Data and Doldrums Combine to Smother Stocks

Further signs of economic strength sent equities and bonds tumbling, but one player sees a 'short-short-term' rally coming.
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SAN FRANCISCO -- Blue-chip stocks took another backward step today as financials, particularly, were bedraggled by further evidence of economic buoyancy. Not surprisingly, the data battered bonds as well.

Strength in the

Chicago Purchasing Managers' Index

and June

new home sales

reports this morning reinforced the near-consensus view that the

Federal Reserve

will raise interest rates at its Aug. 24 meeting. Bonds and interest-rate sensitive stocks struggled mightily, but some players were encouraged the broader market didn't suffer a bigger repeat of

yesterday's harsh selling. Meanwhile, traders griped about yet another slow moving summer session.

The price of the 30-year Treasury bond fell 12/32 to 88 11/32, its yield rising to 6.11%, its highest level since June 28.

The

Dow Jones Industrial Average

traded as low as 10,647.86 before closing down 136.14, or 1.3%, to 10,655.15. The index was sabotaged by interest-rate-sensitive names such as

American Express

(AXP) - Get Report

,

J.P. Morgan

(JPM) - Get Report

and

General Electric

(GE) - Get Report

.

General Motors

(GM) - Get Report

and

3M

(MMM) - Get Report

were also big negative influences on the index.

Most financial stocks suffered in the wake of the bond market's renewed losses, but AmEx suffered an additional hit from yesterday's retirement announcement by its vice chairman and CFO. American Express fell 4.9% while the

Philadelphia Stock Exchange/KBW Bank Index

lost 2.6% and the

American Stock Exchange Broker/Dealer Index

shed 2.1%.

For a second straight day,

Procter & Gamble

(PG) - Get Report

bucked the downward bent, rising 2.8% after

Bear Stearns

upped its earning estimates a day after the consumer giant posted better-than-expected earnings.

"Today is a fairly segmented day -- I'm not looking at the industrials as your clue today," said Barry Hyman, senior market analyst at

Ehrenkrantz King Nussbaum

. "The Dow is not reflective of the entire market. Today is not the worst day we could envision after the drop yesterday. We could have had major follow-up to the downside but it didn't occur."

Broader market averages did fare best. The

Russell 2000

rose 3.19, or 0.7%, to 444.77 and the

American Stock Exchange Composite Index

gained 3.64, or 0.5% to 788.23, while the big-cap dominated

S&P 500

dipped 12.31, or 0.9%, to 1328.72.

The

Nasdaq Composite Index

, meanwhile, flip-flopped around break-even all afternoon before closing down 1.52, or 0.1%, to 2638.49 as some investors sold bellwether tech stocks toward the close. The

Nasdaq 100

closed up 0.4% at 2270.93 but off its session high of 2309.18. Notable last-minute selling hit mega-caps such as

Microsoft

(MSFT) - Get Report

and

MCI WorldCom

(WCOM)

.

The tech-crazed Comp was further restrained by Internet stocks, whose sometimes stratospheric valuations become even more daunting as interest rates rise.

TheStreet.com Internet Sector

index fell 6.35, or 1.1%, to 556.09.

With financials and Net stocks in general in disfavor, its not surprising online brokers suffered some of the session's biggest setbacks. DOT component

E*Trade

(EGRP)

lost 5.7% while

Ameritrade

(AMTD) - Get Report

shed 6.8%.

However, the

Philadelphia Stock Exchange Semiconductor Index

returned to its winning ways, rising 0.3%. The SOX got a lift from chip-equipment makers such as

Lam Research

(LRCX) - Get Report

, which leapt 19.8% after posting better-than-expected earnings, as well as New York Stock Exchange-traded chip producer

Micron Technology

(MU) - Get Report

, up 2.9%.

"It was a slow drift, I don't see any body slam," said one New York-based trader. "They did their damage from 11

a.m. EDT to 1:30

p.m. and hit 'em at the close with some small programs and that was that. It could have been worse."

The trader, who requested anonymity, lamented the lack of action, which he attributed to a combination of investors' reticence ahead of next week's economic data as well as the lure of the beach (or mountains) for many market players.

In NYSE trading, 736.8 million shares were exchanged while advancers edged declining stocks 1,492 to 1,441. In

Nasdaq Stock Market

action 880.4 million shares traded while gainers led 2,062 to 1,789. New 52-week lows bested new highs 157 to 45 on the Big Board while new highs led 77 to 66 in over-the-counter trading.

"One reason the market sells off is there's no bids around for people who are selling," the trader said. "It's been dead."

Still, he foresees a better tone in the coming week, believing the inflation fears are overblown.

"Maybe they hit 'em next week on the opening Monday, but everything is in good shape," he said. "Tech sold off a little? Buy 'em."

