Failure to Hold Early Strength Disquiets Wall Street

'This is our sendoff party,' one hedge-fund manager says of the recent action in this aging bull market.
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A week that

began with promise opened its final day with renewed optimism. Then the roof started to cave, the cows began checking reservations at the pasture and the chickens called home regarding the roost. But the schizophrenia for which the market has become so famous reasserted itself once again.

Major averages finished well off initial gains but each finished far from session lows as well. Tech proxies even managed to close with decent gains.

Despite the late-day recovery, equity traders were reminded the bond market

does

matter, as a rout in fixed-income was credited with igniting the midday selloff.

The price of the 30-year Treasury bond closed off its lows as well, but still fell 1 30/32 to 94 3/32, its yield rising to 5.66%. Bond prices were lower after the

Commerce Department

reported first-quarter GDP of 4.5%, well above the 3.3% consensus. Around 12:30 p.m. EDT, losses accelerated dramatically amid talk of a big five-year bond sale by a large institution -- said to be Bill Gross'

Pimco

-- which sent the seller's dealer -- said to be

Goldman Sachs

-- scrambling to the bond futures to hedge against the position.

Pimco did not return phone calls. A Goldman spokesman declined to comment.

The

Nasdaq Composite Index

closed up 14.43, or 0.6%, to 2542.86 after reaching an apex of 2578.01 and then tumbling as low as 2489.97.

TheStreet.com Internet Sector

index surrendered an intraday rise to as high as 669.66 to drop as low as 6209.02, but closed up 8.85, or 1.4%, to 656.26.

The

Dow Jones Industrial Average

rose to as high as 10,961.71 around 11:50 a.m., but fell into negative territory less than an hour later. The blue-chip proxy kept dropping thereafter, hitting its low of 10,654.73 around 3 p.m. But the index rallied in the final hour to close down a relatively modest 89.34, or 0.8%, to 10,789.04.

In similar fashion, the

S&P 500

-- once as high as 1351.83 and as low as 1314.59 -- finished down 7.65, or 0.6%, to 1335.18. The Russell 2000 closed down 0.04, or 0.01%, to 432.81 vs. a high of 436.59.

Perhaps most disappointing, the

Dow Jones Transportation Average

, once as high as 3719.95 and on track to eclipse its April 16, 1998, all-time high, fell as low as 3612.77 before recovering to close up 4.54 to 3647.29.

Here a Dip, There a Dip

Given the tradition-bursting volatility of the market's recent past, few traders were overly concerned by today's nastiness. But the reinforcement of complacency among investors has some market watchers concerned (even some non-card-carrying bears).

"The mantra of this market is, 'Buy every dip. Buy as much as you can as fast as you can, even if

the dip lasts 15 minutes,'" said one market strategist. "Every time the market dips it comes back and goes higher. Well, one time it's not going to happen and all the momentum will turn negative so quick."

The strategist, who requested anonymity, noted the hourly chart on the S&P 500, "the traders' chart," has established an "unmistakable, menacing and pretty serious domed top. Technicals have had as much a place in this market as the concept of valuation, which means nobody cares. But we've put in a really perfectly rounded domed chart and it means we're in for a bit of a respite."

In

New York Stock Exchange

trading, 939.9 million shares were exchanged while losers led advancers 1,662 to 1,329. In

Nasdaq Stock Market

activity, 999.4 million shares were exchanged -- snapping an 18-session streak in which a billion or more shares traded -- while gainers led 2,085 to 1,939. New 52-week highs led new lows 67 to 18 on the Big Board and by 79 to 44 in over-the-counter trading.

DOJ Turns Spotlight on Goldman, Peers

Aside from the bond market's shellacking, traders said word the

Justice Department

is investigating alleged fee-fixing by IPO underwriters contributed to the midday slide. Goldman Sachs,

Morgan Stanley Dean Witter

(MWD)

and

Merrill Lynch

(MER)

were among the 25 defendants.

A source familiar with the proceeding said

Lehman Brothers

(LEH)

,

Citigroup

(C) - Get Report

unit

Salomon Smith Barney

,

Hambrecht & Quist

and

BancBoston Robertson Stephens

were also named as defendants.

The source, who requested anonymity, said Justice is investigating charges the defendants allegedly conspired to fix at 7% the discount that underwriting syndicates received from issuers of certain offerings. The allegations were first filed in a private class-action suit in the fall of 1998, he said, unaware why DOJ is looking into the issue at this time.

"I can only comment on what the antitrust division of the Department of Justice is doing," said Gina Talamona, a DOJ spokeswoman. "The division is looking at the possibility of anticompetitive practices in underwriting services in IPOs. I'm not confirming companies

subpoenaed and I can't get into details or specifics."

Given Goldman was allegedly the source of qualms in the bond market and is scheduled to price its much-anticipated but once-delayed IPO next week, some mused that every time the venerable firm tries to go public, something wicked this way comes.

