Stocks Show Surprising Strength Despite Dollar's Slump

It's amazing what a sufficiently weak jobs report, like the one we saw last Friday, can do for sentiment.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 43.06 0.39% 11,079.40 20.7% S&P 500 3.51 0.26% 1347.66 9.6% Nasdaq 43.28 1.53% 2852.02 30.1% Russell 2000 1.87 0.43% 437.77 3.7% TSC Internet 16.33 2.72% 611.74 50.5% BOND CHANGE PRICE YIELD 30-Year Treasury -9/32 100 13/32 6.096%

Just a few weeks ago, the dollar's slide through the 112 yen level sent stocks and bonds reeling amid a flurry of horror stories about foreign investors redirecting their assets from U.S. equities and into a "miraculously" recovering Asian market or two.

So it was interesting to see stocks hold up so well today in the forex aftermath of Japan's April-June gross domestic product report. The Japanese government reported late last night that the economy grew at a 0.2% rate, defying the 0.2% decline expected by economists in the Nihon Keizai Shimbun poll. The report unleashed a fierce bout of yen buying, sending the dollar below the 108 yen level.

This time, the stock market was relatively unperturbed.

Technology led the way higher. The Nasdaq Composite Index surged 43.28, or 1.5%, to 2852.02, with big guns Microsoft (MSFT), Intel (INTC) each rising more than 2%.

TheStreet.com Internet Sector rose 16.33, or 2.7%, to 611.74, with Yahoo! (YHOO) getting particularly juiced off some positive comments from John Michael Segrich, Henry Blodget's replacement at CIBC World Markets. Yahoo! added 6.1% after Segrich started it with a strong buy and set a 12-month price target of 200.

Tech also provided upside support to the Dow Jones Industrial Average, which gained 43.06 to 11,079.40. Hewlett-Packard (HWP) and indefatigable IBM (IBM) advanced 3.7% and 3.1%, respectively, while Chevron's (CHV) 3.3% gain gave the Dow 15.83 positive points.

The S&P 500 gained 3.51 to 1347.66, while the Russell 2000 picked up 1.87 to 437.77.

The only thing hotter than tech today was the oil sector, which caught fire as October crude futures moved through the $23-a-barrel level. The Philadelphia Stock Exchange Oil Service Index rose about 4.9%. Chevron (CHV) and Exxon (XON) were up 2.6% and 1.5%, respectively.

"Energy continued to act well, and tech had bids going all the way into the close," said Todd Clark, head of listed trading at Volpe Brown Whelan in San Francisco.

The indices took a sharp turn higher in the final hour, something that Clark attributes to the closing of the bond futures market at 3 p.m. EDT: "People were looking over their shoulder, seeing bonds continue to trade down." With the futures selling finished -- the December contract closed down 16/32 to 113 10/32 -- people were more willing to take long positions, Clark said.

Meanwhile, the 30-year cash bond dipped 9/32 to 100 13/32, putting its yield at a plump 6.10%.

On the downside, nothing was getting hit harder than financial stocks. Interest rate fears set off by the dollar/yen developments sent the Philadelphia Stock Exchange/KBW Bank Index lower for the third straight session, this time to the tune of 1.4%. In addition to the general interest rate sensitivity, Chase (CMB) was getting beaten up pretty badly by vague rumors that the bank won't make its third-quarter numbers. Reassurances to the contrary from Merrill Lynch analyst Judah Kraushaar didn't do much to stanch the blood, as Chase ended up losing 5.2%.

The bloodletting among financials raises the following questions: Are the banks reacting properly to the inflationary undertones of the dollar's slide against the yen? Or is the broader market's relative apathy warranted?

"I think everybody else is under-reacting," said Brian Belski, chief investment strategist at George K. Baum. "The market is feeling pretty good about how it has rallied lately. Foreign markets have pooh-poohed what's happened in Japan. The banks are showing the most realism."

"The way that energy is rallying today, and with the banks rolling over and the bonds weak -- these are signs that the market is bracing itself for inflation."

Speaking of inflation, investors' passion for hanging on Fed governors' words was satisfied today by some market laissez faire comments by Fed governor and designated vice chairman Roger Ferguson today. In the Q&A session after his speech at the National Economists' Club in Washington, Ferguson told reporters that the Fed should not target the stock market in its monetary policy. Fed chief Alan Greenspan and hawkish Fed Gov. Laurence Meyer have each already said that the stock market is one factor among many the Fed considers when forming policy.

Ferguson also told reporters that "[i]t seems unlikely that we will see a significant uptick in inflation" because of the yen's recent strength.

The Fed rubbernecking will get a bit more academic tomorrow, when investors will get their latest read on the inflation picture from the August Producer Price Index. Economists in the Reuters poll are looking for the headline PPI to increase 0.3%, up from 0.2% in the previous month.

The looming PPI wasn't really having an outsized effect on volume, which has gradually been picking up from its August lows. The New York Stock Exchange saw 773.9 million shares trade, while 1.04 billion shares changed hands on the Nasdaq Stock Market. "The dollar and crude" are more important to traders now "than worrying about the PPI," Clark said.

