Techs Take a Bow, Leaving Blue-Chips in the Wings

On the eve of the Jewish New Year, tech stocks produced another day of awe. Inspired by a hearty bond market advance -- thanks to a weaker-than-expected core Producer Price Index -- growth names soared on solid volume, sending the Nasdaq Composite Index to a record.

But blue-chips were far less effusive, perhaps reflecting the dollar's tepid response to the Bank of Japan's overnight intervention. After rising above 110 yen initially, the greenback was quoted at 108.75 yen in late New York trading. The Dow Jones Industrial Average fell 50.97, or 0.5%, to 11,028.43 after trading as high as 11,142.41.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 50.97 -0.5% 11,028.43 +20.1% S&P 500 4.00 +0.3% 1351.66 +9.9% Nasdaq 35.04 +1.2% 2887.06 +31.7% Russell 2000 3.42 +0.8% 441.19 +4.6% TSC Internet 15.04 +2.5% 626.78 +54.2% BOND CHANGE PRICE YIELD 30-Year Treasury 27/32 101 7/32 6.036%

Focused more on fixed-income than foreign exchange, the Comp rose 35.04, or 1.2%, to 2887.06, besting its July 16 high of 2864.48. The index was led by big-cap bellwethers such as Sun Microsystems (SUNW Quote) and Oracle (ORCL Quote), which leapt 5.3% to a new all-time high of 46 3/8.

A notch below those tech giants, names such as BMC Software (BMCS Quote), up 4.5% to an all-time best of 65 29/32, further aided the tech-literate index. The Nasdaq 100 rose 1.2% while the Morgan Stanley High-Tech 35 rose 1.6% to an all-time high of 1282.60.

Additionally, Net bellwethers such as Yahoo! (YHOO Quote) and eBay (EBAY Quote) were on the prowl for higher ground, the former helping TheStreet.com Internet Sector index rise 15.04, or 2.5%, to 626.78.

Moreover, secondary Net plays such as AppNet Systems (APNT Quote) -- which rose 115% following an upgrade by Credit Suisse First Boston -- evinced investors' clamor for tech names.

That desire was unleashed in large part by the bond market. The price of the 30-year Treasury bond rose 27/32 to 101 7/32, its yield falling to 6.04%. Core Producer Price Index fell 0.1% in August vs. expectations for a 0.1% rise. The decline in the core, which excludes the food and energy sectors, overshadowed a 0.5% rise in the headline PPI; economists had forecast a 0.3% gain.

"This morning's number was huge, people don't realize how" important, said one New York-based trader of the core PPI. "This is probably going to keep the Fed from acting in October. This, plus last Friday's employment report."

So confident of the forecast is the trader, his desk "covered shorts and went long" after an initial rise got "whacked down on no volume."

Like most on Wall Street, the trader, who requested anonymity, dismissed the higher-than-expected headline figure and its underlying cause, higher crude prices.

"That's what the bond is showing you," he said. "It blew off oil like it was nothing. Oil at $23? I'd be a short-seller here."

Given expectations for lower oil prices, falling bond yields and no Fed action, the market is a "screaming buy," he said. "We have expiration next week, a lot of guys are short. You're going to see some covering and buy programs. If bonds hold, equities are going to fly."

But while tech stocks had clearance for takeoff today, blue-chips were far less enthused.

While the Dow faltered, the S&P 500 managed to gain 4, or 0.3%, to 1351.66, thanks largely to strength in tech bellwethers, select financials such as American Express (AXP Quote) and consumer names such as Procter & Gamble (PG Quote).

The Dow and S&P were dragged down by weakness in economically sensitive names such as Caterpillar (CAT Quote), Chevron (CHV Quote) and United Technologies (UTX Quote). The American Stock Exchange Oil Index fell 0.6% while the S&P/Barra Value Index lost 0.4%.