"This request for information form the DOJ is a follow on to the pre-existing private class action litigation which has been ongoing for several months," a Goldman spokesman said. "This will not affect our plans to go public."

The DOJ investigation is "interesting but it's all hyperbole," said Ronny Kraft, CEO of

Gotham Capital Management

. "Bonds are getting crushed. Spanked. This is a major move in bonds. It's doing it through this huge resistance area, totally breaking out. "

Kraft, whose roughly $80 million portfolio was up 53% year-to-date heading into today, has turned increasingly defensive in recent weeks, owing largely to the decrease in money supply growth and upward move in commodity prices. The GDP data this morning only "reconfirmed" a belief inflation is re-emerging, he said, while also expressing concern about the widening trade deficit.

The

Employment Cost Index

"looked good, so chalk one up for the noninflation hawks," he said. "But I think with the move we've had in commodities and the economy heating up, that has to translate into inflation. The last

CPI

and

PPI

numbers did not factor in oil."

Kraft, a self-described "cheerleader" for the bull market in the past, said he thinks "there's one last rally left in this market." He noted S&P futures took out the three previous days' lows during today's nadir. "This is our sendoff party."

Among other indices, the

Dow Jones Utility Average

gained 0.24, or 0.1%, to 311.55; and the

American Stock Exchange Composite Index

ended its string of records, falling 2.03, or 0.3%, to 776.97.

For the week, the Dow industrials rose 99.37, or 0.9% and gained 10.2% in April; the S&P 500 fell 21.62, or 1.6% for the week, but rose 3.8% for the month; the Nasdaq Comp shed 47.82, or 1.8% for the week but gained 3.3% for the month; the Russell 2000 added 4.77, or 1.1% for the week and 9.8% in April; TheStreet.com Internet index lost 23.81, or 3.5% in the week but gained 2.1% for the month; the Dow transports added 56.61, or 1.6% for the week and 10.6% in April; the Dow utilities gained 10.28, or 3.4% for the week and 6.6% for the month; and the Amex Composite rose 6.61, or 0.9% for the week and 9.4% in April.

Elsewhere in North American equities today, the

Toronto Stock Exchange 300

fell 78.63, or 1.1%, to 7014.70 and the

Mexican Stock Exchange IPC Index

shed 102.86, or 1.9%, to 5414.45. The TSE 300 slid 13.79, or 0.2% for the week but gained 6.4% in April. The IPC fell 67.33, or 1.2% for the week but gained 9.8% for the month.

Friday's Company Report

By Heather Moore
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.

)

YPF

(YPF) - Get Report

, Argentina's largest oil company, shot up 5 7/8, or 16.4%, to an all-time high of 41 13/16 after Spain's

Repsol

(REP)

offered to buy the entire company for $13.4 billion. In January, Repsol, which lifted 15/16, or 6%, to 16 1/2, bought a 14.99% stake in YPF for $2 billion.

3M

(MMM) - Get Report

grew 3 3/8 to 89, but below an earlier high of 91. The Dow component reported first-quarter earnings of 95 cents a share, 4 cents ahead of the nine-analyst estimate but down from the year-ago 98 cents. The company said currency effects sliced earnings by 2 cents a share and its results were harmed by Brazilian economic weakness and a strong dollar. 3M said results were positively affected by an improvement in sales in the Asia-Pacific region, solid productivity gains and growth in several of its U.S. businesses.

Brokerage stocks tumbled on the aforementioned Justice Department investigation into alleged fee-fixing by IPO underwriters. Morgan Stanley Dean Witter fell 3 11/16 to 99 3/16; Merrill Lynch fell 2 1/8 to 84 3/16; Lehman Brothers fell 1 7/16 to 55 9/16; and Citigroup fell 1 7/16 to 74 7/8.

Following an early-morning take-off, airline names closed with mostly modest gains.

Delta

(DAL) - Get Report

flew up 1 1/2 to 63 7/16, below an earlier high of 65 1/8, and

US Airways

(U) - Get Report

ascended 1 to 54 7/16, below an earlier high of 55 15/16.

Business Week's

Inside Wall Street column quoted Joseph Battipaglia, chairman of investment policy at

Gruntal

, saying large transport stocks were the best bets among cyclical stocks if investors think foreign economies -- particularly in Asia and Latin America -- are on their way back. Specifically, Big Joe named

Airborne Freight

(ABF)

, which rose 1 to 32;

Northwest Airlines

(NWAC)

, which rose 7/8 to 34 1/16; and

Union Pacific

(UNP) - Get Report

, which fell 3/8 to 59 7/8.

Elsewhere in the column, money manager David Rocker of

Rocker Partners

said

Bowne

(BNE)

has turned into a "fascinating and undervalued stock" worth twice its current price. Bowne surged 1 1/4, or 7.1%, to 18 3/4.

