Early 'Overreaction' Fades as Stocks Post a Late Selloff

The CPI number didn't mean much, stock traders decided as the session wound down today.
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Wall Street looked at a gift horse of economic data and kicked it in the teeth today. The much-anticipated

CPI

report proved benign but nonetheless provided little solace to skittish investors in both fixed-income and equity markets.

The

Consumer Price Index

rose 0.3% in August, as expected, while the core rate -- which excludes food and energy -- rose 0.1% vs. a consensus estimate of a 0.2% increase. Stocks and bonds initially rose on the news but soon reversed course. After a relatively uneventful afternoon, stock proxies nose-dived in the final hour of the session.

"Stocks overreacted to a number that didn't mean that much, and people were waiting to make sales," one West Coast trader said of the CPI data. "It was lucky we stayed flat all afternoon. I don't know any news for the selloff

in the final hour, but there was no reason for stocks to be up" early on.

The trader, who requested anonymity, acknowledged the CPI was favorable but wasn't wildly so and "doesn't change the fact retail sales was bad"

yesterday.

Bonds labored under the dollar's continued weakness against the Japanese yen. The dollar was quoted at 104.67 yen in late New York trading after touching 103.25 intraday. After being up as much as 25/32 early on, the price of the 30-year Treasury bond closed up 6/32 to 100 9/32, its yield declining to 6.11%.

In addition to the bonds' lackluster performance, stocks fell amid disappointment in earnings posted

last night by

Oracle

(ORCL) - Get Report

and profit warnings from names such as

Boston Scientific

(BSX) - Get Report

, which fell 23.5%.

Oracle lost 6% after posting first-quarter earnings of 16 cents a share. That was in line with expectations but below so-called whisper numbers. Like Oracle, the majority of tech bellwethers have risen sharply in recent weeks, and so they retreated today in sympathy.

The

Nasdaq Composite Index

fell 54.12, or 1.9%, to 2814.17 after trading as high as 2888.90 (above its

Sept. 10 record close). Stalwarts such as

Microsoft

(MSFT) - Get Report

,

Intel

(INTC) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

were notable followers of Oracle's lead. The

Nasdaq 100

shed 2.4%.

Internet favorites held up better, but

TheStreet.com Internet Sector

index still slid 8.32, or 1.3%, to 617.24.

Chip stocks, which have been among tech's most impressive performers of late, also suffered a comeuppance. The

Philadelphia Stock Exchange Semiconductor Index

shed 4.5% to 547.98 after trading as high as 579.68.

In addition to Intel, the SOX was hampered by

Motorola

(MOT)

, which

fell 5.3% after making official its much-rumored bid for

General Instrument

(GIC)

. General Instrument fell 6.4% after a downgrade from

Donaldson Lufkin & Jenrette

.

The

Dow Jones Industrial Average

closed down 108.91, or 1%, to 10,801.42 after trading as high as 11,013.86.

DuPont

(DD) - Get Report

,

American Express

(AXP) - Get Report

and

Hewlett-Packard

(HWP)

were the Dow's biggest drags.

The

S&P 500

declined 18.32, or 1.4%, to 1317.97 after trading as high as 1347.41. The

Russell 2000

shed 1.91, or 0.4%, to 436.23.

"Today was a bit of profit-taking with especially heavy volume in stocks like Microsoft and Intel," said Brian Belski, chief investment strategist at

George K. Baum

in Kansas City. Meanwhile, "the broader market just sucks. A lot of stocks are way down in price, but are not really showing any signs of buying interest."

As buying interest has become "more narrowly focused," it's put the market "in a vulnerable state," he said, especially as it heads into a historically "scary period."

In

New York Stock Exchange

trading today, 784.1 million shares were exchanged while declining stocks led advancers 1,760 to 1,181. In

Nasdaq Stock Market

action, 1.05 billion shares traded, while losers led gainers 2,030 to 1,779. New 52-week lows bested new highs 180 to 43 on the Big Board, while new highs led 102 to 75 in over-the-counter trading.