In New York Stock Exchange trading today, 805.9 million shares were exchanged while advancers led declining stocks 1,582 to 1,314. In Nasdaq Stock Market action 1.1 billion shares traded while gainers led 2,144 to 1,668. New 52-week highs bested new lows 93 to 75 on the Big Board and by 180 to 59 in over-the-counter trading.

PPI or Not to PPI

"It's just one number, but time is running out for a statistic that's going to force the Fed to tighten in October," said Thomas McManus, equity portfolio strategist at Banc of America Securities, when asked about the significance of today's PPI report. He forecast a less than 15% chance of a rate hike at the next FOMC gathering, but put the odds at 40% before the end of the year as there are three more meetings.

McManus believes the Fed's rate increases thus far "are starting to bite," noting mortgage rates are now above 8% and credit card rates are rising. Additionally, Internet stocks "have come down significantly," he said, expressing confidence the economy is starting to cool, along with the consumer. "Some retail stocks are telling you Greenspan is starting to get his way," he said, although the S&P Retail Index rose 0.8% today.

"At some point, probably some time by Nov. 10 or so, if the heat is off the Fed to tighten any more, then I think the market will be a lot higher," McManus said, forecasting the yield on the long bond could decline to around 5.625%.

In the interim, there could be some continued churning in equities as bond yields may revisit higher levels, but the strategist is confident bond yields will be lower "six months from now." Moreover, he noted the S&P 500 closed at 1319 last Thursday although bond yields had risen to around the key 6.125% level vs. Aug. 10 when the index traded as low as 1267.73 before closing at 1281.43 and the long bond was at 6.25%.

"That kind of divergence tells me the [stock] market is continuing to make progress [and] is going to have a positive bias," he said.

As for today's divergence between the Dow and Nasdaq, the strategist was largely unconcerned.

"It's Friday in late summer," he said. "I think the market still has an upward bias and probably the decline in bond yields is a taste of what you're going to get to come."

Among other indices, the Dow Jones Transportation Average fell 22.44, or 0.7%, to 3090.83; the Dow Jones Utility Average gained 1.83, or 0.6%, to 315.95; the Russell 2000 rose 3.42, or 0.8%, to 441.19; and the American Stock Exchange Composite Index rose 1.92, or 0.2%, to 805.95.

For the week, the Dow lost 0.5%, the S&P shed 0.4%, the Nasdaq gained 1.5%, the Russell gained 1.2%, the DOT jumped 5.2%, the Dow transports slid 2.1%, the Dow utilities fell 1.1% and the Amex Composite rose 2.5%.

Elsewhere in North American equities today, the Toronto Stock Exchange 300 rose 36.89, or 0.5%, to 7163.37 and the Mexican Stock Exchange IPC Index rose 151.01, or 3.1%, to 4979.93. For the week, the TSE 300 added 2.2% and the IPC slid 0.9%.

Friday's Company Report

By Eileen Kinsella
Staff Reporter

(Earnings estimates from First Call/Thomson Financial; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.)

The Nasdaq's record notwithstanding, there were some high-profile blowups today.

Apex (APEX Quote) shed 11 3/4, or 32.2%, to 23 3/4 after the company canceled a planned appearance at a Banc of America Securities conference, scheduled for later this month. Dain Rauscher Wessels sliced its rating to buy from strong buy.

HealthSouth (HRC Quote) fell 2 3/16, or 27.8%, to 5 11/16 after the company said yesterday it will not spin off its inpatient operations to shareholders and would instead keep its divisions under one business. HealthSouth also announced plans to restructure management at its outpatient services, a move that will result in charges of between $250 million and $300 million by the end of the year. At least seven brokerages cut recommendations on the stock in the wake of the news, including, CS First Boston, Salomon Smith Barney, Merrill Lynch, ING Barings, J.P. Morgan, Banc of America Securities, and Donaldson, Lufkin & Jenrette.

Maytag (MYG Quote) plummeted 14 13/16, or 26.2%, to 41 3/4 after saying it expects third-quarter earnings to miss analyst estimates because of lower sales volume in its home appliances. The nine-analyst estimate calls for earnings of 99 cents a share. Maytag says it expects to report earnings of 84 cents a share.

