Cisco Routes Nasdaq Higher Yet Again

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The

Nasdaq Composite Index

is charging at midday toward its ninth straight record, even as market breadth runs to the negative.

Around 12:35 p.m. EDT the Comp was up 9 to 2017, lashed on mainly by

Cisco's

(CSCO) - Get Report

leap of 3 9/16 to 103 1/4. (Market scuttlebutt has it that Cisco may already have met its sale targets for its current fiscal quarter, which ends this month, and that the company's voice-data integration work is going well.

Lucent

(LU)

and other companies in the sector were rallying as well. Cisco, in a quiet period, declined to comment.) The

S&P 500

was down 3 to 1184. The

Dow Jones Industrial Average

trailed, down 48 to 9290, as

McDonald's

(MCD) - Get Report

and

General Motors

(GM) - Get Report

exerted negative influence. The small-cap

Russell 2000

was down a fraction to 462.

Meanwhile,

New York Stock Exchange

decliners were leading advancers by 1,622 to 1,088 on 285 million shares and

Nasdaq Stock Market

downs were ahead of ups by 2,008 to 1,860 on 380 million shares.

Jeffrey Applegate, chief investment strategist at

Lehman Brothers

, sees little reason to worry about the equity market's health. Today he boosted his already superbullish bet on stocks, increasing his recommended stock allocation to 80% from 75%, lowering bonds to 20% from 25% and staying at zero cash.

"Basically, the fundamental change in the forecast was a change in the

S&P 500 price-to-earnings ratio forecast," Applegate said. "We had been forecasting that the P/E could get to 23 at year end, and we got there last week. Now we're forecasting that the P/E at year end is going to be at 24." He sees the S&P 500 hitting 1250 by year end and has just instituted a year-end 1999 target of 1400, which he said translates to Dow targets of 9900 and 11,000, respectively.

Applegate said his forecasts are "driven by interest rates, inflation and risk, all of which we think are going to be lower at year end. The last time we took money out of bonds and put it into stocks, which was last October, the stock market went up for one day and then promptly collapsed 11%. So this target isn't going to be hit in a straight line either. But we think at the end of the year, we're going to be better off being overweight stocks, underweight bonds and zero cash.

"One of the arguments we've been making is that we have a set of fundamentals in place that we have never had in place at one time, and the stock market is a discounting mechanism so it should discount a world we've never had before," Applegate went on. "Paradigm shifts are very infrequent, but they do occur."

Fundamental shift or no, the Street remains clogged with strategists who are far more nervous about the way things are playing out. Many of them focus on the sharp disparity between large-cap and small-cap stock performance, which shows no signs of changing anytime soon.

"You've got 50 stocks that have such weighting in the Nasdaq and the S&P 500 that those indices keep going up," said Roy Blumberg, chief market strategist at

Josephthal

. "You see investors getting away from any style of investment management that they've ever followed and becoming purely momentum players. I don't think they're investing based on P/E multiples, I don't think they're investing based on expected earnings growth rates. They're speculating on things that are moving."

Stanley Nabi, vice chairman of the

Wood Struthers & Winthrop

division of

Donaldson Lufkin & Jenrette

, said he's worried about earnings growth as well. "My feeling is that we will get hit by the situation in Southeast Asia more severely in the third and fourth quarters," he said. "I think what people are saying is, we have seen the impact, we are not going to see any worse impact and we're going to pick up again next year with double-digit growth in earnings. I don't see that."

Again, Applegate isn't fretting. "There's still a big slowdown, obviously," he said of earnings growth. "We're forecasting earnings up around 2% for the quarter. The bottom-up

for the S&P 500 is around $11.34. Our forecast has been $11.60. You're getting more positive than negative surprises, so the bottom-up is going to be a little light. We've got an acceleration

in the third and fourth quarters, but we've still got a forecast of 4% earnings growth for the year." More important than earnings growth, he said, are his forecasts that the 30-year Treasury yield will ease to 5.45%, that inflation will contract to 1.3% from 1.7% and that market risk will decline.

The bond market was sending yields in Applegate's forecasted direction at midday, with the long bond up 16/32 to 105 26/32 and its yield easing to 5.71%. (For more on the fixed-income market, see today's midday

Key Numbers

.)

Monday's Midday Movers

By

Heather Moore
Staff Reporter

Crestar Holdings

(CF) - Get Report

was up 8 7/16, or 13.2%, to 72 7/16 and

SunTrust Banks

(STI) - Get Report

was down 9 3/8, or 10.7%, to 78 1/16 after the two agreed to merge in a $9.5 billion stock swap that would create the nation's 10th largest bank.

Today's session was hopping on a sampling of other small- and mid-sized merger news:

General Signal

(GSX) - Get Report

was up 3 15/16, or 10.5%, to 41 9/16 after auto-parts maker

SPX

(SPW)

agreed to buy the company for $2.3 billion. SPX was down 4 1/8, or 6.4%, to 60 3/8. Separately, General Signal reported second-quarter earnings of 70 cents per share, a penny ahead of the seven-analyst estimate and 2 cents ahead of the year-ago 68 cents.

Alliance Communications

(ALLIF)

was up 3 1/8, or 18.1%, to 20 1/4 after agreeing to merge with Toronto's

Atlantis Communications

. Atlantis shareholders will receive 0.5 Alliance share for each share owned. The new company,

Alliance Atlantis Communications

, is expected to have combined revenue for fiscal 1999 of more than C$750 million.

SIS Bancorp

(SISB)

was up 7 3/4, or 17.2%, to 52 3/4 after

Peoples Heritage Financial Group

(PHBK)

agreed to buy the company for $427.7 million. Peoples Heritage was off 1 3/16 to 24 3/8.

Earnings movers

McDonald's was down 2 3/16 to 71 1/16 after saying it doesn't expect to sustain current levels of profitability because of difficult earnings comparisons in the second half of the year. Mickey D's also reported second-quarter earnings of 66 cents per share, in line with the 19-analyst forecast and above the year-ago 61 cents. The consensus estimates call for third-quarter earnings of 69 cents and fourth-quarter earnings of 65 cents.

Warner-Lambert

(WLA)

was up 5 5/16, or 6.8%, to 84 7/8, on pace for a high, after reporting second-quarter earnings of 40 cents per share, beating the 27-anlayst estimate of 37 cents and the year-ago 28 cents.

In other news:

CMG Information Services

(CMGI)

was up 13 1/18, or 18.2%, to 85 1/4 after its

Planet Direct

unit agreed to feature content from

OnHealth Network's

(ONHN)

Onhealth.com

. OnHealth was off 5/16 to 9 5/8. Also logging onto the agreement to feature content from Onhealth.com were

Infoseek

(SEEK)

, which was up 1/16 to 32 1/4,

MindSpring

(MSPG)

, which was up 3 5/8 to 107 1/4, and

Comcast Online Communications

(CMCSA) - Get Report

, which was up 7/16 to 46 9/16.

Amway Asia Pacific

(AAP) - Get Report

was up 2, or 18.2%, to 13 after saying that the Chinese government approved its operations plan for its

Amway China

unit and that the unit will resume business operations July 21.

PennCorp Financial Group

(PFG) - Get Report

, which spent much of last week falling on movement it said it couldn't explain, was up 1, or 8.3%, to 13 after saying it plans to announce a strategic investment in it. Details weren't disclosed.