Rally Lifts Spirits on Wall Street, but Questions Linger

SAN FRANCISCO -- You couldn't swing a dead cat on Wall Street yesterday without hitting someone who thought stocks were due for a bounce. The recovery begun yesterday afternoon flowered today, surviving a sideswipe from the rumor mill.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 132.65 +1.2% 10,787.80 +17.5% S&P 500 20.50 +1.6% 1301.93 +5.9% Nasdaq 74.87 +3% 2564.81 +16.9% Russell 2000 5.37 +1.3% 428.19 +1.7% TSC Internet 13.96 +2.9% 502.36 +23.7% BOND CHANGE PRICE YIELD 30-Year Treasury 16/32 87 2/32 6.213%

After rising at the open, stocks suffered their only measurable setback of the day around 10:30 a.m. EDT when rumors circulated Federal Reserve Chairman Alan Greenspan will retire at the Federal Open Market Committee's Aug. 24 meeting.

The Fed declined to comment on the scuttlebutt, and most market players dismissed it as "stupid," as one trader said. Still, there seemed to be a "what if?" selloff at midmorning. Traders soon overlooked the gossip and began to accentuate the positive once again. Namely, the bond market's improved tone after a friendly Beige Book report, better-than-expected earnings from Cisco (CSCO Quote), consolidation in the commodities industry and -- of course -- a sense recent selling had been overdone.

Paced by Cisco, which jumped 7.2%, the Nasdaq Composite Index was the best performing of major proxies. The tech-seduced index leapt 74.87, or 3%, to 2564.81; the gain is the average's seventh-biggest ever, although the percentage move was not of similar significance.

In addition to Cisco, other traditional tech bellwethers registered solid gains. Notably, Intel (INTC Quote) jumped 6% to an all-time high of 76, while Sun Microsystems (SUNW Quote) rose 5.5%. The Nasdaq 100 gained 3.6%.

Internet stalwarts also improved, led by America Online (AOL Quote), up 7.1% after Morgan Stanley Dean Witter analyst Mary Meeker hosted a salutary conference call with company management. TheStreet.com Internet Sector index gained 13.96, or 2.9%, to 502.36.

New York Stock Exchange-traded tech giants such as IBM (IBM Quote), Micron (MU Quote) and Motorola (MOT Quote) also rallied sharply. EMC (EMC Quote) rose 9.8% after being battered earlier this week. The Morgan Stanley High-Tech 35 gained 4.1% and the Philadelphia Stock Exchange Semiconductor Index rose 4.5%.

The resurgent techs helped pace blue-chip averages as well. The Dow Jones Industrial Average rose 132.65, or 1.2%, to 10,787.80 and the S&P 500 gained 20.50, or 1.6%, to 1301.93.

Those indices were also supported by strong financial and cyclical stocks. The latter got a boost from Alcoa's (AA Quote) hostile bid to acquire Reynolds Metals (RLM Quote). Dow component Alcoa rose 4.5% while Reynolds gained 16.8%.

The Morgan Stanley Cyclical Index rose 2.3% as investors surmised the consolidation in commodity-based industries will continue. Meanwhile, the Philadelphia Stock Exchange/KBW Bank Index rose 2.7% as the bond market rallied off its recent woes.

The price of the 30-year Treasury bond rose 16/32 to 87 2/32, its yield falling to 6.21%.

Meanwhile, the Russell 2000 gained 5.37, or 1.3%, to 428.19 as market internals supported the advance by major averages.

In NYSE trading, 792.4 million shares were exchanged while advancers led declining stocks 1,869 to 1,126. In Nasdaq Stock Market action 915 million shares traded while gainers led 2,286 to 1,563. However, new 52-week lows bested new highs 219 to 40 on the Big Board and 102 to 49 in over-the-counter trading.

"Overall it was a pretty good day for the equity market," said Doug Myers, vice president of equity trading at Wachovia Securities in Atlanta. "The bond market finally turned around, which helped assuage fears of skyrocketing costs of borrowing. The beach is open, it's safe to get back in the water."