Fellow appliance giant Whirlpool (WHR Quote) lost 1/2 to 39 9/16, despite taking the opportunity to pound its chest, saying it was comfortable with its third-quarter earnings estimates of $1.33 for the quarter and $5.15 for the year.

Mergers, acquisitions and joint ventures

Broadcom (BRCM Quote) shed 6 1/2, or 5.2%, to 119 after the The New York Times reported that an investment group led by president and CEO Henry T. Nicholas III was close to inking a letter of intent to acquire the Anaheim Angels and Mighty Ducks from Disney (DIS Quote) for between $400 million to $500 million. Disney fell 7/8 or 27 7/8.

Chase Manhattan Bank (CMB Quote) lost 1/16 to 77 7/16 after Warburg Dillon Read and Goldman Sachs cut third-quarter and 1999 earnings estimates. Citing lower investment banking fees, trading revenues, and private equity gains, Warburg cut third quarter earnings per share to $1.28 from $1.33, and 1999 estimates to $5.40 a share from $5.55 a share, but kept its strong buy rating on the stock. Goldman cut third quarter and year estimates by five cents to $1.36 and $5.60 respectively, citing wider spreads and lower liquidity.

Illinois Tool Works (ITW Quote) lost 6 7/16, or 8%, 73 11/16 despite a hand from ABN Amro , which raised its price target to 100 from 93 and maintained its buy rating on the stock. Last night ITW said it would acquire Premark International (PMI Quote) in a $3.4 billion deal. Shares of Premark soared 16 7/16, or 48%, to 50 11/16.

Hudson United Bancorp (HU Quote) added 5/16 to 31 1/2 after saying it bought Lyon Credit, the U.S. commercial finance unit of Credit Lyonnais. Hudson declined to say how much it paid, though Lyon Credit has a loan portfolio worth about $350 million, and specializes in financing small energy products.

Merrill Lynch (MER Quote) added 1 9/16 to 76 11/16 after it unveiled plans to take a 14.3% interest in the electronic trading system, Archipelago Holdings. The Wall Street Journal reported that Archipelago will start executing orders in Big Board-listed stocks.

Old Kent Financial (OK Quote) slipped 7/16 to 38 15/16 after it announced plans to buy Grand Premier Financial (GPFI Quote), which rose 13/16, or 5.4%, to 15 3/4, in a deal valued at $394 million. Old Kent said it would assume a one-time charge of $30 million.

Earnings/revenue reports and previews

Dow Chemical (DOW Quote) lost 1 3/16 to 113 1/8 after CEO William Stavropoulos said he was comfortable with third-quarter earnings estimates, despite pressure from rising costs for raw materials. The 14-anlayst estimate calls for earnings of $1.32 a share.

GenCorp (GY Quote) rose 5/16 to 21 after posting third-quarter earnings of 53 cents a share, beating both the five-analyst estimate of 52 cents and the year-ago 42 cents.

National Semiconductor (NSM Quote) climbed 2 5/8, or 8.2%, to 34 5/8, its highest close since December 1997. Salomon Smith Barney upped its 2000 earnings-per-share estimate and raised its price target to $55 from $35. Last night the company reported first-quarter profits of $57 million, or 25 cents a share, including a gain. The profit for the quarter ended Aug. 29 put the Santa Clara, Calif. chip concern ahead of schedule in returning to the black and reversed the year-ago loss of 63 cents a share. The 19-analyst estimate called for a loss of 14 cents a share. National Semi didn't release per-share figures excluding the gain, but said pretax profit excluding the gain was $1.2 million. Warburg also raised its earnings estimate for 2001 and 2001, while reiterating a buy rating on the stock.

Sprint (FON Quote) gained 3/4 to 48 1/8 after Warburg cut its 2000 earnings estimate to $1.90 from $2.05, citing higher dilutive effects in emerging businesses.

