaceutical Index rose 3.5%.

The Dow Jones Industrial Average struggled throughout but closed up 8.02, or 0.1%, to 10,448.55. The Dow rose from its intraday nadir of 10,333.15 thanks largely to strength in Johnson & Johnson, General Electric (GE Quote) and Wal-Mart (WMT Quote).

Chevron (CHV Quote) was the biggest drag on the index, falling 4.8% after being downgraded by Donaldson Lufkin & Jenrette. Other energy plays also stumbled from recent gains. The American Stock Exchange Oil & Gas Index fell 2.7% and the Philadelphia Stock Exchange Oil Service Index fell 3.9%. Cyclical stocks struggled overall; the Morgan Stanley Cyclical Index fell 2.2%.

The Russell 2000 rose 2.93, or 0.7%, to 415.34.

"Another wild and woolly day," said Doug Myers, vice president of equity trading at Interstate/Johnson Lane in Atlanta. "I'm glad the Dow ended in the plus column and maybe Quasimodo is ringing the bell for the Nasdaq, but the water is still muddy."

The market "is a magician that distracts your attention into one area, then it's doing something else," Myers added. "You're paying attention to cyclicals and watching tech stocks, but while you trying to figure it out, something else happens."

The trader was unable to identify what the "something" is, but he remains on guard. "Hopefully, this kind of riptide of a market is the storm and we'll get some smooth sailing ahead," he said. "But we've still got cross-currents."

In NYSE trading, 984.1 million shares were exchanged while losers led gainers 1,672 to 1,370. In Nasdaq Stock Market activity 1.15 billion shares were exchanged -- its 11th-straight billion-plus session -- while gainers led 2,056 to 1,944. New 52-week highs edged new lows 36 to 34 on the Big Board but new lows led 78 to 21 in over-the-counter trading.

Change, the Only Constant

The big question after today's session is whether the action marks an interruption in the rotation into cyclical stocks, or a cessation thereof. As usual, there's no unanimity of opinion on Wall Street.

Those in the "cyclical now, cyclical tomorrow" camp tout the expected upturn in worldwide economic growth. But Tony Dwyer, chief market strategist at Ladenburg Thalmann, retorts that it's "hard to fathom" why investors would sell technology stocks if the world economy were improving.

"I think the rotation has been overplayed," Dwyer said. "While it is deserved because there is some pickup in the world economy, [cyclicals] shouldn't have moved up as quick as they did. I would buy cyclicals on a pullback and buy technology stocks here."

Dywer, you'll recall, recently warned about overvaluation in big-cap tech stocks. Now, "I think tech has come down too far, too fast, and cyclicals up too far, too fast," he said. "You're seeing a reversal today. People are taking profits in aluminum, paper and steel stocks and taking advance of opportunities in tech stocks.

"I'm becoming more bullish in the Nasdaq," he continued. "You can retest the lows of yesterday, but I think we're in the process of making a solid bottom. Traditionally there have been two emotions in the market: fear and greed. Those emotions are now panic and euphoria. You should buy panic in tech stocks and sell euphoria in cyclicals; that's what we're seeing in today's market."

Among other indices, the Dow Jones Transportation Average fell 72.79, or 2%, to 3493.92; the Dow Jones Utility Average gained 5.10, or 1.7%, to 303.52; and the American Stock Exchange Composite Index rose 1.87, or 0.3%, to 736.98.

The price of the 30-year Treasury bond rose 2/32 to 96 4/32, its yield falling to 5.52%.

Elsewhere in North American equities, the Toronto Stock Exchange 300 rose 17.59 to 6925.28 and the Mexican Stock Exchange IPC Index plunged 126.53, or 2.3%, to 5337.64.

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.)

With earnings reports, previews and warnings dominating individual company news, some stocks -- but certainly not most stocks -- were able to sneak out of this increasingly complex rotational market and respond simply: Good earnings make a stock go up; bad earnings make a stock go down.

