Rate Worries Keep Squeezing and Stocks Give In

Blue-chips suffered through the Tuesday trounce as financial stocks continued to slouch toward the poorhouse, weighing down a decent session for the techs.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow -120.00 -1.09% 10,910.33 +18.8 S&P 500 -7.84 -0.58% 1336.29 +8.7 Nasdaq 23.52 0.83% 2868.29 +29.7 Russell 2000 -1.41 -0.32% 438.24 +3.9 TSC Internet 13.10 2.15% 625.56 +53.9% BOND CHANGE PRICE YIELD 30-Year Treasury -27/32 100 3/32 6.117%

The Dow Jones Industrial Average, off 120, or 1.1%, to 10,910.33, staged a decent imitation of the San Francisco 49ers' opening-day performance, which saw the Bay City Rollers get stomped by the Jacksonville Jaguars 41-3 Sunday. J.P.Morgan (JPM Quote) and DuPont (DD Quote) provided the largest negative influences on the blue-chip gauge in a weak session for stocks overall.

Meanwhile, the Nasdaq Composite Index, up 23.52, or 0.8%, to 2868.29, was alone among major stock proxies in closing in the green. Decliners outpaced advancers on both the New York Stock Exchange and the Nasdaq Stock Market.

Economic data took the blame for much of the selling pressure: A stronger-than-expected retail sales report for August put the squeeze on both stocks and bonds. Retail sales in the month rose 1.2%; excluding autos, sales rose 0.7%. Economists polled by Reuters were projecting retail sales would rise 0.8%, 0.4% ex-autos. The higher-than-anticipated jump in retail sales stoked fears that the Federal Open Market Committee would again raise interest rates when it meets Oct. 5. The FOMC has already raised rates twice this year.

With the retail sales data paving the way for a setback, still more economic news looms. At 8:30 a.m. EDT tomorrow, the Consumer Price Index is slated for release. According to a Reuters poll, economists are expecting the overall CPI to rise 0.3%, while excluding food and energy prices, they're projecting an increase of 0.2%.

"Strong retail sales by themselves do not make for another Fed rate hike," wrote Joel Naroff of Naroff Economic Advisors in a report after the release of the retail sales data. "But if tomorrow's CPI report is even a touch higher than expectations, the markets will turn on another dime and become convinced that the last of last fall's three eases will be reversed" at the Oct. 5 FOMC meeting.

In tech, semiconductor stocks were the stars as they continued to pad their already whopping gains for the year. Word of a jump in DRAM prices helped boost stocks in the sector: The Philadelphia Stock Exchange Semiconductor Index surged 5.1% and components Intel (INTC Quote), Motorola (MOT Quote), Micron Technology (MU Quote) and Texas Instruments (TXN Quote) posted solid gains.

Meanwhile, the S&P 500 slumped 7.84, or 0.6%, to 1336.29, and the small-cap Russell 2000 slipped 1.41, or 0.3%, to 438.24.

TheStreet.com Internet Sector index jumped 13.10, or 2.2%, to 625.56. Boosting the DOT the most was RealNetworks (RNWK Quote), which surged 8.7%.

Jay Suskind, head of institutional equity trading at Ryan Beck, said interest-rate worries and fears -- set off by the retail sales numbers -- weighed on the market today.

As for tomorrow's economic data, Suskind said that if the CPI numbers are "even a touch negative," the market's going to sell off. That data's going to have to be really positive to get the market much higher, Suskind said.

Brocade Communications (BRCD Quote) and Qualcomm (QCOM Quote) were stars on the upside on the Nasdaq.

Meanwhile, Federal-Mogul's (FMO Quote) profit warning yesterday after the close and some Wall Street downgrades doomed it to a huge loss today as it slid 22.9%.

As for the Treasury market, the 30-year Treasury bond tumbled on the strong retail sales report. The long bond was down 26/32 to 100 4/32, yielding 6.12%.

The battered bank sector got hammered again, continuing on the rough road those issues have traveled lately. The Philadelphia Stock Exchange/KBW Bank Index slipped 2%.

Brokerage stocks joined banks on the downside and posted a poor performance. The American Stock Exchange Broker/Dealer Index tumbled 2.1%.