Breadth was middling. Decliners edged out advancers 1,463 to 1,447 on the NYSE, where there were 76 new 52-week highs against 95 new lows. In Nasdaq action, advancers beat decliners 1,978 to 1,860, with 150 new highs and 66 new lows.

Elsewhere in North American equities, the Toronto Stock Exchange 300 climbed 71.51, or 1%, to 7126.48 and the Mexican Stock Exchange IPC Index fell 25.36, or 0.5%, to 4828.92.

Thursday's Company Report

By Eileen Kinsella
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.)

Merrill Lynch (MER) slipped 13/16 to 75 1/8 after becoming the latest company to take a stake in Archipelago, an electronic communications network. The amount paid for the 14.3% stake was not disclosed, but a source close to the deal estimated the investment at $25 million to $30 million, Reuters reported. Archipelago will use the capital to open a New York office as it seeks to become a full-fledged stock exchange.

Mergers, acquisitions and joint ventures

Hasbro (HAS) lost 5/16 to 24 1/2 after it announced plans to acquire the privately held trading card maker Wizards of the Coast for $325 million. The deal is not expected to affect Hasbro's 1999 earnings but will contribute to EPS in 2000.

The Wall Street Journal reported that NBC was close to assuming a 32% stake in Paxson Communications (PAX), giving the network access to a slew of television stations around the country. According to the Journal, the agreement carries an estimated value of $400 million. NBC's owner, General Electric (GE), lost 1 1/8 to 119 3/4.

Viacom's (VIA.B) decision to quit its venture with UPN could end up costing the company greatly, The Wall Street Journal reported. Viacom is breaking ties with UPN in an effort to gain government approval for its acquisition of CBS (CBS). Shares of Viacom lost 9/16 while CBS fell 1/16 to 50 1/8.

Wachovia (WB) agreed to sell its institutional trust and custody business to State Street (STT), in order to concentrate on managing money for clients. State Street climbed 1 1/8 to 61 5/16, while Wachovia lost 3/8 to 79 11/16.

Earnings/revenue reports and previews

Shares of biotech companies Idec Pharmaceuticals (IDPH) and Genentech (DNA) were getting killed today, apparently due to rumors circulating at the Carson Group and BioCentury Conference in New York.

The rumor was that Idec CEO William Rastetter talked down numbers for third-quarter U.S. sales of its cancer drug Rituxan. The drug is jointly sold by Idec and Genentech, and the rumor is they would miss the high end of the range and the whisper number. But the company said, in fact, the high-end estimate of $80 million in U.S. sales is "achievable," according to a hedge fund analyst who attended the breakout session.

Wall Street's consensus for Rituxan's third-quarter sales rests in the mid-$70 million range, but there was speculation that the drug could hit $85 million to $90 million in sales in the third quarter. The drug had $68 million in U.S. sales in the second quarter. Idec said sales would be higher in the fourth quarter than in the third quarter, according to the hedge fund analyst, who was buying more Idec stock midday.

Rastetter, who spoke at the breakout session, was not immediately available for comment. Idec shed 13 1/16, or 9.6%, to 123 25/32, coming way back from an intraday low of 106, while Genentech lost lost 4 to 171.

-- Jesse Eisinger

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CKE Restaurants (CKR) tacked on 1/4 to 13 3/8 after it reported second-quarter earnings of 20 cents a share, in line with the 11-analyst estimate of 20 cents but down from the year-ago 42 cents. The company said it plans to sell 350 of its restaurants over the next year.

Dave & Buster's (DAB) lost 7/16 to 11 1/2 after posting second-quarter earnings of 15 cents a share, in line with the eight-analyst estimate of 15 but down from the year-ago 21 cents.

Frontier Airlines (FRNT) lost 9/16 to 11 3/16 despite CEO Sam Addoms' statement that he is confident the company would meet the three-analyst estimate of 48 cents a share in the second quarter.

1-800-Flowers.com (FLWS) lost 2 3/8, or 12.2%, to 17 1/8 after it posted a fourth-quarter loss of 8 cents a share, better than the two-analyst estimate for a 9-cent loss but reversing the year-ago 5-cent profit. Additionally, the company said it expects to fall into the red in the next two years as it pours money into its Web site and expands its product line to include gourmet foods and even furniture.

Quiksilver (ZQK) lost 2 9/16, or 13.6%, to 16 5/16, despite reporting third-quarter earnings of 24 cents a share, beating both the seven-analyst estimate of 23 cents and the year-ago 18 cents.

Offerings and stock actions

LTX (LTXX) lost 1 1/8 or 7.7%, to 13 5/8 after it set an initial public offering of 4.7 million shares. Morgan Stanley, Needham and Gruntal will be underwriting the deal.

RSL Communications (RSLC) added 1/16 to 20 after it set an initial public offering of its Australian unit.