Myers denied today was a "sucker's rally" or "bear trap," to cite the favored cliches.

"There definitely was an old-fashioned rally where people were just really feeling the need to get stocks under their belts before they went higher," he said. "I think people are not buying stocks because they think it's going down tomorrow. People think there'll be some follow-through."

Aside from Cisco and the aluminum dealings, the trader said Red Hat's (RHAT Quote) IPO was a feature. Although Red Hat jumped 272% from its offering price, he did not think this signaled a reversal from the recent troubles for new issues.

"This happened to be a high-quality one that snuck through," he said. "The IPO window does have the feeling it's closing."

Today's other new issues evinced that sentiment: Mortgage.com (MDCM Quote) fell 10.9% while Blockbuster (BBI Quote) was flat.

A Doubting John

"I don't think the overall correction is over," said John Roque, senior analyst at Arnhold & S. Bleichroeder, whose report Bounce Likely, but Don't Blink was sent to clients this morning. "Maybe it's more than a blink but it's just going to be a short rally. I don't know if enough has changed to say 'we've had a 12% decline, let's go back to work.' I don't think that's happened."

Specifically, Roque said bonds are "still bearish" and noted the CRB/Bridge Futures Price Index is at a six-month high.

Specific to equities, he noted 76% of NYSE stocks began today below their 10-week moving average. Also, the analyst observed the strongest group today was precious metals; indeed, the Philadelphia Stock Exchange Gold & Silver Index rose 4.8%.

"That's not the way you start big rallies," Roque said of the decidedly out-of-favor group. "Techs are obviously huge leaders but you've got to get drugs on board and financials. I just don't think [today] is indicative of something more than a tradable rally."

The only positive Roque can find these days is that most of the "buy-side" accounts he deals with "are of the opinion the market remains very overvalued and are unlikely to commit money right here. When people are that cautious the market rarely gets hit very hard."

Roque said 1319 for the S&P 500 -- a 3% rise from yesterday -- is a key level to watch in the coming days.

"If that's what we got then I'd say my number is too low," he said. "But if we got up there and things didn't improve, I'd say this is where we turn over."

Among other indices, the Dow Jones Transportation Average fell 7.01 to 3130.53; the Dow Jones Utility Average slid 0.45 to 317.24; and the American Stock Exchange Composite Index gained 6.60, or 0.9%, to 777.37.

Elsewhere in North American equities, the Toronto Stock Exchange 300 rose 118.8, or 1.8%, to 6909.06 and the Mexican Stock Exchange IPC Index climbed 122.57, or 2.4% to 5180.88.

Wednesday's Company Report

By Eileen Kinsella and Tara Murphy
Staff Reporters

(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.)

The equities markets felt the impact of today's big dealing in the aluminum industry. Reynolds Metals was like quicksilver, jumping 9 3/8, or 16.8%, to 65 1/4 after Dow component Alcoa made an unsolicited offer to buy it for about $5.6 billion. Alcoa lifted 3 to 69 7/16.

Alcoa's bid responds to the news that Canadian aluminum giant Alcan (AL Quote) is buying France's Pechiney (PY Quote) and Switzerland's algroup for about $9.2 billion in stock. Alcoa is offering $65 a share for half of Reynolds' outstanding shares, and 0.9784 Alcoa shares for each of the remaining half.

Alcan rose 3 1/16, or 9.1%, to 36 11/16 while ADRs of Pechiney added 2 5/8, or 8.2% to 30 9/16.

Mergers, acquisitions and joint ventures

Bank One (ONE Quote) fittingly added 1 to 52 9/16 after it said it is expanding its Technology One Alliance with AT&T (T Quote) and IBM (IBM Quote) -- under which those companies provide Bank One with networking and computing support services -- to include locations of the former First Chicago NBD, which Bank One bought last year. Bank One said the new contracts with AT&T and IBM are worth $465 million and $168 million, respectively. AT&T lost 1/2 to 48 7/16, while IBM gained 4 to 123 5/16.