Unfortunately for Network Associates, it fell into the latter category and continued yesterday's after-hours retreat, falling 4 5/16, or 28.3%, to an annual low of 11 1/16. Last night, the company posted first-quarter earnings of 30 cents a share, a penny shy of the 11-analyst First Call forecast but ahead of the year-ago 28 cents. Blaming longer sales cycles and Y2K concerns, Network said it expects to report lower revenue in the second quarter.

Mergers, acquisitions and joint ventures

Big Flower Holdings (BGF Quote) blossomed up 4 1/8, or 14.8%, to 32 after saying it will explore strategic alternatives.

Johns Manville (JM Quote) sliced off 3 3/8, or 19.7%, to 13 3/4 after announcing it hadn't received any acceptable offers for a sale or merger and saying that it was considering a secondary public offering by the Manville Personal Injury Settlement Trust and a buyback of stock by Johns Manville. The company also posted first-quarter earnings of 23 cents a share, topping the two-analyst estimate by 2 cents and moving ahead of the year-ago 16 cents.

Tenneco (TEN Quote) lowered 11/16 to 30 1/2 on news it's selling its folding-carton business to Caraustar Industries (CSAR Quote). The unit includes five converting plants and five sales-and-technical-support centers, and represents more than $100 million in annual sales, Tenneco said. Caraustar closed unchanged at 23 1/8.

Earnings/revenue reports and previews

Meredith (MDP Quote) spiked up 2 5/16, or 7.6%, to 32 15/16 after recording third-quarter earnings of 41 cents a share, a penny above the seven-analyst prediction and ahead of the year-ago 37 cents. The company also announced a deal to provide AOL with content and related links from the Web sites of Better Homes and Gardens, Ladies' Home Journal, Family Money and Crayola Kids.

Sprint (FON Quote) tacked on 3 to 100 7/16 after setting a 2-for-1 stock split and reporting first-quarter earnings of 93 cents a share, beating the 16-analyst estimate by 3 cents and moving up from the year-ago 80 cents.

In other earnings news:

Upside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
Ameren (AEE Quote)	1Q	40c	32c	29c	7	+1 1/4	38 5/8
Ameritech (AIT Quote)	1Q	63c	62c	53c	12	+2 7/16	64 9/16
BellSouth (BLS Quote)	1Q	46c	45c	40c	15	-1/2	41 3/8
Brunswick (BC Quote)	1Q	62c	60c	54c	6	-1/16	22 9/16
Chase (CMB Quote)	1Q	$1.32	$1.25	$1.17	20	-2	83
EMC (EMC Quote)	1Q	41c	40c	28c	16	+3/4	102 3/16
E*Trade (EGRP Quote)	2Q	-12c	-17c	5c	10	+15 15/16	89 13/16
Honeywell (HON Quote)	1Q	83c	80c	75c	13	-1	89 3/8
Johnson & Johnson (JNJ Quote)	1Q	82c	80c	73c	24	+6	96 1/4
LSI Logic (LSI Quote)	1Q	8c	5c	22c	10	+3 1/8	35 3/4
Mallinckrodt (MKG Quote)	3Q	75c	64c	54c	3	+2 9/16	30
Mellon (MEL Quote)	1Q	87c	86c	78c	21	-1/16	70 15/16
Occidental Petroleum (OXY Quote)	1Q	-17c	-23c	25c	14	-1/2	20 5/16
Pitney Bowes (PBI Quote)	1Q	52c	51c	45c	7	+5/8	65 9/16
Sherwin Williams (SHW Quote)	1Q	17c	15c	14c	10	-1 3/8	30 11/16
Southwest Airlines (LUV Quote)	1Q	29c	26c	20c	13	-7/16	32 1/16
State Street (STT Quote)	1Q	74c	72c	64c	12	+7/16	84 7/8
Texas Instruments (TXN Quote)	1Q	65c	61c	44c	23	-5	100
Times Mirror (TMC Quote)	1Q	58c	55c	44c	10	-1/4	61 7/8
Timken (TKR Quote)	1Q	27c	23c	78c	4	+7/16	20
Tyco (TYC Quote)	2Q	69c	65c	47c	13	-1 3/16	78 3/16
UAL (UAL Quote)	1Q	$1.54	$1.39	$1.68	11	-4	79 3/4
United Technologies (UTX Quote)	1Q	$1.25	$1.21	$1.04	15	-3 1/16	141 15/16
VF (VFC Quote)	1Q	70c	68c	62c	5	-1 11/16	51 1/16
Wells Fargo (WFC Quote)	1Q	53c	50c	41	27	+1 1/4	42 3/8

