Dow Continues Slide as Tech and Small-Caps Take the Lead

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Wall Street's rotation away from its big-cap darlings continued apace today, with the august

Dow Jones Industrial Average

and the

S&P 500

skidding a bit as other major indices headed higher.

The incessant chatter about Dow 9000, muffled by

yesterday's pullback, quieted still further this morning as the Dow fell as much as 51.82 to 8820.98. The index slogged around underwater until after 3 p.m. EST, when it briefly poked above break-even and traded as high as 8892.98. More selling met that advance, and the Dow ended down 25.91 at 8846.89.

Merck

(MRK) - Get Report

,

American Express

(AXP) - Get Report

and

General Motors

(GM) - Get Report

were the largest losers, with

McDonald's

(MCD) - Get Report

,

Procter & Gamble

(PG) - Get Report

and

Disney

(DIS) - Get Report

the upside standouts.

The broad

S&P 500

held out longer but crept back into negative territory near the close, finishing down 1.12 at 1100.80. Tech and small-cap stocks stayed positive but slipped from their best levels of the session, with the

Nasdaq Composite Index

up 4.03 to 1828.54, the large-cap

Nasdaq 100

up 3.12 to 1217.94 and the small-cap

Russell 2000

up 0.67 to 477.79.

Volume tailed off from yesterday's bang and clatter, and breadth was middling.

New York Stock Exchange

decliners outnumbered advancers by 1,506 to 1,453 on 603.9 million shares, with 131 new highs (down sharply from recent levels) ahead of 26 new lows. On the Nasdaq, 2,282 advancers led 2,069 decliners on 731.3 million shares. New Nasdaq highs topped new lows by 193 to 63.

The Dow's retreat from the vaunted 9000 mark is dampening few palms on Wall Street, where the pros tolerate the media's and the public's millennium fever from a pose of mild amusement.

"It's kind of funny, because up until two or three days ago we were seeing the early signs of what I call target inflation," said John Manley, equity strategist at

Salomon Smith Barney

. "If you thought it was going to 9500, I had to think it was going to 10,000. If you thought 10,000, I had to think 10,500. It was like a

Picasso

auction."

Putting aside the auctioneering and other assorted noise, Manley said he's trying to take a cold-eyed look at the real factors affecting stocks. "Valuations are high, but valuations are a bad measure," he said. "They matter about three times every 30 years, and you don't know when that is. Earnings are better than valuations as a profit driver, but for the market it's still liquidity. We buy stocks with money, not earnings."

The other important puzzle piece is interest rates, and Manley finds reasons to smile there. With rates around 6% and inflation around 2%, the market can continue to rise despite the prevailing overoptimism about second-half earnings, he said.

"If rates go down, that clearly helps stocks," Manley said. "Any time the long-bond rate has been down more than 8% from its 52-week average, you've always made money." Right now, a yield of 5.92% on the 30-year Treasury bond would put it 8% below that average, he said. The 30-year sold off today, losing 6/32 to 102 8/32 and sending the yield up to 5.96%.

Even if stock prices drop sharply, the economic fundamentals are such that the dip shouldn't cause alarm, Manley said. "Eight to 12% is, to me, a correction you buy into rather than sell," he said. "Anything more than that would require significantly higher interest rates. What happens the next time the market's down 8 to 12%? Unless there are missiles on the dewline, there's a knee-jerk reaction back to stocks."

Elsewhere in North America, the

Toronto Stock Exchange 300

slipped 9.92 to 7569.29 and the Mexican

Bolsa

lost 10.91 to 4986.23.

Thursday's Company Report

By

Heather Moore
Staff Reporter

(

Earnings estimates from First Call; new highs and lows on a closing basis unless otherwise specified

.)

It seems like Wall Street was so consumed with Dow 9000 yesterday that today investors found themselves catching up on Wednesday's news.

Matrix Capital

(MTXC)

vaulted 6 9/16, or 31.6%, to an all-time high of 27 5/16 on good feelings about its merger with a newly formed subsidiary of

Fidelity National Financial

(FNF) - Get Report

, which was announced yesterday. Fidelity picked up 1 3/16 to 36.