Insurance stocks got slammed on the fear of what kind of damage Hurricane Floyd may cause in Florida. The S&P Insurance Index stumbled 2%.

And while the Nasdaq managed to close in positive territory, even there some analysts see trouble down the road.

Philip Roth, chief technical analyst at Morgan Stanley Dean Witter, said he's looking for the market to take another hit in the October-November period. Roth pointed out that though the tech sector hasn't quit, it's "very extended." He said the market won't make a good bottom until after the tech sector corrects.

Roth said that in the current market environment, it "behooves" market participants to focus on economically sensitive issues like the basic-materials and energy sectors.

On the NYSE, decliners thumped advancers 2,147 to 844 on 723.9 million shares. On the Nasdaq, losers beat winners 2,217 to 1,696 on 1.01 billion shares.

On the NYSE, 196 issues set new 52-week lows while 48 touched new highs. On the Nasdaq, 78 issues set new 52-week highs while new lows totaled 64.

On the Big Board, America Online (AOL Quote) was most active with 14.4 million shares changing hands. On the Nasdaq, Dell (DELL Quote) was most active with 22.6 million shares changing hands.

Among other indices, the Dow Jones Transportation Average fell 0.84, or 0.03%, to 3090.69, Dow Jones Utility Average surrendered 2.63, or 0.8%, to 310.91 and the American Stock Exchange Composite Index slipped 3.02, or 0.4%, to 801.48.

Elswhere in North American equities, the Toronto Stock Exchange 300 increased 3.98 to 7122.10 and the Mexican Stock Exchange IPC Index fell 48.85 to 4967.27

Tuesday's Company Report

By Tara Murphy
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.)

Mergers, acquisitions and joint ventures

Privately held trading system Archipelago said that General Electric's (GE Quote) business news cable channel CNBC paid an undisclosed amount for a 12.4% interest in the company. Goldman Sachs (GS Quote), E*Trade (EGRP Quote), J.P. Morgan (JPM Quote) and Merrill Lynch (MER Quote) have all previously invested in the electronic communications network. Industry sources told Reuters that E*Trade, J.P. Morgan and Goldman spent about $20 million to $25 million on their positions of roughly 20% to 25% each. Shares of GE slid 1 13/16 to 116 3/4.

Cendant (CDT Quote) slipped 3/4 to 21 15/16 after it said it set a pact with Carlyle Group to sell its Entertainment Publications unit for $345 million. The agreement calls for Carlyle Group to pay Cendant $325 million in cash, while Cendant will maintain a 16% interest in the division, which it values at $20 million. Cendant said it would see a $140 million after-tax gain from the transaction.

Delta Air Lines' (DAL Quote) Delta Shuttle unveiled plans to add on 16 new Boeing (BA Quote) 737-800 Stage III aircraft. Delta said it would receive the planes in July 2000. Shares of Delta climbed 1/2 to 50 5/8, while Boeing declined 1/4 to 44 9/16.

Separately, Thai Airways International is seeking to obtain $576 million in new 12-year foreign currency loans to finance the acquisition of five Boeing (BA Quote) aircraft.

Finnish telecom giant Nokia (NOK Quote) stumbled 5/8 to 88 7/16 despite winning a $76 million deal with Picus Communications, Virginia Beach, Va., to supply high-speed data and voice digital subscriber line, or DSL, broadband network technology.

Motorola (MOT Quote) hopped 2 13/16 to 93 3/16 after it said it inked deals IBM (IBM Quote), QNX Software Systems and Embedded Planet to create technology for "smart cars," which use computers to supply real-time traffic updates and play music on demand. Motorola said it expects the invention to be ready for 2002 or 2003 car models.

Qualcomm (QCOM Quote) soared 17, or 11%, to 170 1/2 after it said it was in talks with several interested parties while it considers strategic alternatives for its phone business. Qualcom hopes to forge a deal by the end of the year. The company also said that it expects fourth-quarter earnings to meet or exceed the consensus estimate of 87 cents a share.

Sauer (SHS Quote) fell 1 7/8, or 13.9%, to 11 9/16 after it said it is in talks to acquire Danfoss Fluid Power Business.