Rate-Hike Blues

"In spite of continually benign inflation data all summer, there's still probably some concern the

FOMC

is going to monkey again with monetary policy on Oct. 5," said Alan Hoffman, senior portfolio manager at

Value Line

. "Economic data we've seen have been consistently excellent. Still, the stock market attained a high valuation back in April and has been oscillating in a 1,000-point range since. We think that's going to be the market's temperature for the rest of 1999."

Hoffman put the probability of a Fed hike in October at 50/50 and noted some "inventory stocking" because of Y2k concerns that may push third-quarter

GDP

above expectations. If that comes to fruition, it might entice the Fed to take pre-emptive action in October or adopt a tightening bias, he said.

Notwithstanding the uncertainty, Value Line remains fully invested.

Value Line is long and recommends tech giants such as

EMC

(EMC)

,

Cisco

(CSCO) - Get Report

, Microsoft, Intel,

Lucent

(LU)

and

ADC Telecommunications

(ADCT) - Get Report

.

"Given the fact valuations are pretty high, they would be vulnerable to profit-taking in the event of a major crisis," Hoffman said. "But we don't see a major crisis coming down the pike." Also, tech favorites have "been hit three or four times in the last few years and always come back. There's an investment thesis that supports high valuations."

At the same time, "it's a good environment to pick up things being punished unjustly," the fund manager said. In that light, he recommends (and is long) retailers such as

Best Buy

(BBY) - Get Report

and

Dayton Hudson

(DH)

.

Similarly, he recommended two other recently out-of-favor groups for long-term investors. In financial services, he favors

Fifth Third Bancorp

(FITB) - Get Report

and

Zions Bancorp

(ZION) - Get Report

, which recently agreed to merge with

First Security

(FSCO)

. In pharmaceuticals, he likes

Medtronic

(MDT) - Get Report

,

Amgen

(AMGN) - Get Report

and the "full suite" of big drugmakers.

Among other indices, the

Dow Jones Transportation Average

fell 3.09, or 0.1%, to 3087.60; the

Dow Jones Utility Average

gained 0.07 to 310.98; and the

American Stock Exchange Composite Index

slid 4, or 0.5%, to 797.48.

Elswhere in North American equities, the

Toronto Stock Exchange 300

slid 60.89 to 7077.20 and the

Mexican Stock Exchange IPC Index

gained 12.59 to 4982.44.

Wednesday's Company Report

By Tara Murphy
Staff Reporter

(

Earnings estimates from First Call/Thomson Financial; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.

)

America Online

(AOL)

slipped 2 to 89 after it said it forged a deal with online health services company

CareInsite

(CARI)

that would connect its customers to healthcare providers via the Internet. The companies said they would create joint Web sites that would put AOL's customers in touch with their doctors, labs and pharmacies. The transaction calls for AOL to purchase $10 million worth of CareInsite preferred stock and an option to buy another $10 million worth of shares within a year. CareInsite fell 5 5/8, or 11.2%, to 44 1/2.

Microsoft slid 2 1/2 to 92 5/8 after it said it plans to buy diagramming and technical drawing software maker

Visio

(VSIO)

in a stock swap valued at $1.3 billion. The deal calls for each Visio common share to be swapped for 0.45 Microsoft share. Visio soared up 6 3/8, or 19%, to 39 7/8.

Mergers, Acquisitions and Joint Ventures

Autocam

(ACAM) - Get Report

hopped 2 5/8, or 17.5%, to 17 5/8 after it said it was negotiating a possible $21-per-share sale of the company.

Bestfoods

(BFO) - Get Report

bounced 4 3/16, or 8.5%, to 53 1/8 after denying a report in today's editions of

The Wall Street Journal

that it was in merger talks with

Heinz

(HNZ)

. For its part, the Pittsburgh-based ketchup-and-pickles concern advanced 1 7/16 to 44 5/8.

Dime Bancorp

(DME)

declined 9/16 to 17 3/16 after it agreed to merge with

Hudson United Bancorp

(HU)

. Hudson United shares skidded 1 1/2 to 28 5/8.

Motorola plummeted 6 5/16, or 6.7%, to 86 7/8 after it confirmed that it will acquire General Instrument for about $11 billion in stock. The transaction calls for each General Instrument common share to be swapped for 0.575 Motorola share. Motorola expects the acquisition to "modestly dilute earnings" through 2000 but to strengthen earnings thereafter. Earlier today,

Donaldson Lufkin & Jenrette

downgraded General Instrument to a market perform from a buy. Shares of General Instrument stumbled 3, or 6.3%, to 47.