Earnings/revenue reports and previews

Adaptec

(ADPT) - Get Report

jumped 2, or 9.1%, to 24 1/16 after last night beating fourth-quarter earnings estimates by 6 cents a share.

Adaptive Broadband

(ADAP) - Get Report

lowered 1 5/8, or 9.8%, to 15 1/8 after last night recording a third-quarter loss 12 cents wider than expected.

Battle Mountain Gold

(BMG)

gave up 1/16 to 2 13/16 despite announcing a first-quarter loss of 1 cent a share, 2 cents narrower than the 16-analyst outlook and 1 cent narrower than the year-ago figure.

Brightpoint

(CELL)

tumbled 31/32, or 13.6%, to 6 5/32 after last night reporting a first-quarter loss of 2 cents a share, worse than analysts' expectations for a break-even quarter.

Compuware

(CPWR)

tacked on 5/8 to 24 3/8, below an earlier high of 26 15/16, after last night reporting fourth-quarter earnings of 31 cents a share, beating estimates for 29 cents.

Corinthian Colleges

(COCO)

powered up 3 11/16, or 29.1%, to 16 3/8 after last night recording third-quarter earnings of 25 cents a share, blasting away forecasts for 14 cents.

Deere

(DE) - Get Report

, North America's largest farm equipment maker, skidded 2 3/8, or 5.3%, to 42 3/4 after late yesterday warning it sees second-quarter sales volume falling 20% below year-ago levels and full-year sales falling 18% to 20%.

EarthWeb

(EWBX)

picked up 2 1/8 to 53 1/8 after last night reporting a first-quarter loss of 82 cents a share, better than analysts' predictions for a loss of 93 cents.

General Binding

(GBND)

sliced off 6 1/2, or 24.5%, to 20 after reporting first-quarter earnings of 8 cents a share, nowhere near the two-analyst forecast for 42 cents or the year-ago 45 cents. The company also said it expects to report a second-quarter charge of $15 million to $18 million for a restructuring program that will affect 435 jobs, or about 8% of the General Binding's work force.

Grace

(GRA) - Get Report

expanded 13/16, or 5.4%, to 15 15/16 after last night posting first-quarter earnings 2 cents ahead of forecasts.

InfoSpace.com

(INSP) - Get Report

soared 24 11/16, or 20.9%, to an all-time high of 143 5/16 after last night reporting a first-quarter loss of 3 cents a share, down from break-even results a year ago but narrower than the five-analyst consensus for a loss of 14 cents.

ReliaStar Financial

(RLR)

slid 4 11/16, or 11.3%, to 36 3/4 after last night missing first-quarter earnings estimates by 7 cents a share. Today,

Prudential Securities

cut the stock to accumulate from strong buy and

J.P. Morgan

lowered it to long-term buy from buy.

Spectrian

(SPCT)

advanced 2 7/16, or 21.6%, to 13 3/4 after last night reporting a fourth-quarter loss of $1.79 a share, narrower than the expected loss of $1.91.

St. Paul

(SPC)

slipped 1/16 to 28 11/16 after posting earnings of 62 cents a share, a penny shy of the 14-analyst estimate and down from the year-ago 64 cents.

ThrustMaster

(TMSR) - Get Report

, uh, thrust up 1 1/16, or 5.6%, to 20 1/2 after late yesterday posting a first-quarter loss of a nickel, narrower than the expected loss of a dime.

Zoran

(ZRAN)

sank 2 1/8, or 16.4%, to 10 13/16 after last night posting a first-quarter profit 4 cents below expectations for a nickel a share.

Offerings and stock actions

Building One Services

(BOSS) - Get Report

tumbled 3 13/16, or 20.1%, to 15 1/4 on word it plans to buy 25.5 million shares at $22.50 apiece.

Capital One

(COF) - Get Report

added 6 to 173 11/16 after its board approved a 3-for-1 stock split.

Newly public coal company

Consol Energy

(CNX:NYSE) stumbled below its IPO price of $16 a share, losing 1 3/4, or 10.9%, to 14 1/4.

But Internet-based software management company

Marimba

(MRBA:Nasdaq), whose 4 million-share IPO was priced at $20 a share last night, above the expected range of $16 to $18, rocketed up 40 3/4, or 203.7%, to 60 3/4.

Analyst actions

CBS

(CBS) - Get Report

declined 11/16 to 45 1/2 after

Morgan Stanley Dean Witter

raised its Year-2000 price target for the stock to 56 from 50 a share.

Exxon

(XON) - Get Report

shaved off 1 7/16 to 83 1/16 after

Lehman Brothers

downgraded it to neutral from buy.

Restoration Hardware

(RSTO)

plunged 8 3/4, or 36.1%, to 15 5/8 after

NationsBanc Montgomery Securities

downgraded the stock to hold from buy.

State Street

(STT) - Get Report

lost 6, or 6.4%, to 87 1/2 after

PaineWebber

downgraded the stock to attractive from buy.