Mergers, acquisitions and joint ventures

Data Transmission Network

(DTLN)

sprang 3 13/16, or 12%, to an all-time high of 35 5/8 after announcing

late yesterday that it has received an unsolicited buyout offer from a group of investors led by Jerrold Pressman.

Digital Microwave

(DMIC)

jumped 1 5/8, or 12.2%, to 15 on goodwill about the company's buyout of New Zealand's

MAS Technology

(MASSY)

rose 3 11/16, or 9.9%, to an all-time high of 40 15/16 after it agreed to acquire privately held

CAT

of Bermuda for $711 million in cash. ACE said it will offer up to 16.5 million shares to finance the deal.

NCI Building Systems

(BLDG)

roared 2 3/4, or 6.9%, to 43 1/4 -- at one point hitting 44 7/8 -- after acquiring

MBCI

, the American metal-building component of Britain's

BTR

.

Echlin

(ECH) - Get Report

vaulted 3 1/16, or 6.3%, to 52 after Connecticut lawmakers

yesterday defeated a bill that would have helped the company stop a hostile takeover bid from

SPX

(SPW)

. SPX fell 13/16 to 74 7/16. Echlin also reported second-quarter earnings of 42 cents per share, a penny above the seven-analyst estimate and a nickel above the year-ago figure, which the company said were enhanced by recent job cuts.

Snyder Communications

(SNC)

sailed 2 3/4, or 6.3%, to an all-time high of 46 5/8 after announcing that it will acquire privately held

Arnold Communications

of Boston for an undisclosed amount. In a separate pooling-of-interests, Snyder also will acquire

Publimed Promotions SA

of Paris for $43 million.

Qwest Communications

(QWST)

gained 15/16 to 40 after announcing that it will buy Netherlands-based Internet service provider

Eunet

for $154.4 million in stock and cash.

Earnings reports and previews

Mitcham Industries

(MIND) - Get Report

plummeted 3 3/4, or 22.6%, to 13 after saying its fourth-quarter earnings won't meet the five-analyst estimate of 33 cents per share. The company blamed the shortfall on unexercised purchase options on leased equipment and an increase in its allowance for doubtful accounts related to certain international customers.

Emulex

(EMLX)

sank 1 3/4, or 15.1%, to 9 7/8 after saying yesterday that it will take a $13 million charge to third-quarter earnings, for which the single-analyst prediction is 20 cents per share, to close its manufacturing facilities. The company plans to outsource the production of its product lines to

K-TEC Electronics

, a unit of

Kent Electronics

(KNT)

, which added 1 to 21 9/16.

Complete Management

(CMI) - Get Report

dropped 1 5/16, or 12.7%, to 9 1/16 after reporting fourth-quarter earnings of 15 cents per share, missing the five-analyst prediction of 23 cents and the year-ago 16 cents.

Broderbund Software

(BROD)

stumbled 2 13/16, or 11.8%, to 21 1/16 after reporting late

yesterday second-quarter earnings on target with analyst estimates.

Federal Express

parent

FDX

(FDX) - Get Report

picked up 4 5/16, or 6.6%, to 69 5/16 after late

yesterday reporting strong third-quarter earnings. The company noted that it expects its 1998 international results to be profitable but below 1997 levels.

Heilig-Myers

(HMY) - Get Report

skidded 7/8, or 5.7%, to 14 7/16 after reporting a fourth-quarter loss

last night.

Komag

(KMAG)

slipped 1/2 to 15 1/16 after warning

last night that its first-quarter loss will be worse than expected.

Morgan Stanley Dean Witter

(MWD)

lost 2 9/16 to 73 1/8 even after reporting first-quarter earnings of $1.10 per share, 4 cents above the 13-analyst estimate and higher than the year-ago 91 cents.