Friede Goldman

(FGI)

and

Halter Marine

(HLX) - Get Report

disclosed late Tuesday they have amended the terms of their pending merger. Under the new terms, each Halter share will be converted to 0.57 Friede share. The original terms of the merger, announced in June, called for each Halter share to be exchanged for 0.4614 Friede share. Friede Goldman shares declined 11/16, or 5.65, to 11 7/16 , while Halter Marine climbed 3/8, or 6.9%, to 5 3/4.

Earnings/Revenue Reports and Previews

AAR

(AIR) - Get Report

rose 3/8 to 21 7/8 after it reported first-quarter earnings of 39 cents, in line with the eight-analyst estimate and up from 34 cents a year ago.

Dress Barn

(DBRN)

bounced 15/16 to 16 after it posted fourth-quarter earnings of 56 cents a share, beating both the three-analyst estimate of 45 cents and the year-ago 48 cents.

Fairchild

(FA)

rose 3/16 to 9 5/16 after it said it expects to report a first-quarter 11-cent-a-share gain on the sale of assets included in its England-based

Camloc Gas Springs

unit to

Arvin's

(ARV)

Arvin Motion Controls

division.

Latitude Communications

(LATD)

popped 1 1/8 to 29 5/16 after it posted second-quarter earnings of 4 cents a share, beating both the three-analyst estimate of 3 cents and the year-ago 1 cent-profit.

Oracle skidded 2 3/4, or 6%, to 42 11/16 after it posted first-quarter earnings of 16 cents a share, in line with the 30-analyst expectation and up from 13 cents a year ago. Earlier today,

U.S. Bancorp Piper Jaffray

downgraded the shares to a buy from a strong buy.

Polycom

(PLCM)

leaped 2 1/2, or 5.7%, to 46 1/4 after it posted second-quarter earnings of 20 cents a share, beating both the six-analyst estimate of 19 cents and the year-ago 10 cents.

Progress Software

(PRGS) - Get Report

advanced 7/8 to 34 after it reported third-quarter earnings of 43 cents a share, above the three-analyst estimate of 39 cents and 31 cents a year ago.

Times Mirror

(TMC)

tumbled 3/8 to 65 9/16 after it posted August's advertising revenues of $150.6 million, a 12.7% increase from the year-ago $133.6 million.

Offerings and Stock Actions

Ameritech

(AIT) - Get Report

slipped 1 9/16 to 62 3/16 after it said it has decided not to finish its $2 billion share buyback because of its upcoming merger with

SBC Communications

(SBC)

. The company did not say how many shares remained outstanding since the repurchasing program's approval in December 1997.

NETsilicon

(NSIL)

leaped 5 3/8, or 76.7%, to 12 3/8 after making its trading debut.

CIBC Oppenheimer

priced the shares below its $8-to-$10 range at $7.

Staples

(SPLS)

fell 1/4 to 21 1/4 after it said it will issue a tracking stock for its e-commerce unit. The company also expanded its share-repurchase plan to $300 million from $200 million.

Analyst Actions

Advanced Fibre

(AFCI)

mounted 3/4 to 20 1/4 after

SG Cowen

upped its rating on the stock to a strong buy from a buy.

Aurora Biosciences

(ABSC)

jumped 3 1/4, or 27%, to 15 5/16 after BancBoston Robertson Stephens upgraded the stock to a strong buy from a buy and set a price target of 31.

Barr Laboratories

(BRL)

skidded 2, or 6.1%, to 30 7/16 after

Banc of America Securities

sliced its fiscal 2000 earnings estimate to $2.14 a share from $2.42.

Boston Scientific cratered 8 15/16, or 23.5%, to 27 after

PaineWebber

cut the shares rating to attractive from buy and

Morgan Stanley

lowered its rating to neutral from outperform. In addition,

Lehman Brothers

sliced its rating to neutral from buy, while Banc of America Securities downgraded it to a buy from a strong buy. Yesterday, Boston Scientific said it would report third-quarter revenue of about $690 million, missing its initial estimate.

