Rotation Into Financials Beckons as PC Sector Slips

By rights, one might think stocks would head lower this morning.

Though

Intel's

(INTC) - Get Report

first-quarter earnings

last night came in a hair above expectations, the chipmaker's talk of slowing revenue in the second quarter suggests that there may have at least been something to

Compaq's

(CPQ)

chatter about industrywide pressure in PCdom.

But then if Wall Street had so little trouble Monday absorbing Compaq's earnings warning, how hard could Intel's murky forecast be? The action has been impressive: Though PC-related stocks have been trading heavy, other areas have stepped in to take up the slack. Take the brokers, for example. A couple of great earnings reports yesterday, and another today --

J.P. Morgan's

(JPM) - Get Report

first quarter came in more than 70% above expectations. The PC stocks may have been the darlings in the past, the things that the market looked to for leadership, but the market has been coping with the declines in these issues remarkably well.

"It's a positive note that these stocks can get hurt and the market finds other leadership," said Bill Allyn, head of block trading at

Jefferies

. "That should really buoy investor sentiment -- this market has a lot of power."

Allyn also had good things to say about the action in small-caps yesterday. The

Russell 2000

added 1.2% on a day when the

S&P 500

flagged. Small-caps saw better breadth than their big-cap brethren as well.

"I was heartened by that because there is a lot of room in that Russell," said Allyn. "If investors start to focus on those small-cap stocks, we're going to have a wonderful spring and summer."

That kind of rotation is what traders like to see, and it's one of the reasons stocks are cued to move this morning. At 9 a.m. EDT, the S&P 500 futures were unchanged, putting them about 3.5 above fair value and indicating a positive open.

The 30-year Treasury was off 1/32 to 96 13/32, putting the yield at 5.5%.

Stocks were mixed in Tokyo, where the

Nikkei

added 49.52 to 16,764.68, but declining issues moderately outpaced advancers. Things were much worse in the early going. Intel's not-so-hot quarter weighed on technology shares, and a report in the

Nihon Keizai Shimbun

on

Sony

(SNE) - Get Report

, suggesting that in fiscal 1999 the company's net profit will fall to its lowest level in four years, damaged confidence.

Hong Kong stocks eased a bit as investors fretted that Wall Street would see a pullback on the Intel news. There also appears to be a lot of resistance approaching the 12,000 level on the

Hang Seng

. The index slipped 65.56 to 11,834.13.

The major European bourses were mixed. In Frankfurt, the

Dax

was up 5.01 to 5204.19. In Paris, the

CAC

was down 26.31 to 4341.1. And in London, the

FTSE

was up 7.9 to 6521.

Wednesday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

Intel said second-quarter revenue may be flat to slightly lower than the first quarter's $7.1 billion due to seasonal factors. The company posted first-quarter earnings after the close yesterday of 57 cents a share, 2 cents above the 33-analyst First Call forecast and above the year-ago 36 cents.
J.P. Morgan, a Dow Jones Industrial Average component, posted first-quarter earnings of $3.01 a share, blowing away the First Call 11-analyst estimate of $1.73 and up from the year-ago $1.80, which excludes a charge. J.P. Morgan said return on equity in the first quarter was 22% compared with 13% a year ago.
Berkshire Realty (BRI) has agreed to be sold to Berkshire Realty Holdings, a partnership formed by Chairman Douglas Krupp and affiliates of Blackstone Real Estate Advisors and Whitehall Street Real Estate Limited Partnership XI, an affiliate of Goldman Sachs, in a deal valued at more than $1.3 billion. In other news (earnings estimates from First Call):
America Online (AOL) said that worldwide membership of its AOL service has exceeded 17 million.
Bestfoods (BFO) - Get Report posted first-quarter earnings of 49 cents a share, in line with the 14-analyst estimate and up from the year-ago 44 cents.
Fleet Financial (FLT) - Get Report posted first-quarter earnings of 72 cents a share, beating the 21-analyst estimate by 3 cents.
Hertz (HRZ) reported first-quarter earnings of 45 cents a share, beating the 10-analyst estimate of 39 cents and the year-ago 33 cents.
Johnson Controls (JCI) - Get Report posted second-quarter operating earnings of 70 cents a share, excluding a gain, beating the eight-analyst estimate by a penny and up from the year-ago 56 cents.
Lycos (LCOS) unveiled "My Lycos," a personalized Web portal which provides users personalized news, weather and stock quotes.
Motorola (MOT) reported after the close first-quarter earnings of 28 cents a share, topping the 27-analyst outlook by 4 cents and exceeding the year-ago 23 cents.
Time Warner (TWX) posted break-even results for the first quarter excluding a 10-cent gain. The 15-analyst outlook forecast a loss of 4 cents a share. The company posted a loss of 12 cents a share in the year-ago period.
Wachovia (WB) - Get Report posted first-quarter earnings of $1.18 a share, in line with the 22-analyst estimate.
The Heard on the Street column in The Wall Street Journal chronicles the difficulties BFGoodrich (GR) and Coltec Industries (COT) - Get Report have had in closing their $1.3 billion merger.