Applause Greets Broad-Based Rally, With Skepticism Mixed In

Wall Street's longs love the action that closed the week, but at least a few question its underpinnings.
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Easy as 1, 0.2 and unchanged.

A benign

Producer Price Index

report -- the headline registered 0.2% and the core rate was unchanged, both below expectations -- sparked a solid rally in stocks and bonds today, capping the broad equity market's first positive week in the past four.

When the

Chicago Board of Trade

chose to close early

yesterday because of power problems in the big-shouldered city, many bond traders chose to close out long positions or get short in case the PPI was filled with a nasty inflationary surprise. Thus, when the report proved friendly, the bond was primed for a solid upswing.

The price of the 30-year Treasury bond rose 1 to 100 11/32, its yield falling to 6.10%. The action in fixed-income laid the foundation for a solid move in equities, and traders said the market was just looking for an excuse to continue the rebound from recent selling.

The

Dow Jones Industrial Average

rose 184.26, or 1.7%, to 10,973.65, the Dow's highest close since July 27. The index got its biggest boost from

American Express

(AXP) - Get Report

and

J.P. Morgan

(JPM) - Get Report

, as financials in general capitalized on the bond market's advance. The

Philadelphia Stock Exchange/KBW Bank Index

jumped 4.3% and the

American Stock Exchange Broker/Dealer Index

rose 3%.

Growth names such as

IBM

(IBM) - Get Report

,

Hewlett-Packard

(HWP)

and

General Electric

(GE) - Get Report

were also featured gainers in both the Dow and broader market. The

S&P Barra Growth Index

rose 2.5%.

General Motors

(GM) - Get Report

also gave the Dow a boost, rising 6%.

Enlivened by many of the same, as well as another decent performance by drugmakers and solid strength in

Nasdaq Stock Market

-traded tech bellwethers, the

S&P 500

rose 29.52, or 2.3%, to 1327.68.

The

Nasdaq Composite Index

rose 88.32, or 3.5%, to 2637.81, its fourth-biggest point gain in history. Tech bellwethers rose in near unanimity, led by

Oracle

(ORCL) - Get Report

,

Sun Microsystems

(SUNW) - Get Report

and

Intel

(INTC) - Get Report

; the

Nasdaq 100

rose 4.2%.

The Comp got an additional boost from chip plays such as

Xilinx

(XLNX) - Get Report

,

Lattice Semiconductor

(LSCC) - Get Report

and

Altera

(ALTR) - Get Report

, which benefited from an upgrade from

Merrill Lynch

. The

Philadelphia Stock Exchange Semiconductor Index

rose 2.6%.

Last, but not least, the Comp got a boost from Internet stalwarts such as

CMGI

(CMGI)

, which rose 6%.

TheStreet.com Internet Sector

index gained 21.89, or 4.3%, to 528.41.

If you're getting the feeling there was strength across a broad swath of stocks and sectors today, you're right. That sentiment was further reflected in broader market averages such as the

Russell 2000

, which rose 5.23, or 1.2%, to 434.05. In addition, market internals improved from their recent lassitude.

"This had this tone right out of the gate," said Jay Meagrow, vice president of trading at

McDonald

in Cleveland. "It was solid to the upside and held it all day. It's good to be up across the board and to finally get everyone to shut up and stop talking about interest rates for a half a day" after PPI proved favorable.

But Meagrow observed a lack of compelling upside volume, an outperformance by "big, favorite names" and the fact a "fair amount" of players were MIA.

"We made the best of it, but I still think it's a summer-Friday rally," he said. "It's good to see the Russell turn but I didn't think it could go any lower. The Russell has been the market's bastard child for years now. I'd like to see the Russell hold some kind of uptrend."

In

New York Stock Exchange

trading, 691.8 million shares were exchanged while advancers led declining stocks 1,953 to 1,035. In Nasdaq action 937.4 million shares traded while gainers led 2,423 to 1,467. New 52-week lows bested new highs 145 to 40 on the Big Board while new highs led 88 to 65 in over-the-counter trading.

Not Good Enough

Advances today and

Wednesday have some players feeling cautiously optimistic. But, markets being markets, there are plenty more who feel to the contrary.

"I think the bulk of the gains are behind us," said Tony Dwyer, chief market strategist at

Ladenburg Thalmann

. "Up from

Dow 10,600 to 11,000 is pretty good for an oversold rally, but an oversold rally doesn't correct valuation excesses and the long-term technical extension of the market that exists."