Diligence Is as Diligence Does

Although he was somewhat encouraged by the market's performance today, Ehrenkrantz King Nussbaum's Hyman issued a report this morning in which he lowered his recommended equity weighting to 60% from 65%, lifting cash to 15% and leaving bonds unchanged at 25%.

"It's not a bearish call," the strategist said in a phone interview today. "But given the outlook for interest rates and other factors, diligence says to move to a somewhat less exposure to equities."

Taking

Alan Greenspan's

comments about labor costs being of paramount importance, Hyman does expect the Fed to hike rates at its August meeting. Additionally, he notes August, September and October have historically been tough months for the stock market. Finally, he foresees "a greater emphasis being placed on liquidity" in the second half of the year, "whether or not Y2K concerns ever become reality."

Hyman foresees the market settling into a wide trading range of Dow 10,400 to 11,300 over the intermediate term.

"I think we're entering into a trading range that will be frustrating for index players," he said. "It's going to be difficult to make money unless you're a little more aggressive than normal: Buy them when they drop, sell them when they rally."

In that light, Hyman said "short-short-term" indicators are "flashing extremely oversold" after recent action, "where a trading rally could be expected in the next few trading days."

Among other indices, the

Dow Jones Transportation Average

fell 15.71, or 0.5%, to 3333.24 while the

Dow Jones Utility Average

added 1.43, or 0.5%, to 314.66.

For the week, the Dow industrials slid 255.81, or 2.3%; the S&P 500 shed 28.22, or 2.1%; the Comp surrendered 53.91, or 2%; the Russell 2000 fell 3.61, or 0.8%; and the DOT lost 35.26, or 5.6%. Additionally, the Dow transports shed 48.25, or 1.4%; the Dow utilities dipped 6.33, or 2%; and the Amex Composite fell 8.06, or 1%.

For the month of July, the Dow industrials lost 315.65, or 2.9%; the S&P 500 fell 43.99, or 3.2%; the Comp dropped 47.63, or 1.8%; the Russell gave up 12.91, or 2.8%; the DOT slumped 60.57, 9.8%; the Dow transports lost 71.12, or 2.1%; the Dow utilities slipped 2/16, or 0.7%; and the Amex Composite shed 9.70, or 1.2%.

Elsewhere in North American equities today, the

Toronto Stock Exchange 300

climbed 30.74 to 7081.03 and the

Mexican Stock Exchange IPC Index

was down 7.33 to 5260.35. For the week, the TSE gained 11.57, or 0.2%, and the IPC plunged 352.84, or 6.2%. For the month, the TSE rose 70.96, or 1%, and the IPC skidded 569.16, or 9.8%.

Friday's Company Report

By Eileen Kinsella
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.

)

American Express

(AXP) - Get Report

and

Chase

(CMB)

were among financial stocks getting socked this afternoon as inflationary jitters and fears about a rate hike continued to dog the market. American Express, which said yesterday its CFO would step down, lost 6 13/16 to 131 3/4. Chase lost 3 3/16 to 77 1/16.

S&P 500 utility firm

GPU

(GPU)

warned analysts about an overly optimistic estimate for 2000 earnings and acknowledging the role hot weather has played in strong earnings. GPU shed 1 11/16 to 38 3/8 after reporting better than expected second-quarter operating earnings of 84 cents a share, well above the consensus of 66 cents and up from last year's 62 cents.

S&P 500 bedfellow

Cardinal Health

(CAH) - Get Report

fared better, climbing 3 7/8, or 6%, to 68 1/4 after it posted fourth-quarter operating earnings of 58 cents a share, a penny ahead of the 15-analyst estimate and up from the year-ago operating earnings of 46 cents.

Mergers, acquisitions and joint ventures

Chicago Title

(CTZ) - Get Report

gained 6 1/16, or 16.5%, to 42 3/4 after it confirmed a report in the

Los Angeles Times

that said it was in talks with fellow title insurer

Fidelity National Financial

(FNF) - Get Report

. The company said the deal would create a real estate firm with more than $3 billion in revenues.

Source Media

(SRCM)

dipped 1 1/2, or 12.3%, to 10 7/8 on last night's news that it has signed a deal to form an interactive-TV portal in a joint venture with

Insight Communications

(ICCI)

, which inched up 7/8 to 29 7/8.

Earnings/revenue reports and previews

Applied Analytical

(AAII)

lost 4 1/2, or 40.5%, to 6 5/8 after the company said it expects to report a second-quarter loss of 17 cents, well under the five-analyst estimate of 12 cents.

Cilcorp

(CER)

crawled up 1/16 to 64 after reporting second-quarter earnings of 66 cents, ahead of the lone analyst's estimate of 57 cents and up from the 56-cent figure last year.

Electronic Data Systems

(EDS)

shaved off 1 13/16 to 60 5/16 despite yesterday positive second-quarter earnings of 44 cents a share, a penny better than the 19-analyst estimate and up from the year-ago 39 cents

Footstar

(FTS) - Get Report

slipped 2 7/16, or 6.3%, to 36 despite its solid second-quarter earnings report. The company said it earned 83 cents a share in the quarter, beating the five-analyst estimate of 81 cents and up from the year-ago 69 cents.