Cambridge Technologies

(CATP)

stumbled 1 3/8, or 9.1%, to 13 1/2 after Lehman Brothers cut its fiscal 2000 earnings estimate to 70 cents a share from 87 cents and lowered its price target to 22 from 25.

Crestline Capital

(CLJ)

advanced 1/2 to 21 13/16 after

Deutsche Bank Alex. Brown

rolled out coverage of the stock with a buy rating.

Great Plains Software

(GPSI)

fell 1 1/4 to 54 after U.S. Bancorp Piper Jaffray upped its price target to 60 from 55.

Groupe Danone

(DA)

fell 1 1/4 to 49 3/4 after

Merrill Lynch

lowered its opinion to near-term accumulate from buy.

Hartford Life

(HLI) - Get Report

rose 1/8 to 42 1/2 after Merrill Lynch upped its rating to near-term accumulate from neutral.

Keebler

(KBL)

rose 7/16 to 31 11/16 after Banc of America analyst David Goldman lowered his rating on the shares to market perform from buy.

Nationwide Financial

(NFS)

advanced 1/8 to 35 after Merrill Lynch analyst Ed Spehar raised his rating to near-term accumulate from neutral.

Orbital

(ORB)

sunk 3, or 13%, to 20 after Lehman Brothers sliced its third-quarter estimates to a 31 cent-share loss from a 20 cent-loss.

TotalFina

(TOT) - Get Report

fell 2 5/16 to 65 11/16 after Merrill Lynch raised its rating to a near-term buy from accumluate.

U.S Airways

(U)

tumbled 2 3/16, or 7.9%, to 25 7/16 after

CIBC World Markets

cut it rating to a hold from a buy.

Verity

(VRTY)

bounced 13/16 to 57 15/16 after Banc of America raised its fiscal 2000 earnings estimate to $1.48 from $1.24 and set a price target of 74. The company posted first-quarter earnings of 32 cents a share, greatly beating both the analyst estimate of 16 cents and the year-ago 10 cents.

Visible Genetics

(VGIN)

mounted 3/16 to 19 7/16 after BancBoston Robertson Stephens rolled out coverage of the stock with a buy rating.

Miscellany

Ameritrade

(AMTD) - Get Report

declined 5/8 to 17 after it unveiled plans to launch a $200 million advertising campaign to draw new business. The company will promote its new "Believe in Yourself" slogan on network and cable television, newspapers and magazines and outdoor advertising. Two television commercials are set to premiere during this weekend's college and professional football programming.

AT&T

(T) - Get Report

advanced 1/8 to 44 5/8 after it announced plans to extend broadband services to businesses.

DaimlerChrysler

(DCX)

slid 2 9/16 to 72 after it said it was hopeful it can reach a deal on a new employment pact with the

United Auto Workers

without further work stoppages in the wake of unauthorized strikes at key plants yesterday, according to a

Reuters

report.

DuPont

(DD) - Get Report

fell 4, or 6%, to 62 1/8 after it announced plans to abandon or halt $600 million worth of ventures in the Asia-Pacific region, in an attempt to realign its nylon business. The company said it would take a third-quarter charge of 35 cents a share for its departure from the projects.

Johnson & Johnson

(JNJ) - Get Report

skidded 3/4 to 97 3/26 after its

Cordis Cardiology

division received the stamp of approval from the

FDA

to sell its

CrossFlex

laser-cut coronary stent.

Maytag

(MYG)

rose 7/16 to 38 3/8 after it said it would realign its business into four operating groups: home appliances, commercial appliances and worldwide and emerging business. The company said the move would allow it to streamline decision-making and brand focus.

Unicom

(UCM)

rose 7/16 to 38 1/2 after its

Commonwealth Edison

subsidiary said it would up its systems spending this year to $900 million from $800 million as a result of the Chicago area's power outages. The company said it would initiate an improvement plan based on results from a $20 million evaluation of its transmission and distribution systems.

The federal government said

Walgreen

(WAG)

paid $7.6 to the United States and 25 states to resolve allegations that it filed phony subscription claims for state Medicaid and other programs. Despite the allegations, Walgreen shares popped 1 1/16 to 25 1/16.