midday03-17-00

TheStreet.com's MIDDAY UPDATE

March 17, 2000

http://www.thestreet.com

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Market Data as of 3/17/00, 1:02 PM ET:

o Dow Jones Industrial Average: 10,634.63 up 4.03, 0.04%
o Nasdaq Composite Index: 4,778.55 up 61.16, 1.30%
o S&P 500: 1,468.26 up 9.79, 0.67%
o TSC Internet: 1,272.19 up 43.17, 3.51%
o Russell 2000: 572.94 down 1.30, -0.23%
o 30-Year Treasury: 103 13/32 up 18/32, yield 6.001%

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In Today's Bulletin:

o Herb on TheStreet: How Honeywell Sweetened Its Earnings
o Midday Musings: Around the Far Turn, Into the Home Stretch and It's Nasdaq, S&P and Dow

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TheStreet.com Community

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"TheStreet.com" on the Fox News Channel

Don't miss "TheStreet.com" as guest Anthony Dwyer, chief market strategistat Kirlin Holdings, joins our panel of writers for this week's show.

"TheStreet.com" is on Fox News Channel at 10 a.m. and 6 p.m. EST Saturday and at 10 a.m. EST Sunday.

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Also on TheStreet.com:

Wrong! Tactics and Strategies: The Game of Calls and Strikes

Cramer envisions a painfully real scenario of a game gone wrong.

http://www.thestreet.com/comment/wrongtactics/902631.html

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SiliconStreet.com: Research Doesn't Always Sell

And other lessons to look out for in the tech stock craze.

http://www.thestreet.com/comment/siliconstreet/902194.html

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General: Red-Hot Janus to Offer New Growth Fund

The fund's strategy is similar to that of Janus Twenty, which is closed to new investors.

http://www.thestreet.com/brknews/general/902659.html

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Fixed-Income Forum: Does the Treasury Buyback Program Affect My Strips?

No and yes. The government doesn't want those particular bonds, but they've rallied hard anyway.

http://www.thestreet.com/funds/bondforum/902565.html

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Herb on TheStreet: How Honeywell Sweetened Its Earnings

By Herb Greenberg
Senior Columnist
3/17/00 6:30 AM ET

Fried-Day:

Honeywell's honey pot: Bet you never thought I'd get around to following up on a comment here about a month ago when a source mentioned that maybe people ought to start taking a look at Honeywell International (HON Quote) instead of Newell Rubbermaid (NWL Quote), which buried itself in restructuring costs.

Honeywell, after all, reported $1.3 billion in charges last year -- mostly tied to its merger with Allied Signal. But the company also told Wall Street that it would have no more restructuring charges. Of course, those were Newell's famous last words before it took more charges.

But the real story with Honeywell boils down to earnings growth: Honeywell claims that per share earnings this year will grow by 20%. Twenty percent! That would certainly be an earnings gain worth watching for a company that so badly whiffed its fourth quarter that investors couldn't flee the stock fast enough. (The stock dropped 10% on the news.)

But the question you might ask is, "Greenbum, why do you make a big deal out of 20% this year when last year's EPS grew by 15%?"

Because last year's earnings didn't really grow by 15% -- at least not operating earnings.

Eagle-eyed investors who read down into the bowels of the company's 10-K, which came out a few weeks after the earnings were announced, would've noticed that a big chunk of the gain came from an unexpected gain in the company's pension plan. (Pension income is a controversial area, and it's not something Honeywell mentioned in its earnings report.) Without that gain, which was $129 million more than the previous year, annual earnings would've grown by just 10%.

What makes Honeywell think it can double its real earnings growth rate? Does that include pension income? Does it include the positive comparisons the company is likely to have as a result of taking no more restructuring charges? (The lack of restructuring charges would make it easier to show positive comps.) Or does it merely assume cost savings as a result of merger-related layoffs and other cost savings? (These are some of the questions you need to ask to determine the quality of the company's earnings. For example, if Honeywell is factoring in merger-related cost savings, the company would be hard-pressed to repeat those cost savings the following year. Ditto for the lack of restructuring charges.)

Honeywell's response: The 20% does not include pension income or the positive impact of not having restructuring charges. It'll come, in part, from 4% to 5% revenue growth and a 7% productivity gain, which the company attributes to smarter execution and an increased use of the Internet -- particularly in back-office functions. (Ah, but will it be able to repeat that gain year after year?) The company also says it expects to see $2 billion in revs, in the not-too-distant future, from its three new B2B sites.

As they say, sounds good on paper. But Wall Street is counting on it to be good in practice, which is why it'll pay to pay special attention not to what the company says in its earnings releases or on its conference calls, but what it actually reports to the SEC.

P.S.: My hunch, in markets like these, is that stories about companies such as Honeywell are yawners. But, then again, my first piece on Federal-Mogul (FMO Quote) probably was an eye-glazer. And that was before FedMog ran into an earnings problem, and back when its stock was 74% higher. If Honeywell performs, of course, its stock, which closed yesterday at 49 3/4, is headed higher; if it doesn't, according to one former fan who is trying to determine whether to buy more or sell the rest he has, it could fall into the 30s.