Gemstar

(GMST)

tacked on 4 1/4, or 6.9%, to 66 1/4 after

TV Guide

(TVGIA)

President Peter Boylan told analysts on a conference call that his company was on the verge of settling two patent-infringement lawsuits Gemstar has filed over TV Guide's interactive program guides. TV Guide lost 15/16 to 32 5/8.

Lam Research

(LRCX) - Get Report

surged 9 to 55 3/8 after it last night reported second-quarter earnings of 28 cents a share, blowing past the 19-analyst estimate of 12 cents a share and up from the year-ago 5-cent loss. Three brokerages got on the Lam today:

Advest

raised it to buy from market perform;

Goldman Sachs

upped it to its recommended list from market outperform; and

Warburg Dillon Read

hiked Lam to strong buy from buy.

Web ad agency

Modem Media.Poppe Tyson

(MMPT)

popped up 8, or 38%, 29 1/8, after it yesterday reported second-quarter earnings of 5 cents a share, confounding the three-analyst prediction of a 6-cent loss and up from the year-ago loss of 11 cents.

Solutia

(SOI) - Get Report

lost 1/2 to 21 3/8 after posting second-quarter earnings of 61 cents a share, in line with the 10-analyst estimate and up from the year-ago 58 cents.

Sigcorp

(SIG) - Get Report

edged up 1/16 to 26 1/4 after reporting second quarter earnings of 34 cents a share, under the two-analyst estimate of 38 cents a share, and below the 38 cents a share it reported last year.

Tommy Hilfiger

(TOM)

lost 1 11/16 to 36 15/16 after it reported first-quarter earnings of 40 cents a share, ahead of the 15-analyst estimate of 37 cents and up from the year-ago 30 cents.

Offerings and stock actions

Accrue Software

(ACRU:Nasdaq) zipped up 2 1/8, or 21.3%, to 12 3/16 in its trading debut.

BancBoston Robertson Stephens

priced 3.9 million shares at $10 each.

Aironet Wireless Communications

(AIRO:Nasdaq) lost 1/2, or 4.6%, to 10 1/2 after

Dain Rauscher

priced 6 million shares at $11 each. The company makes wireless local area network solutions.

Oxygen therapeutics maker

Biopure

(BPUR:Nasdaq) was slapped down 1 11/16, or 14.1%, to 10 1/4 in its debut session.

J.P. Morgan

priced 3.5 million shares at $12 each.

Entergy

(ETR) - Get Report

lost 1/16 to 30 5/16 after it said it will repurchase up to $750 million of its common shares in the next 18 to 24 months.

Intermedia Communications

(ICIX)

spinoff

Digex

(DIGX)

ascended 5 1/4, or 30.9% to 22 5/16, having been priced top-range at $17 a share yesterday by lead underwriter

Bear Stearns

. Intermedia sledded 2 1/8, or 7.2%, to 27 9/16.

Medical malpractice liability insurer

Miix

(MHU:NYSE) climbed 4 1/2, or 33.3%, 18 in its trading debut.

NetIQ

(NTIQ:Nasdaq) jumped 3 7/8, or 29.8% to 16 3/4 after being priced top-range at $13 a share last night by

Credit Suisse First Boston

.

N2H2

(NTWO:Nasdaq), a provider of server-based Internet filtering solutions, slipped 3/16 to 12 13/16 on its first day.

CIBC World Markets

priced 5 million shares at $13 each.

Minneapolis-based

Vascular Solutions

, which makes a device cardiologists use after angioplasties, filed for a $40 million IPO.

WatchGuard Technologies

(WGRD:Nasdaq), an Internet security and software company, stumbled 13/16, or 6.3%, to 12 1/8 in its first day of trading. Dain Rauscher, having a pretty bad day of it on the underwriting front, priced 3.5 million shares at $13 each.

Analyst actions

DaimlerChrysler

(DCX)

dropped 5 7/16, or 7%, to 72 1/8 after

Warburg Dillon Read

analyst Saul Rubin cut it to buy from strong buy, reducing his target price on the company to 92 from 115.

Goldman Sachs

also weighed in on DaimlerChrysler, cutting its earnings-per-share estimates to 5.95 euros from 6.49 euros for 1999, and to 6.30 euros from 6.58 euros for 2000.

Glaxo Wellcome

(GLX)

gained 1 to 52 3/16 despite

Salomon Smith Barney's

downgrading of the company to neutral from outperform following its warning yesterday that it wouldn't meet its 1999 target of double-digit sales and earnings growth.

Miscellany

RTI International

(RTI)

named Timothy Rupert president and CEO, two positions that were recently unfilled.

As originally published, this story contained an error. Please see Corrections and Clarifications

.