One of the great (or lousy) unwritten canons of journalism is "three makes a trend." So after today's action confirmed a week of outperformance by small-caps and cyclicals at the expense of big-cap technology and consumer stocks, we can dispense with the qualifiers: There's a new sheriff on Wall Street. (At least for now.)
Once again, previously dowdy small-cap and cyclical stocks prospered, joined noticeably by transports. The majority of stocks were solid performers and the
Dow Jones Industrial Average
established yet another record, but the
Nasdaq Composite Index
eclipsed its better-known brethren for the sixth consecutive session, rising 3.75, or 0.9%, to 421.52. Market internals again improved amid solid trading activity.
New York Stock Exchange
trading, more than 1 billion shares changed hands, while gainers led losers 2,052 to 1,004. In
Nasdaq Stock Market
activity, 1.04 billion shares moved, marking the ninth-straight billion-plus-share session, while gainers led retreaters 2,169 to 1,886. New 52-week highs bested new lows 85 to 36 on the Big Board and by 77 to 76 in over-the-counter trading.
Dow Jones Transportation Average
was the best performer among major averages, rising 75.13, or 2.2%, to 3528.70 behind strength in airlines such as
American Stock Exchange Airline Index
Transports rose despite another increase in crude prices, which climbed 45 cents to $17.32 per barrel. Not surprisingly, that inspired energy plays. The
American Stock Exchange Oil & Gas Index
gained 3.6%. Major producers
each established new 52-week highs.
Philadelphia Stock Exchange Oil Service Index
, up 9.8%, was a standout in the group.
Accelerating cyclicals lifted the Dow industrials to their fifth-straight record, up 31.17, or 0.3%, to 10,493.89 after trading as low as 10,386.61. The S&P 500, conversely, suffered its fourth-straight decline, losing 4.08, or 0.3%, to 1318.78
The Dow's best performers were
, up 9.7%, and
, up 3.2%; each posted better-than-expected earnings.
The blue-chip index was weighed down by weakness in
, which fell 4%.
"I don't know about the permanence -- in this market permanence is 15 minutes -- but this is a pretty strong swing back to cyclicals," said Jim Benning, equity trader at
. "I don't know if anyone hates tech, but people are using them as a source of funds. If you want to raise some cash, that's the rational place to do it."
Nasdaq Composite Index
fell 37.73, or 1.5%, to 2484.71, most heavily damaged by
, which lost 9.2%. Sun Micro posted strong earnings
last night, but issued cautious comments about future revenue growth.
cut its recommendation.
, meanwhile, fell 7.7% following a downgrade by
NationsBanc Montgomery Securities
After a midday rally attempt faltered, other tech stalwarts stumbled as well. The
lost 2.4%, the
Morgan Stanley High Tech 35
shed 0.9% and the
Philadelphia Stock Exchange Semiconductor Index
Net favorites also suffered, the notable exception being
, up 13.1% after
Donaldson Lufkin & Jenrette
raised its price target to 280 from 190.
TheStreet.com Internet Sector
index fell 9.70, or 1.4%, to 669.02, while
TheStreet.com E-Commerce Index
lost 2.90, or 2.2%, to 130.74.
Technology and Internet stocks have "had their day for a while," Benning said, but those who missed their last upswing "will soon begin to think, 'Now it's my turn.'"
The trader said his desk was "busier than normal, but not frantic." Still, the rapidity at which money has flooded into cyclicals is "a little on the psychotic side," he said.
Everybody Loves Cyclicals
"The broadening trend the market's been displaying is very positive for our bullish case," said Thomas McManus, equity portfolio strategist at NationsBanc Montgomery Securities. "There's a return of investor confidence in the ability of ordinary companies to generate sufficient earnings momentum to propel stock prices higher."
Value Line New Arithmetic Index
rose 1.3% to 949.66 today, after only recently eclipsing its October 1997 levels, McManus noted.