In addition to valuation, Dwyer cited other factors he foresees suppressing more advancement and ultimately leading to a significant downturn in the near to intermediate term. Specifically, interest rates, Y2K and energy prices.

"The perception is they're all going to be negative," he said. "As we get through all the noise, they probably won't be much

of a problem but the market trades on perception short-term, not reality."

Additionally, "you need a climactic event in the market place to create a real bottom," the analyst said. Although Internet stocks have been "getting creamed, it's only one subsector. You need more damage" to the rest of the market.

Earlier this week, the average NYSE stock was down 22% from its 52-week high and the average over-the-counter issue off 29%, Dwyer noted. Conversely, at the October "bottom" last year, the average stock on both the Big Board and the Nasdaq was down more than 50% from 52-week highs.

For a true bottom to emerge you need a "15% to 20% correction coupled with time so earnings can catch up to valuations," he said.

As for today's action, stocks are "having a nice little rally here," but "nothing too juicy," Dwyer said. "Volume is not that great. You've got good breadth but it's more indicative of an oversold technical rally than a fundamental move higher. Portfolio managers aren't going to say, 'We've got to buy here.'"

Among other indices, the

Dow Jones Transportation Average

rose 21.61, or 0.7%, to 3179.07; the

Dow Jones Utility Average

added 1.79, or 0.6%, to 314.39; and the

American Stock Exchange Composite Index

gained 3.09, or 0.4%, to 783.74.

For the week, the Dow industrials added 259.62, or 2.4%; the S&P 500 rose 27.39, or 2.1%; the Comp rallied 89.84, or 3.5%; the Russell 2000 rose 6.01, or 1.4%; and the DOT rose 29.92, or 6%. Additionally, the Dow transports tumbled 40.36, or 1.3%; the Dow utilities shed 3.99, or 1.3%; and the Amex Composite rose 5.82, or 0.7%.

Elsewhere in North American equities today, the

Toronto Stock Exchange 300

jumped 91.18, or 1.3%, to 7006.16 and the

Mexican Stock Exchange IPC Index

rocketed 151.50, or 2.9%, to 5369.02.

Friday'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.

)

ftd.com

(EFTD:Nasdaq) and four other IPO hopefuls halted their trade debuts, taking part in the recent trend of deal delays spawned by market volatility. ftd.com's anticipated decision comes after the eagerly awaited

1-800-Flowers.com

(FLWS) - Get Report

IPO traded down from its initial price when it hit the market earlier this month. 1-800-Flowers.com sent strong signals to Wall Street analysts that turbulent market was more than most public potentials could stomach. ftd.com's lead underwriter,

Bear Stearns

, told

Reuters

that the deal was on "a day-to-day basis for several days" before the postponement.

Cortelco Systems

(CORT:Nasdaq) indefinitely postponed its planned IPO, and

Luminant Worldwide

(LUMT:Nasdaq) and

NetSilicon

(NSIL:Nasdaq) opted to put their offerings off until September.

Therma-Wave

(TWAV:Nasdaq) decided to delay its deal until next week.

Mergers, acquisitions and joint ventures

Disney

(DIS) - Get Report

was up 1 1/16 to 27 3/16 on a report that it may sell its

Fairchild Publications

magazine division, which includes

W

,

Women's Wear Daily

,

Los Angeles

and

Jane

magazines, as well as many trade publications,

The New York Times

reported, citing execs involved in the deal. There are two bidders for the titles:

Conde Nast Publications

and

Hearst Magazines

. Conde Nast Chairman S.I. Newhouse Jr. has offered $650 million for the Fairchild group, the

Times

reported, citing the Disney exec.

Falcon Building Products

is selling its air power tools division,

DeVilbiss Air Power

, to

Pentair

(PNR) - Get Report

for $460 million. Pentair was up 1 5/8 to 42 5/8.

Lucent Technologies

(LU)

was up 2 1/8 to 65 7/8 after it said it has forged an agreement to buy privately held

Xedia

for about $246 million in stock, increasing its presence in the data networking market. Xedia manufactures routers for virtual private networking services. With help from Xedia, Lucent would heighten its data networking capability, a weak spot for the No. 1 telecommunications equipment maker.

