Stocks See Blue Skies as Bonds Start Behaving

Plus, Net stocks look like they'll perform well on the back of Mary Meeker's upgrade of AOL.
Author:
Publish date:

With the bond market holding up despite the pressure of a big auction today, stocks look set to run higher this morning.

Today begins the quarterly refunding in the Treasury market, with the auctioning of $15 billion in five-year notes. Typically, these auctions hurt the bonds a bit -- first because the market must cope with the new supply, and second because dealers try to bring the price down ahead of the auction to get better prices.

"If the bonds can behave, we'll get some strength in the overall market," said Bill Meehan, market analyst at

Cantor Fitzgerald

. "We'll probably see a continuation of the trend yesterday," where the

Dow Jones Industrial Average

and the

S&P 500

were lackluster, while the tech-stuffed

Nasdaq Composite

and small-caps did well."

Still, the market remains essentially range-bound, said Todd Clark, head of listed trading at

Charles Schwab

, with the S&P 500 futures locked in a range of 1319 to 1362.5. "I'm encouraged by some of the internals, but until we move out of that range, I think we're just digesting here," he said.

Meanwhile, Internet stocks look like they'll perform well on the back of an upgrade by one of the most closely followed analysts in the group.

Morgan Stanley's

Mary Meeker, who can spot a triple-bottom with the best of them, upped

America Online

(AOL)

to strong buy from outperform. AOL has lately flagged under perceptions that the advent of cable modems will make the company redundant.

"It seems to me all the angst over AOL not having broadband and all that is misplaced and overblown," said Meehan. "I've had a cable modem for a long time and I don't use AOL much at all, but when I think about deleting it, my kids go into an uproar."

At 9 a.m. EDT, the S&P 500 futures were up 3.8, putting them about 5 above fair value and indicating a higher open. The 30-year was up 5/32 to 92 115/32, dropping the yield to 5.78%.

With investors waiting to see what the government's next move on the stimulus front will be, Japanese stocks have settled into something of a holding pattern. When some muckety-muck in the government suggests a new package is on the way, stocks go up a bit. When one says there's no package planned, they go down.

Today the finance minister,

Kiichi Miyazawa

, said there was no need now for new stimulus, so stocks went down. The

Nikkei

shed 233.8, or 1.4%, to 16,743.18.

Sino-U.S. tension is the most widely cited reason for the declines in Hong Kong today, but one wonders why stocks didn't sell off yesterday, when the news of the embassy bombing in Belgrade was fresher. Smells like an excuse for profit-taking in a market that's come very far very fast. The

Hang Seng

dropped 288.83, or 2.2%, to 12,874.37.

European indices were drifting higher. In Frankfurt, the

Dax

was up 65.69 to 5271.64. In Paris, the

CAC

was up 11.16 to 4358.31.

Telcos were the centerpiece in London after

Merrill Lynch

issued a favorable report on the sector and upgraded

British Telecom

(BTY)

to buy from accumulate. With BT set to report its fourth quarter, people are running for shares.

An improving outlook on Wall Street helped lift the broader market. The

FTSE

was up 36.1 to 6384.9.

Tuesday's Wake-Up Watchlist

By John J. Edwards III
Markets Editor

  • Morgan Stanley Dean Witter upgraded America Online to strong buy from outperform. Separately, AOL said it entered partnerships with four companies to develop its AOL TV product. The companies are the DirecTV and Hughes Network Systems units of General Motors' (GM) - Get ReportHughes Electronics (GMH) arm; Philips Electronics (PHG) - Get Report; and Network Computer. AOL stock reportedly was trading at 134 3/4 in preopen activity, up from yesterday's close of 128 5/16.
  • Same rating, different industry: Morgan Stanley Dean Witter upgraded Alcan Aluminum (AL) - Get Report to strong buy from outperform.
  • Morgan Stanley Dean Witter trimmed Commonwealth Industries (CMIN) to neutral from outperform.
  • Dollar General (DG) - Get Report reported first-quarter earnings of 17 cents a share, a penny better than the 14-analyst First Call estimate and up from the year-ago 14 cents.
  • Donna Karan (DK) - Get Report reported first-quarter earnings of 10 cents a share, 2 cents ahead of the two-analyst estimate and up from 10 cents a year ago.
  • Hollywood Park (HPK) reported first-quarter earnings of 16 cents a share, a fat 10 cents better than the six-analyst view and reversing the year-ago loss of 5 cents.
  • Immunex (IMNX) reportedly was trading at 130 in preopen action, up sharply from yesterday's close of 107 after late yesterday saying it plans to seek federal approval to market Enbrel to early-stage rheumatoid arthritis patients.
  • Lehman Brothers initiated coverage of Kohl's (KSS) - Get Report at outperform, setting a price target of 80.
  • Lehman Brothers priced Maker Communications' (MAKR:Nasdaq) 3.35 million-share IPO at $13 a share, at the top of its range. Maker is a semiconductor firm that makes and markets processors, development tools and applications software for use in communications systems.
  • MediTrust (MT) - Get Report reported first-quarter funds from operations of 50 cents a share, a cent better than the six-analyst prediction but down from the year-ago 64 cents.
  • Motorola (MOT) was higher in preopen action after a group of current and former executives bid $1.6 billion for the company's semiconductor parts group.
  • OfficeMax (OMX) reported first-quarter earnings of 19 cents a share, 2 cents better than the 14-analyst estimate and up from the year-earlier 15 cents.
  • Morgan Stanley Dean Witter downgraded NeoMagic (NMGC) to neutral from outperform.
  • PageNet (PAGE) reported a first-quarter loss of 33 cents a share, 2 cents better than the eight-analyst outlook but down from the year-ago 18 cents. The company said it plans to sell off its operations in Spain.
  • SportsLine USA (SPLN) set the launch of a unit called SportsLine Europe and said it would acquire SportsWeb from Reuters (RTRSY) in a deal whose terms weren't disclosed. Reuters will hold a minority stake in SportsLine Europe, as will Intel (INTC) - Get Report and MediaOne Ventures, a unit of MediaOne Group (UMG) .
  • Morgan Stanley Dean Witter initiated coverage of StanCorp Financial (SFG) at outperform.
  • Symbol Technologies (SBL) set a 3-for-2 stock split.
  • Total Renal Care (TRL) reported first-quarter earnings of 34 cents a share, in line with the 10-analyst forecast and up from the year-ago 27 cents. The company said it's targeting 20% earnings and revenue growth in 1999.
  • Prudential Securities started coverage of USWeb (USWB) at strong buy. The firm did the same for VoiceStream Wireless (VSTR) .
  • Wal-Mart (WMT) - Get Report reported first-quarter earnings of 25 cents a share, 3 cents higher than the 19-analyst expectation and up from the year-ago 18 cents. Same-store sales rose 9.3% year-over-year. Wal-Mart reportedly was trading at 47 1/8 preopen from yesterday's close of 45 3/16.
  • Yahoo! (YHOO) launched Yahoo! Radio, a 10-station Internet radio network offering continuous music, in partnership with its pending merger partner broadcast.com (BCST) and Spinner.com.