Analyst actions

CIBC World Markets ignited the Internet sector today, rolling out coverage of America Online (AOL), Yahoo! and eBay (EBAY) with strong buy ratings. Shares of AOL were rose 2 1/4 to 96 1/4 , while eBay soared 9 11/16, or 7.2%, to 144 7/16. Yahoo shares were also rocketing, up 9 5/16, or 6.1%, to 162 11/16.

CIBC also started coverage of Amazon.com(AMZN), with a buy rating. Amazon shares were climbing 2 3/16 to 63 5/8.

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Allstate (ALL) lost 7/8 to 32 3/4 after Morgan Stanley Dean Witter sliced its rating on the stock to neutral from market outperform.

Alpha Industries (AHAA) added 1 13/16 to 57 13/16 after U.S. Bancorp Piper Jaffray raised its price target on the shares to 65 from 56.

Bemis (BMS) gained 5/8 to 39 1/2 after J.P. Morgan began coverage of the stock with a market performer rating.

Gilead (GILD) lost 3 7/16 to 85 5/8 after ING Barings cut its rating to buy from strong buy.

H.J. Heinz (HNZ) lost 1 1/16 to 44 1/16 after Donaldson Lufkin & Jenrette lowered its rating to market perform from a buy. Yesterday, Heinz posted first-quarter earnings of 65 cents a share, just missing the analyst estimate of 66 cents.

Helmerich & Payne (HP) added 7/8 to 30 after CIBC World Markets upped its rating to a buy from a hold.

Ingram Micro (IM) added 2 1/16, or 15.5%, to 15 3/8 despite a slap from Credit Suisse First Boston which sliced its third-quarter earnings estimates on the shares to 13 cents a share from 42 cents. Yesterday, Ingram warned investors that it expects to post third-quarter earnings of 10 cents to 14 cents a diluted share, greatly missing the analyst estimate of 41 cents. The company also said that its current chairman and CEO, Jerre Stead, plans to relinquish his role as chief executive as soon as a successor is found.

Hershey (HSY) lost 1 1/2 to 50 1/4 after Lehman Brothers reduced its fiscal 1999 estimates to $2.32 from $2.36.

Host Marriott (HMT) added 1/8 to 9 7/8 after PaineWebber downgraded its shares of to neutral from attractive.

Kerr-McGee (KMG) inched up 13/16 to 59 1/2 after DLJ sliced the shares rating to market perform from a buy.

Nextel (NXTL) lifted 4 15/16, or 7.7%, to 69 13/32 after ING Barings raised its rating to a buy from a hold.

Standard Automotive (AJX) lost 1 1/4, or 9.9%, to 11 3/8 after ING Barings cut its rating to a hold from a strong buy.

Superior Telecom (SUT) spiraled down 7 7/8, or 30.6%, to 17 7/8 after Merrill Lynch cut its near-term opinion to accumulate from a buy. Yesterday, the company warned investors to expect third-quarter earnings in the range of 52 cents a share to 58 cents, greatly missing the three-analyst estimate of 88 cents and the year-ago 59 cents. ING Barings also downgraded its shares to a hold from a strong buy.

UTI Energy (UTI) added 7/8 to 22 5/8 after CIBC World Markets upgraded the shares to buy from hold.

Miscellany

The FBI is questioning Food and Drug Administration regulators to determine how American Home Products (AHP) received approval in 1996 for its controversial diet drug Redux, The Wall Street Journal reported. American Home Products fell 2 1/4, or 5.3%, to 40 1/16.

Atrix Laboratories (ATRX) lost 1 3/8, or 15.4%, to 7 11/16 after saying it retained Lehman Brothers as a financial adviser to help the company's board of directors evaluate strategic options.

Avant! (AVNT) roared up 9, or 61%, to a 52-week high of 23 13/16 after a federal judge barred a claim from rival Cadence Design Systems (CDN) in their on-dragging patent dispute. Cadence added 1/16 to 14 3/16.

Bankrupt Boston Chicken said its executive vice president and CFO, Lawrence White, has left the company to assume a similar role at CBRL Group (CBRL). Shares of CBRL were unchanged at 13 5/16.

Echelon International (EIN) added 1 3/4, or 7.3%, to 25 5/8 after it said it hired DLJ to help explore alternatives to maximize shareholder value, including a sale of the company.

Electronic Data Systems (EDS) rose 5/8 to 58 5/8 after it said it would implement changes along a few of its service lines in an effort to boost slow growth. EDS said it would consolidate the organization into four groups which include A.T. Kearney, its business consulting and executive search division, E.solutions, its Internet business subsidiary, Business Process Management, its customer service unit and Information Solutions its outsourcing business. The company has faced stiff competition for IBM (IBM) and is now being rivaled by new Internet service consultants. Tomorrow, EDS plans to discuss its new strategy with industry analysts in New York.

Payless ShoeSource (PSS) added 1/16 to 49 13/16 after it announced plans to add 10 Parade of Shoes stores to its chain by the end of the year and an additional 50 in 2000. Payless also said that Payless.com, its online store, has surpassed management's sales expectations.

Rock-Tenn (RKT) was unchanged at 14 5/16 after the company named James Rubright as vice chairman and CEO.

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