Xedia's customer list includes

MCI WorldCom

(WCOM)

,

PSINet

(PSIX)

, and

Sprint

(FON)

. Lucent expects the deal to be inked by the end of the fiscal quarter and said it will not affect fiscal 2000 earnings.

Reynolds Metals

(RLM) - Get Report

was up 2 9/16 to 68 15/16 on news that investment firm

Michigan Avenue Partners

gave the aluminum manufacturer an all-cash takeover offer in an attempt to kept the company independent. This offer challenges the half cash, half stock offer launched by

Alcoa

(AA) - Get Report

. Michigan Avenue Partners told

Bloomberg

that its offer tops Alcoa's, which totals $65 a share, or $56 billion, including assumed debt.

Alcoa's offer came shortly after its competitor

Alcan

(AL) - Get Report

forged a deal to buy

Pechiney SA

(PY) - Get Report

and

algroup's

aluminum business. Shares of Alcan were off 3/8 to 35 1/8 while Pechiney ADRs were up 1/16 to 31 3/16.

Parker Drilling

(PKD) - Get Report

was down 1/16 to 4 11/16 after it announced plans to sell 13 land-based drilling rigs to

Unit

(UNT) - Get Report

. The $48 million transaction is Parker's way out of U.S. onshore oil and gas drilling, the core of its business. President and CEO Bob Parker Jr. said the sale was in line with its long-term growth strategy. Unit shares were up 1/4 to 8 1/4 on the news.

Sbarro

(SBA)

was up 1 3/16 to 27 15/16 after it announced that members of the Sbarro family will purchase all of the shares that they don't already own in a deal estimated at $389.4 million. Nonfamily holders own about 13.5 million shares, or 65.6%, of the Italian restaurant chain's stock. The family members would pay $28.85 for each share.

Time Warner

(TWX)

and

Advance Publications

have suspended plans for a television network aimed at women, only two months after announcing an ambitious strategy to combine their cable assets and women's content,

The Wall Street Journal

reported. Time Warner shares traded up 1 1/16 to 68 7/16.

Earnings/revenue reports and previews

Cascade

(CAE) - Get Report

said its second-quarter earnings would be somewhat below first-quarter operating results, due to weaker-than-expected results at its European and North American businesses. The three-analyst earnings estimate for the second quarter called for 44 cents a share.

The world's largest household appliance maker, Sweden's

Electrolux

(ELUX)

, was off 3/4 to 43 1/8 even after forecast the company forecast higher 1999 profits.

Fortune Brands

(FO)

was up 3/4 to 39 15/16 after it said it scaled down its second-quarter noncash goodwill write-off, reducing EPS charges for the quarter to 58 cents from 59 cents. The company told

Reuters

that the changes have no impact on current or future prospects.

Merkert

(MERK)

reported a second-quarter loss of 39 cents a share, wider than the single-analyst expected loss of 25 cents a share, but narrower than a year-ago loss of 48 cents.

Sabtratek

(SBTK)

dropped 4 1/8, or 37.3%, to 6 after it announced that it would postpone its second quarter earnings report. The company said it was awaiting results from an independent auditors review.

TheStreet.com's

Herb Greenberg

has written several times on Sabratek, most recently

Aug. 4.

Stewart Enterprises

(STEI)

plummeted 3, or 38%, to 6 3/16 after late yesterday warning it expects to earn 25 cents to 27 cents a share in the third quarter, lower than the current three-analyst estimate of 29 cents a share; and 17 cents to 19 cents a share in the fourth quarter, below the current nine-analyst estimate of 25 cents. Merrill Lynch downgraded the stock to near-term neutral from accumulate and to long-term accumulate from buy.

Offerings and stock actions

Active Software

(ASWX)

was up 3, or 27%, to 14 in its trading debut. The stock rose from its initial price of $11 a share.

East West Bancorp

(EWBC) - Get Report

was off 1/16 to 9 13/16 after it announced its third stock buyback plan that would return roughly $7 million of common stock to the company. The company said about 22.4 million shares remain outstanding at the near completion of its second $7 million repurchasing plan, which was authorized in March.

Quest Software

(QSFT)

went against the recent trend of IPO failures, jumping 33, or 235.7%, to 47 in its first day of trading. The stock was priced at $14 a share.

