Greenspan Gives All-Clear, but Market Internals Lack Cheer

Technology, still something of a pilot in this market, pulled itself out of this morning's pit and, come lunchtime on Wall Street, was leading a mild follow-through from yesterday's broad rally.

During an otherwise dry day, those long can praise the words of Alan Greenspan for the small, futures-driven rebound.

Major Indices INDEX CHANGE % VALUE Dow 12.66 +0.1% 10,991.70 S&P 500 2.93 +0.2 1365.77 Nasdaq 18.22 +0.7% 2697.55 Russell 2000 0.22 -0.1% 446.26 TSC Internet 6.55 +1.1% 577.13 TREASURY BOND CHANGE VALUE YIELD 30-Year 4/32 89 11/32 6.026%

Last week, Greenspan addressed the House Banking Committee as part of his Humphrey-Hawkins testimony. Today it was the same speech, but this time delivered to the Senate Banking Committee.

Today's question-and-answer period -- the senators, for good or bad, are permitted to ask different questions -- failed to reveal much new about the central bank's attitudes toward inflation risk. Most of the Q&A session was comprised of the usual drivel on tax cuts in this awakened political season.

But while it's safe to say not all investors, traders and strategists were glued to their TVs ("I really haven't been watching the market, been busy doing other things," one stock trader said) Bill Schneider, head of U.S. equity block trading at SBC Warburg Dillon Read in Stamford, Conn., said he was paying close attention to the Fed head with the help of his firm's economist.

"What I hear [Greenspan] saying is his recommendation is that it's not a good time for a tax cut, that we want to cut when the economy is doing badly, not this well," said Schneider.

"He also said that it's not a good idea to get 'myopically focused' on the jobs numbers," the trader continued. "And I think the market will respond favorably to the answer to that. He's using the reasonable side of his brain. It's good to have someone like the chairman be reassuring and say, 'Harping on one number is the wrong way to go.' The market likes to climb this wall of worry, and now it doesn't have to be as worried. It's enough of a positive sign to the market that it's a reason to wade through and drop off a buy order."

Speaking about recent breadth, market losses and other short-term factors, Schneider said institutions raising cash to participate in new issues and secondary offerings have put a downward bias in the market. Moreover, recent trends are not necessarily indicators of an end to the summer rallying, the trader said. "I think we've reached some technical support here and we're looking for a bottom."

Schneider said he's seen recent strength, triggered by earnings news, in financial, tech, health care and drug stocks. "We rotate from darling one day to dog the next day. If we could only get them all to move [up] on the same day... "

Buy orders were lifting the market's public face, the Dow Jones Industrial Average, off an earlier intraday low of 10,925.85 and lately was putting the blue-chip index up 12.66, or 0.1% , to 10,991.70. Along with Hewlett-Packard (HWP) and IBM (IBM), DuPont (DD) was an upside standout, lately rising 1.9% on solid earnings.

The tech-laden Nasdaq Composite Index was up 18, or 0.7%, to 2698, off an earlier low of 2660.62. The Philadelphia Stock Exchange Semiconductor Index was up 2.5%, and TheStreet.com Internet Sector index was jumping 6.55, or 1.1%, to 577.

The broader S&P 500 was up nearly 3, or 0.2%, to 1366, while the small-cap Russell 2000 was down 0.22 to 446.26.

The 30-year Treasury was down 4/32 to 89 11/32, yielding 6.03%. (For more on the fixed-income market, see today's early Bond Focus.)

Market internals, a source of some concern for otherwise bullish types of late, were weak again. On the New York Stock Exchange, decliners were leading advancers 1,517 to 1,229 on 394.4 million shares. And the downs had the ups 1,827 to 1,723 on 557.6 million shares in Nasdaq Stock Market activity. New 52-week highs were outpacing new lows 68 to 48 on the Nasdaq, but on the Big Board new lows had it 84 to 37.

Merrill's Bernstein Sticks with Value

If the economy slows down thanks to a rate hike, it might make sense for investors to switch to growth names from value names, Rich Bernstein, chief quantitative strategist at Merrill Lynch, wrote in a research note yesterday. But Bernstein, who's recent struggles (perceived or actual) were detailed by The Wall Street Journal earlier this week, remains bullish on value, as he has been for almost three months.

"With the recent volatility in commodity prices, the Korean stock market, and value stocks in general, the most frequently asked question we receive these days is how long can the value cycle last?" Bernstein wrote. "We think there is a tradeoff: One can have very strong earnings, the Fed tightening, and a strong, but shorter value cycle. Or, one can have a more muted earnings cycle, less pressure for the Fed to tighten, and an extended value cycle. We think the second is more likely to occur..."

"The more sharply earnings growth accelerates," he continued, "the more likely it is that the Fed will aggressively tighten, which will ultimately lead to a shorter value cycle. However, if inflation remains benign, then the odds are that earnings growth will probably be muted relative to current expectations, but the Fed will be less inclined to raise rates sharply, and to take the punch bowl away from the party. The length of the value cycle, therefore, might be extended."

Wednesday's Midday Watchlist

By Thomas Lepri
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.)

Nothing's moving today like drugstore.com (DSCM). The online pharmacy firm was lately up 35 5/8, or 197.9%, to a stratospheric 53 5/8 in its trading debut. Lead underwriter Morgan Stanley Dean Witter priced the stock above-range at $18 a share last night .