Scottish & Newcastle, one of the largest pub companies in the U.K., agreed to buy 826 bars, restaurants and hotels from Greenalls for $1.8 billion, in an effort to keep pace with fast-growing rivals.

Solectron (SLR Quote) advanced 1 11/16 to 75 7/16 after it said it would buy Smart Modular Technologies (SMOD Quote) in a deal valued at $2 billion in stock. Earlier today, Banc of America raised Solectron's fiscal 2000 earnings estimates to $1.58 a share from $1.50. Shares of Smart Modular jumped 11 15/16, or 51%, to 35 3/8.

Earnings/revenue reports and previews

Able Telecom (ABTE Quote) added 15/16, or 10%, to 9 1/2 after it reported third-quarter earnings of 17 cents a share, in line with the single-analyst estimate and reversing the year-ago 72-cent loss.

Best Buy (BBY Quote) sunk 5 3/4, or 9.5%, to 54 3/4 despite posting second-quarter earnings of 28 cents a share, beating both the 15-analyst estimate of 27 cents and the year-ago 21 cents.

Interstate Bakeries (IBC Quote) skidded 5/8 to 22 3/8 after it reported first-quarter earnings of 47 cents a share, in line with the nine-analyst estimate and flat with year-ago EPS.

Kroger (KR Quote) increased 15/16 to 24 5/8 after it posted second-quarter earnings of 24 cents a share, in line with the 14-analyst estimate and better than the year-ago 12 cents.

Mark IV (IV Quote) slipped 5/8 to 20 3/16 after it posted earnings of 36 cents a share, missing the three-analyst estimate of 37 cents but better than the year-ago 31 cents.

Miller Industries (MLR Quote) advanced 1/16 to 2 15/16 after it reported first-quarter earnings of 3 cents a share, in line with the two-analyst estimate and down from 6 cents a year ago.

Pier 1 Imports (PIR Quote) climbed 1/8 to 5 13/16 after it reported second-quarter earnings of 12 cents a diluted share, in line with the 16-analyst estimate and down from 17 cents a year ago. The company said same-store sales for the quarter declined 1.8%.

Analyst actions

Anaren Microwave (ANEN Quote) popped 1 1/2, or 5.8%, to 27 7/16 after U.S. Bancorp Piper Jaffray upped its price target to 35 from 30.

Cabletron (CS Quote) hopped 1 5/16, or 7.7%, to 19 5/8 after SG Cowen analyst Chris Stix upped his fiscal 2001 earnings estimates to 85 cents a share from 65 cents and his price target to 25 to 30 from 15 to 20.

Cabot Industrial Trust (CTR Quote) advanced 1/16 to 20 1/16 after Salomon Smith Barney lowered its rating to neutral from outperform.

Bank of America (BAC Quote) slid 2 11/16 to 56 1/2 after Credit Suisse First Boston analyst Michael Mayo sliced his earnings estimates for the second half of 1999, citing soft trading in August and possible problems associated with Y2K

Estee Lauder (EL Quote) jumped 2 15/16, or 7.2%, to 43 1/2 after Merrill Lynch raised the stock's rating to accumulate from neutral and set a share price target close to 50.

EMC (EMC Quote) slipped 3/8 to 68 3/8 after SG Cowen analyst Richard Chu began coverage of the stock with a buy rating and set a price target of 77.

Federal-Mogul (FMO Quote) plummeted 9, or 22.8%, to 30 3/8 after Merrill Lynch cut its rating on the shares to near-term neutral/long-term accumulate from near- and long-term buy, citing earnings expectations. Credit Lyonnais also cut the stock to hold from a buy.

Merrill Lynch initiated coverage of healthcare distribution companies including Bergen Brunswig (BBC Quote), with an intermediate neutral and long-term accumulate, and Cardinal Health (CAH Quote), with an intermediate accumulate, long-term buy rating. The firm also gave McKesson HBOC (MCK Quote) an intermediate neutral and long-term accumulate rating and AmeriSource Health (AAS Quote) an intermediate neutral and long-term accumulate.

