A Miss Is Still a Miss and Lucent's Bodes Ill for This Market

SAN FRANCISCO -- Play it again, Sam.

In a less volatile repeat of yesterday's action, investors once again eschewed the stocks they loved most in 1999 while showering affection on names previously in disfavor. That is, value stocks trumped growth again.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 130.61 +1.2% 11,253.26 -2.1% S&P 500 1.34 +0.1% 1403.45 -4.5% Nasdaq 150.29 -3.9% 3727.25 -8.4% Russell 2000 3.49 -0.7% 475.34 -5.8% TSC Internet 81.40 -7.4% 1026.40 -11.1% TSC New Tech 30 57.28 -9.5% 545.27 -11.8% BOND CHANGE PRICE YIELD 30-Year Treasury 28/32 94 10/32 6.565%

In the immediate aftermath of the session, traders were already turning their attention to a profit warning from Lucent (LU Quote - Cramer on LU - Stock Picks), which many feel will exacerbate the trend. Lucent was halted after closing down 4.7% to 69 1/16 in the New York session. After reopening, it was first quoted at 60 in after-hours trading, according to Instinet.

"That news is not going to sit well," said Robert Harrington, co-head of block trading at PaineWebber. "You had Gateway (GTW Quote - Cramer on GTW - Stock Picks) [warn] and now Lucent. I think they'll be a continuation of money looking to find some value, at least for the short-term until the tech area stabilizes."

Aside from the relative steadiness of the action, a notable difference from the prior day's session was the improvement made by bonds and interest rate sensitive stocks. Ahead of tomorrow's employment report for December, the price of the 30-year Treasury bond rose 28/32 to 94 10/32, its yield falling to 6.56%.

Lucent: Join the discussion

Despite the bond market's rise today, economically sensitive stocks including utilities and those tied to basic materials again benefited from a sense that the economy will continue its speedy growth.

A host of such stocks -- including 3M (MMM Quote - Cramer on MMM - Stock Picks), DuPont (DD Quote - Cramer on DD - Stock Picks) and ExxonMobil (XOM Quote - Cramer on XOM - Stock Picks) -- spurred the Dow Jones Industrial Average, which closed up 130.61, or 1.2%, to 11,253.26. The Morgan Stanley Cyclical Index gained 2.8%.

Procter & Gamble (PG Quote - Cramer on PG - Stock Picks) also aided the index, rising 4% following an upgrade by Prudential Securities. The Morgan Stanley Consumer Index gained 1.6%.

The Dow got an additional boost from its financial components, led by J.P. Morgan (JPM Quote - Cramer on JPM - Stock Picks), which reflected the group's overall strength. The Philadelphia Stock Exchange/KBW Bank Index rose 4.8% while the American Stock Exchange Broker Dealer Index climbed 2.2%.

The Dow's biggest laggards were technology giants such a Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks), Intel (INTC Quote - Cramer on INTC - Stock Picks) and Hewlett-Packard (HWP Quote - Cramer on HWP - Stock Picks). The Morgan Stanley High-Tech 35 lost 3.3%.

The Dow's tech components reflected broader market trends. The Nasdaq Composite Index tumbled 150.29, or 3.9%, to 3727.25 after trading as low as 3715.62. The point decline is the second-largest in Nasdaq history and leaves the Comp 9.8% below Monday's all-time closing high of 4131.15.

Gateway recovered from last night's after-hours drop to 56 1/2, rising 8.5% to 59 11/16, but other PC and related names tumbled in reaction to the firm's profit warning, including Dell (DELL Quote - Cramer on DELL - Stock Picks) and Apple (AAPL Quote - Cramer on AAPL - Stock Picks).

The Nasdaq 100 shed 4.8% and nearly every other tech stalwart followed suit.

Intenret bellwethers such as Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) and momentum favorites such as Qualcomm (QCOM Quote - Cramer on QCOM - Stock Picks) also suffered heavy losses of more than 10%.

As a result, TheStreet.com Internet Sector index fell 81.40, or 7.4%, to 1026.40, while TheStreet.com New Tech 30 shed 57.28, or 9.5%, to 545.27.

Unveiled yesterday, the TSC New Tech 30 is an expanded index designed to replace the Red Hots index: The market-cap-weighted index remains focused on tracking the most scorching part of the market, the magnet for Wall Street's hot money. A list of the new index components is available ( http://www.thestreet.com/newtech/ Quote - Cramer on http://www.thestreet.com/newtech/ - Stock Picks)here.

Whipsawed between the value stocks which pumped up the Dow and the sagging growth names, the S&P 500 closed up 1.34 to 1403.45 after trading as high as 1411.90 and as low as 1392.02. The Russell 2000 shed 3.49, or 0.7%, to 475.34.

"There has been profit-taking in tech and the money has been moving into names that have been underperforming," Harrington said. "It's sustainable until techs get back to valuations where certain names are attractive."

The trader also noted a lot of "non-tech" names suffered until tax-loss selling at the end of 1999 and "now we're seeing a reversal" whereby tax considerations favor selling last year's big tech winners.

In New York Stock Exchange trading, 1.092 billion shares were exchanged while advancers bested declining stocks 1,963 to 1,136. In Nasdaq Stock Market action, 1.58 billion shares traded while losers led 2,199 to 1,925. New 52-week lows bested new highs 68 to 46 on the Big Board but new highs led 102 to 68 in over-the-counter trading.

It's a Good Thing

"My screen is telling me the market is repairing itself with startling efficiency [and] in the most incredible fashion I think I've ever seen," said Scott Bleier, chief investment strategist at Prime Charter. "Most of these big Nasdaq stocks that had huge runs are giving back 10% to 30% and you have the primary market acting fabulous."

Bleier argued the rotation from growth to value stocks was inevitable -- and necessary -- after the "unprecedented" market-cap appreciation by growth stocks in the fourth-quarter of 1999. (After the close, he called to say Lucent's profit warning will only accelerate the trend but that he does not see the market getting "vaporized" by it.)

The strategist foresees the push to value continuing for the intermediate-term, predicting the Nasdaq Comp has seen its high for the first quarter while the Dow will proceed to 12,000.

"This is the deployment of real money in real stocks," he said, noting the 8% rise by 3M today on no discernible news. "Money managers are hesitant to pay ridiculous prices for high flying stocks" which are "now due for a period of time viewed as consolidation."

If the Comp were to fall below 3550 and/or the NDX below 3100, "then the market might have a problem," Bleier said. But "it's not over yet" for tech stocks because of the strength of the U.S. economy, the demographics of investors and the continued growth of online investing.

Among other indices, Dow Jones Transportation Average gained 69.72, or 2.4%, to 2937.08; the Dow Jones Utility Average rose 3.53, or 1.2%, to 292.64; and the American Stock Exchange Composite Index slid 1.12, or 0.1%, to 857.76.

Elsewhere in North American equities, the Toronto Stock Exchange 300 slipped 5.22 to 8114.2 and the Mexican Stock Exchange IPC Index lost 12.66 to 6751.65.