Sensormatic Electronics

(SRM)

lost 3/8 to 16 11/16 after announcing that it expects to report third-quarter earnings between 10 cents and 12 cents per share, slightly below the six-analyst estimate of 13 cents but above the year-ago 8 cents. The company said revenues will slip 6%, to $235 million, from year-ago levels due to the restructuring of European operations and currency fluctuations in Asia.

Toymax International

(TMAX)

tacked on 1/8 to 7 1/16 after saying it expects to meet the two-analyst fourth-quarter earnings estimate of 8 cents per share.

Offerings and stock actions

Ackerley Group

(AK)

slipped 1 3/8, or 5.9%, to 21 15/16 after announcing yesterday that it would sell up to 1.5 million shares in a public offering, including 500,000 beneficially owned by CEO Barry Ackerley.

Analyst actions

Zions Bancorp

(ZION) - Get Report

climbed 6 3/8, or 12.9%, to an all-time high of 55 11/16 after

Bankers Trust Alex. Brown

raised it to buy from market perform. Yesterday,

Sumitomo Bank of California

(SUMI)

-- which plummeted 12 1/2, or 24.8%, to 38 1/4 -- agreed to merge with Zions in a deal valued at $546 million.

St. Joe

(SJP)

added 3/4 to 33 1/4 after Morgan Stanley Dean Witter started coverage with a strong buy.

Marks Brothers Jewelers

(MBJI)

tacked on 1/4 to 19 3/4 after

Salomon Smith Barney

initiated coverage with an outperform and a target price of 25.

CIT Group

(CIT) - Get Report

gained 1 to 32 15/16 after Salomon Smith Barney began coverage with a buy. Yesterday, CIT set an initial cash dividend of 10 cents per share.

Finova Group

(FNV) - Get Report

lost 1/4 to 57 3/16 even though Salomon Smith Barney initiated coverage with an outperform.

Lehman Brothers

(LEH)

fell 15/16 to 72 1/16 even after Salomon Smith Barney raised its target price to 85 from 75.

Bethlehem Steel

(BS)

lost 1/16 to 14 1/2 after

PaineWebber

cut it to unattractive from neutral.

Miscellany

Sheldahl

(SHEL)

sailed 1 1/2, or 14.3%, to 12 5/32 after announcing it has received multiple production orders from

Texas Instruments

(TXN) - Get Report

. Texas Instruments added 1/4 to 55 13/16.

Rexall Sundown

(RXSD)

sank 4 5/16, or 11.9%, to 31 7/8 after

The Wall Street Journal

quoted an analyst saying he feels the company's shares are overvalued and are a short possibility.

Twinlab

(TWLB)

, also cited in the article, lost 2 1/4, or 5.9%, to 35 3/4.

McDonald's climbed 2 3/8 to 55 3/8 after announcing initiatives to improve restaurants, cut costs and enhance returns. The plans may also call for job cuts.

Credit Suisse First Boston

upgraded Mickey D's to strong buy from buy, and

J.P. Morgan

began coverage at market performer.

Intel

(INTC) - Get Report

added 2 1/16 to 78 3/16 after announcing that Craig Barrett will replace Andy Grove as CEO. Grove will remain the company's chairman. The chip manufacturer also announced that it is increasing its stock repurchase program by 100 million additional shares.

PepsiCo

(PEP) - Get Report

jumped 1/2 to 43 1/4 after CFO Karl Von Der Heyden resigned and the company named Michael White to the post. Von Der Heyden will remain vice-chairman.

General Electric

(GE) - Get Report

added 5/16 to 82 5/16 after its

NBC

unit named Mark Begor CFO. Begor replaces Warren Jenson who is leaving to become CFO at

Delta

(DAL) - Get Report

, which tumbled 2 3/8 to 117 3/16.

3Com

(COMS)

leapt 1 3/16 to 36 3/4 and

Motorola

(MOT)

added 5/16 to 56 13/16 after settling a pending lawsuit about patent infringement. The companies agreed to cross-license each other's modem patents.

Hasbro

(HAS) - Get Report

tacked on 5/16 to 35 3/8 after it was reported that the company is in talks with the trustees of the

Diana, Princess of Wales Memorial Fund

about producing a Diana doll.