Downside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
Burlington Northern Santa Fe (BNI Quote)	1Q	50c	52c	49c	13	-1 11/16	34 1/16
Consolidated Natural Gas (CNG Quote)	1Q	$1.44	$1.52	$1.45	13	+2	58
Freeport-McMoRan (FCX Quote)	1Q	11c	12c	15c	17	-3/16	13 9/16
Parametric (PMTC Quote)	2Q	16c	17c	24c	10	-2	13 13/16
Reynolds Metals (RLM Quote)	1Q	-15c	-13c	78c	13	-1 5/16	56 11/16
Sprint PCS Group (PCS Quote)	1Q	-$1.41	-$1.29	-97c	14	+5/8	47 5/8

In-Line Reports
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts	Price Change	Close
AES (AES Quote)	1Q	39c	39c	38c	13	-5/16	50 3/4
American Home Products (AHP Quote)	1Q	49c	49c	49c	24	+2 9/16	62 5/16
Bank One (ONE Quote)	1Q	88c	88c	78c	24	-1/4	59
Equifax (EFX Quote)	1Q	31c	31c	31c	9	-3/4	36 5/16
FirstEnergy (FE Quote)	1Q	60c	60c	56c	11	+11/16	30 9/16
Genuine Parts (GPC Quote)	1Q	48c	48c	45c	4	-1/4	32 3/16
Illinois Tool Works (ITW Quote)	1Q	65c	65c	59c	8	-5 3/16	74 1/16
Lockheed Martin (LMT Quote)	1Q	51c	51c	71c	12	-3/4	39
Philip Morris (MO Quote)	1Q	80c	80c	79c	12	+1 1/8	34 1/4
Public Service Enterprises (PEG Quote)	1Q	85c	85c	82c	10	+1 3/8	39 7/16
SBC Communications (SBC Quote)	1Q	56c	56c	49c	18	+1 11/16	54 5/8
Schering-Plough (SGP Quote)	1Q	36c	36c	30c	25	+1 7/8	50 3/8
Torchmark (TMK Quote)	1Q	62c	62c	55c	7	--	33 7/8
Union Camp (UCC Quote)	1Q	-14c	-14c	38c	8	-2 13/16	79 1/16

Offerings and stock actions

Andrx (ADRX Quote) lost 6 1/4, or 8.7%, to 66 -- following an intraday high of 73 13/16 -- after its 94%-owned Cybear filed to offer 3 million shares.

Citigroup (C Quote) added 2 3/16 to 72 13/16 after setting a 3-for-2 stock split. Morgan Stanley Dean Witter raised its 12-month price target for the stock to 87 from 79 a share and Lehman Brothers lifted it to buy from outperform.

Proxicom (PXCM Quote) soared 6 7/16, or 49.5%, to 19 1/2 after BT Alex. Brown priced its IPO at $13 a share. The company is an Internet, intranet and extranet site builder.

Analyst actions

CNF Transportation (CNF Quote) dropped 3 7/8, or 9.3%, to 38 after Morgan Stanley Dean Witter downgraded it to outperform from strong buy.

DoubleClick shot up 25 3/16, or 24.5%, to 128 3/16 after Goldman Sachs added the stock to its recommended list after rating it a market outperform.

Northwest Airlines (NWAC Quote) flew up 7/16 to 31 after Merrill Lynch upgraded the stock to near-term accumulate from neutral.

USX-U.S. Steel Group (X Quote) lowered 11/16 to 28 5/8 even after Merrill Lynch named it the firm's Focus One stock of the week.