Shares of Bergen Brunswig fell 1/4 to 13, while Cardinal declined 1 1/8 to 61 13/16. McKesson HBOC slipped 1 5/16 to 32 5/18 and Amerisource Health slid 3/8 to 24 3/8.

Lexington Corporate Properties (LXP Quote) was unchanged at 11 1/4 after Salomon sliced the stock's rating to a neutral from outperform.

Mack-Cali Realty (CLI Quote) was unchanged at 27 3/8 after Salomon Smith Barney downgraded the shares to outperform from buy.

Mypoints.com (MYPT Quote) skidded 11/16 to 20 15/16 after Salomon rolled out coverage of the stock with a buy rating.

PairGain (PAIR Quote) rose 7/8 to 12 7/8 after Warburg Dillon Read sliced its third-quarter estimate to a 5-cent loss from a 2-cent profit, and slashed its year estimate to a 2-cent loss from a 24-cent profit. U.S. Bancorp Piper Jaffray, meanwhile, cut its third-quarter estimate to a 3-cent loss from a 2-cent profit and its fiscal 1999 target to a 4-cent profit from a 17-cent profit.

Offerings and stock actions

Chesapeake (CSK Quote) slid 1/2 to 34 3/8 after it set a plan to buy back up to 2 million shares over the next year.

Mellon Bank (MEL Quote) tumbled 15/16 after it said it would ask its board to approve a 25 million-share repurchase program and change its name to Mellon Financial Corp. The company said the name change follows research that showed the word "financial" better emphasizes the bank's shift in focus to a wider array of financial services.

PurchasPro.com (PPRO Quote) soared 14 3/16, or 118.2%, to 26 1/8 in its trading debut.

U.S. Industries (USI Quote) rose 1/16 to 16 5/8 after it said it would buy back up to $100 million worth of common stock.

Miscellany

Many Florida businesses are preparing for the torrential rains and winds of Hurricane Floyd. BP Amoco (BPA Quote) has closed a main oil products marketing terminal in Port Everglades at the request of the U.S. Coast Guard, while the American Airlines unite of AMR (AMR Quote) and Delta have canceled flights to and from Florida.

Hibbet Sporting Goods (HIBB Quote) skidded 1/16 to 17 11/16 after it tapped President and COO Michael Newsome to become its first CEO. Newsome will continue act as the company's president.

National Semiconductor (NSM Quote) hopped 1 3/4, or 5.3%, to 34 1/2 after Executive Vice President Patrick Brockett said at SG Cowen's technology conference that the company was set to report "very solid profits" for its fiscal second quarter, citing a large demand for its analog and wireless chip product lines.

Earlier today, National Semiconductor said it would retain ownership of its manufacturing plant in Greenock, Scotland, citing a surge in demand for analog products. In October, the company had said it would seek out investors to spin out the operation independently.

Silicon Graphics (SGI Quote) fell 7/16 to 12 9/16 after it forecast a second-quarter profit. The company now plans to slash 3,000 jobs, doubling its initial estimate, set in August. CFO Steve Gomo said at the SG Cowen technology conference that SGI's bottom line could be hurt by the departure of CEO Rick Belluzzo.

Sony (SNE Quote) soared 11 11/16, or 8.5%, to 148 3/16 on yesterday's announcement that it expects its PlayStation 2 video game console to hit shelves in Japan on March 4, 2000.

Bank stocks may be ripe for a beating, according to today's Heard on the Street column in The Wall Street Journal. Bank stocks have fallen 11% since the last Federal Reserve rate increase, compounding banks' existing problems of slower loan growth and other revenue challenges. Bigger problems may lie ahead, the column says, as a result of declining commercial loan quality and rising interest rates weighing down securities portfolios.

Federal prosecutors charged Princeton Economics International Chairman Martin Armstrong with securities fraud for allegedly stealing $1 billion from Japanese investors. Prosecutors said that Princeton Economics, which isn't affiliated with the Ivy League university, hid hundreds of millions in trading losses in 300 Japanese investors' accounts. Officials claim that Princeton, which told investors that their accounts would be individually handled and conservatively invested, combined the accounts, applying money from one to the interest payments on another. Armstrong could serve up to 10 years in jail if convicted.