"You wouldn't have to go too far to explain that as a bear market for the average company," he said. "This
a stealth bull market
and the most obvious feature of this broadening is the surge in cyclical stocks."
McManus observed that stocks in the
Morgan Stanley Cyclical Index
had enjoyed a median rise of 14% since April 1 heading into today vs. a loss of 1% for components of the
Morgan Stanley Consumer Index
. Today, the cyclical index climbed 1.3%, while the consumer average rose fractionally.
Cyclicals enjoyed a similar uprising a year ago, but "it scared me people would be bottom-fishing for laggards and buying up cyclicals in the face of what I saw was a significant deterioration in underlying fundamentals," the strategist recalled. Last April, for example, the
index was in the midst of an 11-month decline, he said, arguing things are different now.
"Some companies reporting first-quarter earnings are telling us sales trends in Korea and Japan are better than expected," he said. Also, "the European central bankers were sitting on their hands for a while when it was clear they should have been stimulating, but when they did they made up for lost time."
McManus referred to last Thursday's 50-basis-point ease by the
European Central Bank
, which he dubbed the "catalyst" for the cyclicals' breakout.
The strategist concedes cyclical stock strength could be a harbinger of inflation. But "I see it more as people needing to get exposure to stocks that can benefit if a measure of pricing power returns to the average company."
Blue-chips may continue to suffer as this trend continues, but "I'm not forecasting any sort of massive collapse in big-cap stocks that have gotten the S&P 500 where it is right now," he said, maintaining a year-end target of 1400 for the S&P 500.
Among other indices, the
Dow Jones Utility Average
climbed 2.19, or 0.8%, to 296.15; and the
American Stock Exchange Composite Index
rose 7.48, or 1%, to 745.41.
The price of the 30-year Treasury bond fell 20/32 to 95 11/32, its yield rising to 5.57%.
For the week, the Dow industrials rose 320.05, or 3.1%; the S&P 500 lost 29.57, or 2.2%; the Nasdaq Comp slid 108.34, or 4.2%; the Russell 2000 added 15.66, or 3.9%; TheStreet.com Internet index fell 62.91, or 8.6%; TheStreet.com E-Commerce Index dipped 1.08, or 0.8%; the Dow transports rallied 158.30, or 4.7%; the Dow utilities slid 0.18, or 0.1%; and the Amex Composite rose 17.91, or 2.5%.
Elsewhere in North American equities today, the
Toronto Stock Exchange 300
rose 22.74, or 0.3%, to 7013.23 and the
Mexican Stock Exchange IPC Index
rose 65.82, or 1.2%, to 5556.44. For the week, the TSE 300 gained 123.46, or 1.8%, and the IPC soared 351.56, or 6.8%.
Friday's Company Report
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.
Dow component Eastman Kodak clicked up 6 7/16, or 9.7%, to 73 after recording first-quarter earnings of 80 cents a share, topping the 11-analyst estimate of 76 cents and moving ahead of the year-ago 73 cents. Kodak said quarterly sales came in at $3.1 billion, up 6% from the year-ago period. Morgan Stanley Dean Witter upgraded the stock to outperform from neutral.
Another of the gilded 30, Caterpillar, crawled up 2 to 63 13/16 after posting first-quarter earnings of 57 cents a share, higher than the 18-analyst outlook for 42 cents but behind the year-ago $1.15.
Mergers, acquisitions and joint ventures
climbed 11/16 to 12 3/4 after setting a marketing pact with
to incorporate its products into Inktomi's shopping engine. Inktomi shed 11/16 to 118 1/2.
wrote about Inktomi's earnings report in a story
Earnings/revenue reports and previews
jumped 1 1/16, or 5.3%, to 21 1/16 after reporting first-quarter profits of 32 cents a share, including charges, vs. 27 cents a year ago. The company did not provide operating results excluding the charge. The five-analyst estimate called for 31 cents.