Either investors are getting extreeemly excited over the prospect of Broadcom (BRCM) moving production into East Asia, or BancBoston Robertson Stephens packs one helluva buy rating. The brokerage started coverage on Broadcom with a buy as the company said it's opening a manufacturing and design facility in Singapore that may manage about 60% of the company's worldwide revenues within a few years. Whatever the correlations or causes, Broadcom was lately shooting up 10 7/8, or 9.3%, to 127 1/4.

Mergers, acquisitions and joint ventures

Priceline.com (PCLN) was adding 7 11/16, or 10.4%, to 81 1/2 after yesterday signing a marketing agreement with AutoNation (AN) under which the online auto retailer will sell new cars through Priceline's Web site. AutoNation was lately down 11/16, or 4.3%, to 15 3/16.

Earnings/revenue reports and previews

Conoco (COC) was up 5/16 to 26 7/16 after posting second-quarter earnings of 18 cents a share, 2 cents ahead of the 13-analyst estimate, but down from the year-ago pro-forma 24 cents, before extraordinary items.

Dow component DuPont was moving up 1 3/8, or 1.9%, to 73 1/2 after reporting that its earnings from continuing operations were 78 cents a share in its second quarter, a nickel above both the 14-analyst view and last year's figure. DuPont also declared a 35-cent regular quarterly dividend.

CVS (CVS) was advancing 3 13/16, or 8%, to 51 9/16 after posting second-quarter earnings of 40 cents a share, ahead of the 14-analyst estimate of 38 cents and above the year-ago operating earnings of 32 cents.

Internet service provider Mindspring (MSPG) was dumping 3 13/16, or 9.5%, to 36 3/8 after last night reporting second-quarter earnings of 11 cents a share, a penny above the 10-analyst prediction and up from the year-ago 5 cents.

Mentor (MNTR) was adding 3 9/16, or 19.5%, to 21 7/8 after yesterday posting first-quarter earnings from continuing operations of 28 cents a share, 6 cents above the seven-analyst estimate and matching the year-ago figure.

Mylan Laboratories (MYL) was sinking 4 1/4, or 15.8%, to 22 5/8 after the company warned last night that its first-quarter earnings won't make the 12-analyst outlook of 33 cents a share because of lower net sales and higher operating costs.

Pharmacia & Upjohn (PNU) was lately off 1 3/4 to 56 1/8 after posting second-quarter earnings of 41 cents a share, in line with the 16-analyst estimate and up from the year-ago 36 cents, which excludes a one-time charge of 8 cents a share from the settlement of a lawsuit.

The ugliness continues for Revlon (REV), which was plummeting 1 5/8, or 7.3%, to 20 5/8 after its second-quarter results failed to meet expectations yesterday. The company posted a second-quarter loss of 8 cents a share, though it said it would have earned 11 cents a share excluding a restructuring charge, versus a seven-analyst consensus of earnings of 31 cents a share and up from last year's 55-cent loss.

In other earnings news:

Upside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts
American General (AGC)	2Q	$1.14	$1.13	$1.01	15
Allergan (AGN)	2Q	64c	61c	54c	8
Brush Wellman (BW)	2Q	20c	15c	16c	1
CVS (CVS)	2Q	40c	38c	32c	14
Kenneth Cole Productions (KCP)	2Q	26c	23c	18c	6
LG&E Energy (LGE)	2Q	39c	38c	10c	5
Orthofix International (OFIX)	2Q	24c	21c	18c	1
Point of Sale (POSI)	2Q	13c	12c	10c	3
Schuler Homes (SHLR)	2Q	34c	25c	14c	4

Downside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts
Bethlehem Steel (BS)	2Q	-31c	-28c	-47c	14
On Command (ONCO)	2Q	-28c	-18c	-23c	2
Williams (WMB)	2Q	4c	10c	14c	13
Wrigley (WWY)	2Q	75c	77c	73c	4

In-Line Reports
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts
Allegheny Teledyne (ALT)	2Q	33c	33c	40c	9
Norfolk Southern (NSC)	2Q	20c	20c	48c	9
Tenet Healthcare (THC)	4Q	42c	42c	47c	17

Offerings and stock actions

Some of last week's favored Net IPOs are deflating a bit today on no particular news. Online insurance services provider InsWeb (INSW) was giving back 3 3/4, or 12.1%, to 27 1/4 in the wake of last Friday's soaring initial public offering. Gadzoox Networks (ZOOX) continued to shave off points since last week's hugely successful IPO, lately sliding 3, or 4.7%, to 61. And Chemdex (CMDX), which operates an online catalog of life science research products, was lately fading 2 3/8, or 9.2%, to 23 3/8 after yesterday's first-day surge.

Analyst actions

McDonald's (MCD) was up 1/2 to 42 11/16 after Merrill Lynch named it to its Focus One list with a 12-month price target of 53.

American Airlines parent AMR (AMR) was lately off 1 1/8 to 67 5/16 after Goldman Sachs reduced it to market outperform from trading buy.

Miscellany

Gilead Sciences (GILD) was moving up 5 3/8, or 9.2%, to 64 1/16 after the Food and Drug Administration yesterday granted a six-month expedited review of Tamiflu, the anti-flu drug Gilead is co-developing with Roche. This morning the FDA approved Relenza, the flu drug developed by Australian research group Biota.

Eric Gillin contributed to this report.

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