Nortel Networks (NT Quote) rose 2 to 84 3/8 after it said that U S West (USW Quote) -- which Qwest Communications (QWST Quote) is buying -- has chosen it to help the regional Bell improve its network capacity by providing it high-speed data and telephony services. U S West rose 11/16 to 53 3/4.

Procter & Gamble (PG Quote) lost 1/2 to 93 1/4 after agreeing to acquire privately held pet-food maker Iams for $2.4 billion. P&G said it expects to meet fiscal 2000 earnings estimates despite an expected dilution from the acquisition.

Staples (SPLS Quote) tacked on 1 5/16, or 5.7%, to 24 9/16 after it said it said it would buy three office supply companies from Germany's Divaco for $120 million in cash. The company said its purchase of Sigma Burowelt in Germany and Office Centre in the Netherlands and Portugal were part of an effort to strengthen its presence in Europe.

Sun Microsystems brightened 3 3/4, or 5.5%, to 71 11/16 after signing a long-term deal with data storage maker Storage Technology (STK Quote) allowing the companies to resell each other's storage systems. Storage Technologies perked up 1 1/8, or 5.9%, to 20 3/16 on news of the deal, whose financial terms weren't disclosed.

Earnings/revenue reports and previews

Cisco was riding high on yesterday's earnings report, jumping 4 1/4, or 7.3%, to 62 15/16. The company posted fourth-quarter earnings of 21 cents a share, excluding extraordinary items. That's a penny above the 30-analyst First Call estimate and up from the year-ago 16 cents. Cisco also received a boot up from Wachovia Securities tech analyst George Hunt, who upped the stock to strong buy from long-term buy.

Delphi Automotive Systems (DPH Quote) moved up 3/16 to 17 3/4 after CEO J.T. Battenberg said he was comfortable with third-quarter earnings estimates of 23 cents a share. Delphi went public at $17 a share in February when former parent General Motors (GM Quote) spun off 100 million shares. Battenberg said he thinks the shares are undervalued based on the stock's price to earnings ratio.

Federated Department Stores (FD Quote) gained 1 1/8 to 50 1/8 after it posted second-quarter earnings of 61 cents a share, 4 cents ahead of the 17-analyst estimate and up from last year's 47 cents.

FPIC Insurance (FPIC Quote) said it has no idea why its stock plunged 12, or 32.4%, to 25 1/16 after the company last night reported what would appear to be solid second-quarter earnings. The company said it earned 71 cents a share, a penny ahead of the three-analyst prediction and up from the previous year's 52 cents. The weakest portion of the report was the company's admission that claims in a health plan offered to Florida Dental Association members came in $1 million above expectations. FPIC also set plans yesterday to buy two small providers of administration services for about $1 million.

GT Interactive (GTIS Quote) slipped 1/32 to 3, after the company reported a first-quarter loss of 6 cents a share, narrower than the two-analyst expectation of a 9-cent loss. Year-ago earnings were 3 cents.

Intimate Brands (IBI Quote) edged up 3/16 to 43 5/16 after the company reported second-quarter earnings of 34 cents a share, in line with the 25-analyst estimate and up from 28 cents a year ago. The company said the year-ago figure was adjusted to reflect a 5% stock dividend.

Medical device manufacturer Mallinckrodt (MKG Quote) added 11/16 to 32 11/16 after reporting fourth-quarter earnings from continuing operations of 73 cents a share, surpassing the five-analyst prediction and beating the 59 cents it made last year.

Lighting products maker SLI (SLI Quote) added 3 1/8, or 14.2%, to 25 1/8 after it posted second-quarter earnings of 39 cents a share, a penny above the seven-analyst call and up from last year's 26 cents.

Thermo BioAnalysis (TBA Quote) added 5/8 to 18 3/8 after the company reported second-quarter earnings of 23 cents a share, which includes an $800,000 charge for a licensing fee. Year-ago earnings were also 23 cents. The two-analyst estimate called for operating earnings of 25 cents in the latest quarter.