Offerings and stock actions

American Power Conversion (APCC Quote) added 11/16 to 20 11/16 after saying it will buy back up to 10 million shares of its common stock over the next two years.

AppNet and Viant (VIAN Quote) soared to record highs on bullish comments from CS First Boston. AppNet rocketed 17 13/16, or 115.3%, to 33 after analyst Mark Wolfenberger called the stock "atomic," while Viant ran up 11 3/8, or 29.4%, to close at a record high of 50. CSFB was an underwriter for each of the companies' June IPO's.

Children's Place (PLCE Quote)added 1 3/8 to 34 3/8 after it iced plans for a 3 million-share offering, citing a drop in its share price.

Tosco (TOS Quote) slipped 3/4 to 27 1/4 after the company said it would buy back up to $300 million of its common stock. Tosco recently completed a previous $300 million share repurchase program authorized in August 1998 under which it bought back 13.2 million shares.

Analyst actions

Atlantic Coast Air (ACAI Quote) added 11/16 to 20 7/16 after Merrill Lynch raised its rating to near-term accumulate from neutral.

eBay flew 13 1/2, or 9.4%, to 158 after Wachovia Securities rolled out coverage with a long-term buy rating and a price target of 208.

MidAmerican Energy (MEC Quote) edged up 13/16 to 30 1/16 after Morgan Stanley Dean Witter raised its rating to outperform from neutral.

Schumberger (SLB Quote) lost 5/16 to 70 after Salomon Smith Barney analyst Geoff Kieburtz cut his 1999 earnings estimates to $1.05 from $1.10.

Petroleum GeoServices (PGO Quote) slipped 9/16 to 21 1/8 after Salomon cut its 1999 earnings estimate to 65 cents from 75 cents.

TC Pipeline (TCLPZ Quote) added 1/8 to 18 1/8 after PaineWebber upped its rating to buy from an attractive.

Ultramar Diamond (UDS Quote) dipped 9/16 to 25 7/8 after PaineWebber lowered its rating to neutral from attractive.

Union Pacific (UNP Quote) rose 3/8 to 52 1/8 after DLJ upped its rating to buy from accumulate.

Veritas (VTS Quote) slipped 3/16 to 20 13/16 despite an upgrade from Warburg to buy from hold. Warburg set a price target of 28.

Miscellany

America Online (AOL Quote) inched up 1/6 to 96 5/16 after it said Netscape co-founder Marc Andreessen is stepping aside as chief technology officer and will become a part-time strategic advisor focused on boosting AOL's investment activities and emerging technologies. AOL named William Raduchel, chief strategist at Sun Microsystems, as Andreesen's replacement.

Leasing Solutions (LSN Quote) said it would be delisted from the New York Stock Exchange if it fails to meet listing requirements.

Mallinckrodt (MKG Quote) rose1 1/8, or 3.5%, to 33 1/16 after the company said it received FDA clearance for its Oxismart oxygen monitor.

U.S. generic drug maker Andrx Pharmaceuticals (ADRX Quote) lost 2 1/8, or 3%, to 69 13/16 after British drug group Glaxo Wellcome (GLX Quote) said it started legal action against it, alleging infringement of patents.

Heilig-Meyers (HMY Quote) lost 1/4 to 5 after saying it will close 18 of its furniture stores in the Chicago and Milwaukee area, which will result in a pre-tax charge between $45 and $50 million. The company said the closings will affect about 500 jobs.

Potash (POT Quote) fell 3 5/8, or 6.4%, to 53 1/8 after saying it would shut down two U.S. nitrogen fertilizer facilities and slice third-quarter earnings estimates in half. The plant closings in Clinton, Iowa and LaPlatte, Neb. along with three others announced on Aug. 12 will mean an estimated $37 million third-quarter write-off for the company. Potash said harsh market conditions in nitrogen and slowing trends in potash and phosphate would drive third-quarter earnings down to about a quarter of its $1.01 per share earnings for the same period last year. J.P. Morgan reduced the stock's rating to market performer from long-term buy.