Analyst actions

Merrill Lynch hammered

Carriage Services

(CSV) - Get Report

down to neutral from accumulate, noting industry turmoil and stock-price vulnerability. Shares of Carriage dropped 3 9/16 to 11 7/16.

Cintas

(CTAS) - Get Report

popped 2 3/4, or 5.4%, to 53 3/4 after

Barrington Research Associates

upped it from a hold to a buy due to recent weakness.

Cox Communications

(COX)

was up 2 11/16 to 37 3/16 after

Morgan Stanley Dean Witter

raised its rating to strong buy from outperform.

Flagstar Bancorp

(FLGS)

was up 1/2 to 21 7/8 after

PaineWebber

upgraded it to buy from attractive.

Frontier

(FRO) - Get Report

was up 2 7/8 to 47 1/4 after

Banc of America Securities

analyst Leslie Stonestreet upgraded the stock to buy from market perform. Stonestreet said in a report that Banc of America strongly supports the company's possible merger with Global Crossing.

Merrill Lynch biotech analyst Eric Hecht started coverage on

Genentech

(DNA)

with an near-term accumulate and long-term buy rating. Genentech dropped 1 1/2 to 167.

KeySpan

(KSE)

gained 13/16 to 27 3/4 after PaineWebber upgraded it to attractive from neutral.

Philips Electronics

(PHG) - Get Report

popped 3 7/8 to 101 11/16 when

Lehman Brothers

upgraded it to buy from outperform.

SG Cowen

boosted

Scientific-Atlanta

(SFA)

to buy from neutral. Shares of Scientific-Atlanta soared up 7 5/16 to 47 1/8.

Teligent

(TGNT)

dropped 2 1/8 to 61 when PaineWebber downgraded it to attractive from buy.

Miscellany

Computer Associates

(CA) - Get Report

was up 2 9/16, or 5.5%, to 48 3/4 on news that a federal court threw out a suit filed by

Computer Sciences

(CSC)

for its unsuccessful $10 billion takeover bid for Computer Sciences. Computer Associates said a U.S. district court found no evidence to support accusations that it used confidential information when bidding for Computer Sciences in early 1998. Computer Sciences improved 1 to 65 11/56.

Hasbro's

(HAS) - Get Report

stock may have been unfairly pounded by sky-high expectations for toy sales related to

Star Wars Episode I -- The Phantom Menace

, and now some think the stock is a bargain, the Heard on the Street column in the

Journal

reported. Shares of Hasbro were up 1 5/16 to 26 7/8.

Iridium

(IRID)

at 3 1/16 after filing a Chapter 11 bankruptcy petition. On Wednesday, the satellite telecommunications company defaulted on more than $1.5 billion loans. A band of bondholders, who hold roughly 25% of its $1.45 billion of outstanding senior notes, put forth an involuntary Chapter 11 bankruptcy petition against Iridium. The company said majority owner

Motorola

(MOT)

is optimistic about its restructuring plan, which will be launched within 30 days.

The New York Stock Exchange suspended

Red Roof Inns

(RRI)

common stock from trading today, after hotel group

Accor

acquired more than 99% of its shares. A tender offer by Accor, which expired yesterday, left fewer than 600,000 Red Roof Inn shares left for the public. The NYSE usually suspends or eliminates a stock if public shares dip under 600,000.

Texaco

(TX) - Get Report

was up 1/16 to 66 1/16 after it said it's cutting 2,500 jobs worldwide, about 1,100 more than it planned when it unveiled a cost-savings program late last year.

Tultex

(TTX)

was off 1/16 to 7/16 on news that it has appointed Randolph Rollins to immediately replace the resigning Charles Davies as its president and CEO.

The Inside Wall Street column in

Business Week

, penned this week by Jeffrey M. Laderman, offers up a bullish article on

American Tower

(AMT) - Get Report

. Elsewhere in the column, William S. Brennan of

Pacific Growth Equities

likes

U.S. Plastic Lumber

(USPL)

and has a target on the stock of 16 within the next 12 months. American Tower shares were up 3/16 to 20 5/16 while U.S. Plastic Lumber jumped 1, or 18.3%, to 9.

Zebra Technologies

(ZBRA) - Get Report

, the dominant maker of bar-code printers, added 7/8 to 47 3/4 after Andrew Stephens, portfolio manager of the

Artisan Mid Cap Fund

, said in Inside Wall Street that he thinks the stock will reach 60 to 65 in the second half of next year.