Offerings and stock actions

Blockbuster received some mixed reviews for its flat trading debut. Salomon Smith Barney priced the 31 million-share IPO at $15, below the anticipated price range of $16 to $18. The stock closed at its initial price of $15.

Red Hat was red hot in its first day of trading. The stock zoomed 38 1/16, or 271.8%, to 52 1/16 after pricing top-range at $14. Goldman Sachs, the lead underwriter for the 6 million-share IPO, raised the pricing range to $12 to 14 from $10 to 12, bucking recent Internet-stock pessimism.

Analyst actions

ABN Amro's bang to Cinergy's (CIN Quote) estimates didn't made much of a dent. The brokerage cut estimates for the company's 1999 earnings to $2.25 a share from $2.61, citing the industry's "July power crunch." Cinergy shares rose 7/16 to 28 3/8.

Crossman (CROS Quote) slipped off 1/4 to 27 1/2 after Warburg Dillon Read downgraded it to buy from strong buy.

Intel shot up 4 5/16 to 76 after PaineWebber raised its price target on the stock to 95 from 80.

Polo Ralph Lauren (RL Quote) was up 1/2 to 19 1/2 after ING Barings raised its calendar 2000 EPS estimate to $1.70 a share from $1.65, maintaining a hold rating.

Ravisent (RVST Quote) soared 3 11/16, or 35.5%, to 14 1/4 after Bear Stearns and Volpe Brown Whelan gave the digital video and audio software developer an initial buy rating.

Shopko (SKO Quote) improved 3/4 to 34 1/2 after Lehman Brothers started coverage on the retail store, tagging it with a market outperform rating.

SmithKline Beecham (SBH Quote) gained 1 1/4 to 59 5/8 after Lehman Brothers upgraded it to outperform from neutral.

Texas Instruments (TXN Quote) powered up 7 3/4, or 5.6%, to 146 1/4 after Merrill Lynch named Texan its Focus One stock of the week.

U.S. Home (UH Quote) was off 3/16 to 33 1/8 after Warburg Dillon Read downgraded the stock from strong buy to buy.

Miscellany

Bausch & Lomb (BOL Quote) had a 20/20 performance today, jumping 4 15/16, or 7.8%, to 68 1/8 after saying it is "highly confident" the Food and Drug Administration will decide to waive a regulatory panel review for Bausch & Lomb's new surgical eye laser.

China Airlines gave Boeing (BA Quote) a liftoff today when it placed the largest aircraft order in the history of Taiwan, valued at $3.8 billion. The airline said its order includes 13 Boeing 747-400F cargo jets, with options for 11 more cargo and passenger jets. General Electric (GE Quote) unit GE Aircraft will supply the jets with its CF6-80C2 engines. Boeing rose 43/256 to 46 11/256.

Conoco (COC Quote) was up 15/16 to 27 3/4 on news that it uncovered a new oil and gas well off the coast of Indonesia. The oil company said that would be used to complete its West Natuna Sea contract, supplying natural gas via pipeline from Indonesia to Singapore.

MCI WorldCom (WCOM Quote) advanced 2 3/4 to 77 3/4 despite the recent service disruptions plaguing its high-speed data network.

Oak Industries (OAK Quote) plummeted 13 1/4, or 32.3%, to 27 3/4 after it said that net income would fall below consensus estimates. Trading of the stock was halted twice today on the news. The passive component maker anticipates third-quarter earnings of 40 cents to 42 cents a share, sharply below estimates of 49 cents to 52 cents.

Olsten (OLS Quote) was up 1 1/8 to 9 7/8 after it announced a "possible significant corporate transaction" with another company. For now, the home health-care provider is keeping details hush-hush.

Schering Plough (SGP Quote) was up 15/16 to 47 15/16 after it received the FDA's stamp of approval for Temodar, a new treatment for brain cancer.

Southwest Airlines (LUV Quote) declined 1/8 to 16 3/8 after it said Herb Kelleher, its chairman, president and CEO, will begin radiation treatment today for prostate cancer. Kelleher will receive brief treatments each weekday for about eight weeks, the company said.