Earnings 'Logic' Can't Aid Indices

But traders don't lament a modest dip. Meanwhile, Applegate lifts earnings estimates.
Publish date:

The standard tale of this earnings season is paradoxical. Strong reports have been breeding selloffs, because investors have already priced in the numbers, bidding stocks up to the point where they have nowhere to go but down.

But despite the general malaise among the market's major proxies, today's standout stocks aren't following that plot. Companies such as

Alaska Air

(ALK) - Get Report


Continental Airlines

(CAL) - Get Report


Delta Air Lines

(DAL) - Get Report

were doing what companies are supposed to do after positive surprises: going up. Along with


(CSX) - Get Report

-- which is in talks to sell its international container-shipping business, according to

The Wall Street Journal

-- those stocks were helping to send the

Dow Jones Transportation Index

up 36.24, or 1.1%, to 3438.11.

In the banking sector,


(C) - Get Report


J.P. Morgan

(JPM) - Get Report

were getting respectable pops after putting out some monster numbers this morning, helping to send the

Philadelphia Stock Exchange/KBW Bank Index

was lately up about 1.7%. Only

Wells Fargo

(WFC) - Get Report

was sticking to the bizzaro earnings script, lately off 0.7% after posting record profits.

Meanwhile, investors were bidding down earnings machines such as


(MSFT) - Get Report



(IBM) - Get Report

ahead of their post-market reports.

None of the individual stories can hide the fact that technology was slumping badly at midday. The

Nasdaq Composite Index

was off 25.53, or 0.9%, to 2838.95 on weakness in its big tech names. The Net wasn't mitigating the downward pressure, as

TheStreet.com Internet Sector

index was sloughing off 16.51, or 2.6%, to 622.22.


Dow Jones Industrial Average

was losing 31.97, or 0.3%, to 11,177.87. The broader

S&P 500

was off 10.43, or 0.7%, to 1408.35 while the small-cap

Russell 2000

was down 3.85, or 0.8%, to 461.41.

But Louis Todd, head of equities trading at

J.C. Bradford

, wasn't taking the selloff too seriously. He called today "a typical Monday in summertime. The market's going sideways. Volume's subdued." In the short term, Todd foresees today's pullback continuing after Softee and IBM report tonight. "We'll probably see some profit taking on that good news."

Another trader bluntly echoed that sentiment. "The market's doing what it should be doing -- a little profit-taking after a big run-up last week," he said.

As far as the interest-rate outlook, Todd wasn't particularly concerned about the


testimony that



Alan Greenspan's

will give on Thursday. Stocks are responding to earnings news right now, he said.

Pleasant Surprise

And, today's broad weakness notwithstanding, earnings have been looking extremely juicy. In a research note Friday,

Lehman Brothers

chief investment strategist

Jeffrey Applegate

said that this quarter's 8:1 positive-to-negative surprise ratio is making in 1999 the culmination in a decade of increasingly strong earnings.

Applegate raised his per-share S&P 500 earnings forecasts to $50.50 from $49.50 for 1999, and to $55.75 from $54.50 for 2000, based partly on an expectation of recovery in global markets. On that basis, he raised his year-end

S&P 500

price target -- a practice he called "a near ritual" -- to 1500 for this year, and 1650 for next year. Applegate reiterated that his money remains where his mouth is: 80% in stocks and 20% in bonds, with absolutely


in cash.

The 30-year Treasury was up 2/32 to 91 2/32, yielding 5.90%. (For more on the fixed-income market, see today's early

Bond Focus.)


New York Stock Exchange

trading, 360.8 million shares were exchanged while declining stocks led 1,751 to 1,016. In

Nasdaq Stock Market

activity, 532.4 million shares were exchanged while losers outpaced gainers 2,085 to 1,618.

Monday's Midday Watchlist

By Heather Moore
Staff Reporter

As noted above, recently sluggish airline names were flying high at midday, boosted by solid earnings reports.

Alaska Air was up 2 3/4, or 6.6%, to 44 5/8 ahead of a 3-for-2 stock split tonight and after this morning recording second-quarter earnings of $1.59 a share, topping both the 11-analyst

First Call

forecast of $1.35 and the year-ago $1.51.

Continental was up 2 5/8, or 6.8%, to 41 3/16 after reporting second-quarter earnings of $1.80 a share, beating the 12-analyst estimate of $1.73 but falling behind the year-earlier $2.11.

Finally, Delta was up 2 1/16 to 61 1/8 after posting fourth-quarter earnings of $2.40 a share, 9 cents ahead of the 11-analyst estimate and above the year-ago $2.26.

Mergers, acquisitions and joint ventures



was down 2 1/4 to 137 9/16 on news it's acquiring privately held

HotHaus Technologies

for $280 million in stock.

CSX was up 1 5/8 to 50 9/16 following a report in

The Wall Street Journal

saying the company is in talks to sell its international container-shipping business to Danish


for about $800 million.

CommNet Cellular


was up 1/2 to 30 5/8 after

Vodafone AirTouch

(VOD) - Get Report

said it's buying the company via its subsidiary

AirTouch Cellular

for $764 million. Vodafone AirTouch was off 2 3/8 to 211 7/8.

General Motors

(GM) - Get Report

was up 1/16 to 69 1/8 on word it's considering exercising an option to complete a takeover of


, the Swedish carmaker, by acquiring a second half of the company from Sweden's




(STMP) - Get Report

was up 7 1/2, or 18.7%, to 48 after striking a deal to provide computer-generated stamps and postage over

Office Depot's

(ODP) - Get Report

Web site.

U S West


was down 5/16 to 59 15/16 after accepting

Qwest Communications'


buyout offer. Also,

Global Crossing


was up 1 1/16 to 47 3/16 after saying it will proceed with its $12.9 billion purchase of


(FRO) - Get Report

, which was off 1 13/16 to 57 5/16.

Earnings/revenue reports and previews


(VIA) - Get Report

was off 5/16 to 44 7/16 after reporting second-quarter earnings of 8 cents a share, better than the 15-analyst estimate of 5 cents and moving up from the year-ago loss of 40 cents. Viacom also amended a previously filed registration statement with the

Securities and Exchange Commission

for a proposed 31 million-share IPO for


, representing approximately 17.7% of its shares. Viacom estimates the IPO price will be $16 to $18 a share.

In other earnings news:

Analyst actions



was up 4 5/8, or 15.5%, to 34 3/4 after

J.P. Morgan

started coverage with a buy and a price target of 55.


also started coverage with a buy.

Merrill Lynch

initiated coverage of the stock with a near-term accumulate and a long-term buy.



(T) - Get Report

was flat at 55 1/2 after

The Journal

reported it will start a new Internet company in partnership with Tim Robertson, the son of evangelist

Pat Robertson

. The site aims to give parents a way to screen out pornographic material, hate sites and other information unsuitable for children.


(F) - Get Report

was up 3/16 to 54 1/4 after

The Journal

said the company's assessing several initiatives to boost its stock price, including a possible divestiture of its auto-parts unit,

Visteon Automotive Systems




was up 2 3/16 to 116 3/16 after naming

Lucent Technologies


executive Carly Fiorina its new president and CEO. Lucent was down 2 3/16 to 76 1/4.