Market mania: They scoffed two weeks ago on our Fox show when I predicted that the Nasdaq would fall to 4450. Unfortunately, I said it would fall to 4450 before it hit 5000. So much for my job as a market timer. But it did fall and you don't have to be a Gary B. Smith or Jim Cramer to realize why: The spring was simply wound too tight. And now it has come unwound so fast that, well, we'll leave the rest to physics or anybody who follows the chaos theory of market magic.

Maybe the moral of this market game (especially with the Dow and Nasdaq doing their wild thangs) is that until it all comes crashing down, anything that swings too far too fast to one side can't help swinging the other way just as fast as the other. (Got that from the "Dummies Guide to Becoming a Market Guru." OK, the book doesn't really exist, but you get the picture.)

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at [e-mail]. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

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Midday Musings: Around the Far Turn, Into the Home Stretch and It's Nasdaq, S&P and Dow

By David A. Gaffen
Staff Reporter
3/17/00 12:54 PM ETCalvin Coolidge, who advocated a "return to normalcy," would generally be pleased. In what's proven to so far be a somewhat restrained session -- and that's on triple-witching day -- the Nasdaq Composite Index has resumed throwing its weight around. The S&P and Dow Jones Industrial Average are both lagging.

Major Indices INDEX CHANGE % VALUE Dow -1.24 -0.01% 10,629.36 S&P 500 5.94 0.41% 1464.41 Nasdaq 51.97 1.10% 4769.36 Russell 2000 -2.44 -0.42% 571.8 TSC Internet 38.72 3.15% 1267.74 BOND CHANGE PRICE YIELD 30-Year Treasury 19/32 103 14/32 6.001% Market data as of: 12:40 PM EST, Fri Mar 17 2000

After putting together its largest two-day point gain in history (819 points) and dragging the Comp along with it yesterday afternoon, the Dow, which has recently dropped to about unchanged, has faded after a strong start. The Nasdaq, meanwhile, has reasserted itself, rising 51.97 points in about three hours of trading. After losing nearly 10% of its value from Monday to Wednesday, the Comp has bounced 4.7% today and yesterday.

Investors believe the Nasdaq's swift rebound is not without merit. The potential for growth still exceeds that of the Dow stocks, and the market still continues to view the tech sector as somehow immune to the threat of interest-rate increases, one of which is most likely coming next week, courtesy of the Federal Reserve. But the swiftness still makes heads spin.

"The thing that gets me is how strong the Nasdaq is," said Allan Meyers, portfolio manager of the (KNVIX Quote)Kent Growth and Income Fund. "You get these little pullbacks; people pull 'em back 5% to 10%, and people jump on the bandwagon, and push them up. That mentality's not broken, and you see it again today."

Most active on the Nasdaq was Microsoft (MSFT Quote), gaining 1.3% on 23 million shares, and it was closely followed by Intel (INTC Quote), up 2.3%, and Dell (DELL Quote), which gained 1.6%.

Brian Gilmartin, portfolio manager at Trinity Asset Management, put it succinctly, just as Coolidge might: "You're seeing the PCs and semiconductors -- and the PCs and semiconductors."

Which is not to say the Dow is doing terribly. But you guessed it -- a PC maker, Hewlett-Packard (HWP Quote) accounts for 40 points of positive gain on the index, having jumped 6% today.

Among the Dow's other leaders are American Express (AXP Quote), up 7/16 to 144 1/8, and Boeing (BA Quote), up 1 5/8 to 37 1/4.

But some believe, in the face of at least one more interest rate hike from the Fed (and possibly several more), the Dow's recent gains aren't sustainable.

The market will ultimately correct, either in advance of the meeting, or after it's awakened by what will most likely be another harsh statement from the Fed. The Consumer Price Index was released today. Excluding food and energy prices, the CPI rose 0.2% in February, rising at a 3.2% year-over-year rate. That's an increase from January, when it was rising at a 2.7% year-over-year rate.

"You have to believe that 900 points has to come to a stop, at least in the near-term," said Peter Boockvar, equity strategist at Miller Tabak. "You just don't go up 1000 points without a correction. This rally is not based on anything that has changed -- the Fed's not going to change what they're going to do. It's just a snapback."

Strategists expect the day could get more volatile (especially considering this week's gyrations), due to triple witching, the quarterly expiration of stock options, index options and index futures. It can produce a lot of weird activity late in the day, but it's hard to believe the market could be surprised by much.

TheStreet.com Internet Sector index is up 38.72 points, or 3.15%. Among the Net stocks, Yahoo! (YHOO Quote) has gained 0.9% and RealNetworks (RNWK Quote) was up 8.3%.

The Russell 2000 was slightly lower, down 2.44 to 571.8.

Market Internals

Breadth was negative on heavy volume.

New York Stock Exchange: 1,334 advancers, 1,495 decliners, 795 million shares. 36 new highs, 33 new lows.

Nasdaq Stock Market: 2,120 advancers, 1,896 decliners, 973 million shares. 63 new highs, 53 new lows.

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