Citation Computer Systems
reeled in 3/8, or 24%, to 2 after saying its expects to report fourth-quarter results between breakeven and 2 cents a share vs. a loss of 37 cents a year ago. The one-analyst estimate was for a loss of 5 cents.
lowered 1 7/8 to 92 1/4 after saying it expects to post third-quarter results in line with the 19-analyst estimate for a loss of 3 cents a share. Lycos is slated to report during the third week of May.
sloughed off 4 3/8, or 12.5%, to 30 5/16 after last night reporting a first-quarter loss of 28 cents a share, including one-time items, vs. a loss of 22 cents a year ago. The company did not provide operating results. The 11-analyst estimate called for a loss of 27 cents. Today,
downgraded the stock to intermediate-term underperform from market perform and to long-term market perform from outperform.
tanked 3 5/16, or 40%, to 5 1/4 after last night predicting a first-quarter loss of up to 15 cents a share vs. the year-ago profit of a penny. The two-analyst estimate calls for a profit of 10 cents.
added 1 3/4, or 5.3%, to 34 7/8 after late yesterday topping first-quarter earnings forecasts by 7 cents with a profit of 11 cents a share.
rose 3 15/16, or 15.5%, to 29 1/2 after forecasting its first-quarter earnings will exceed the six-analyst estimate of 18 cents.
picked up 2 1/2, or 8.9%, to 30 5/8 after last night posting fourth-quarter earnings of 23 cents a share, above the year-ago 12 cents and the 10-analyst estimate of 21 cents. Additionally, the company said co-founder Mike Devlin has been named CEO.
Sun Microsystems skidded 5 9/16, or 9.2%, to 54 15/16 after last night posting third-quarter earnings of 71 cents a share, a penny ahead of the 21-analyst estimate. Today, Merrill Lynch downgraded Sun to near-term accumulate from buy, while maintaining a long-term buy, due to valuation.
advanced 5 3/16, or 9.5%, to 59 13/16 after last night recording first-quarter earnings of $1.15 a share, beating estimates for 91 cents.
In other earnings news:
Offerings and stock actions
tacked on 3/16 to 105 1/2 after approving a 2-for-1 stock split.
Amazon.com shot up 22, or 13.1%, to 190 after Donaldson Lufkin & Jenrette upgraded the stock to top pick from buy and upped its six-to-12-month price target on the stock to 280 from 190.
ITT Educational Services
plunged 13, or 36.7%, to a 52-week low of 22 7/16 after Morgan Stanley Dean Witter pushed down the stock to neutral from outperform and Bear Stearns lowered it to neutral from attractive.
added 1/4 to 77 5/8 after Morgan Stanley Dean Witter raised it to outperform from neutral.
vaulted 9 7/8, or 13.3%, to 84 1/16 after
Credit Suisse First Boston
lifted the stock to strong buy from buy and Merrill Lynch lifted it to short-term buy from accumulate.
powered up 1 1/2, or 9.1%, to 18 after
upped it to buy from market perform.
slouched 3 5/16, or 7.3%, to 42 after Merrill Lynch cut it to intermediate-term neutral from accumulate. Last night, the company posted first-quarter earnings 9 cents below estimates.
dropped 4 1/8 to 139 3/4 after
The Wall Street Journal
said the nation's largest online service plans to unveil its first wave of Internet-friendly devices that don't require PCs, including a screen phone.
declined 3/16 to 60 3/4 after saying agenerase, its proteasee inhibitor for the treatment of HIV, was granted accelerated approval by the
Food and Drug Administration
surged 2 3/8, or 11.6%, to 22 15/16 after
Inside Wall Street column quoted an analyst at
Pacific Crest Securities
saying he believes that the company's leading position as a provider of travel services online makes it a "prime acquisition target for an e-commerce" company. And
doubled, rising 6 5/16 to an all-time high of 17 11/16, after the column called the stock an undervalued Internet play.