Friday: Dow Dives as Tech Tumbles

By John J. Edwards III
Staff Reporter

The market dealt with more rattlers today than you'd find in the Arizona desert, with jangled traders sending stocks and bonds flopping to the floor.

Economic reports showing continued strength, the double-witching expiration of options, weak earnings from

Hewlett-Packard

(HWP)

-- these vipers and more conspired to knock the

Dow Jones Industrial Average

down 138.88 to 7194.67. The broader

S&P 500

suffered similarly, and the tech-larded

Nasdaq Composite Index

bent under the weight of

Intel

(INTC) - Get Report

,

Microsoft

(MSFT) - Get Report

,

Cisco

(CSCO) - Get Report

and other big losers.

Decliners outweighed advancers on the

New York Stock Exchange

by 1,432 to 979 on volume of 489.8 million shares. On the Nasdaq, decliners beat advancers by 2,152 to 1,996 on volume of 573.4 million.

"If you really look at the volume, the volume's light," said Jeffrey Applegate, chief investment strategist at

Lehman Brothers

. "It was mostly asset-allocation trades and expiry-related programs."

Applegate remarked on the negative reaction to the day's economic reports, which included a surge in April housing starts and a record high in the

University of Michigan Consumer Sentiment Index

. "Consumers are too happy and the bond market doesn't like it," he said. "Hey, that's life. One of these days the bond market's going to learn that G-R-O-W is not a four-letter word."

Applegate believes there's been enough evidence of slowing in recent economic data to stave off a

Fed

rate hike Tuesday, but Harvey Hirschhorn, director of equity research at

Stein Roe & Farnham

in Chicago, said he sees the market now having second thoughts about its former firm conviction that the Fed wouldn't act.

Hirschhorn said there should be two different reactions to what he expects will be a rocky few weeks ahead. "I think for traders, buying on weakness here still probably makes some sense," he said. "For investors, for the next couple of months I'd probably be looking for some exit points."

Philip Tasho, head of equity strategy and management at

Riggs Investment Management

in Washington, said investors looking for a safe haven should check out a somewhat surprising place: small-caps. He noted that the

Russell 2000

index of small-cap issues slipped less than a point amid today's selloff.

"One thing that I've noticed here is that in my opinion we have a transition taking place," Tasho said. "The valuation of small-caps is so compelling. As the market corrects, small-caps are holding up better. The whole group is very attractive to me."

Hewlett-Packard accounted for 21.02 points of the Dow's decline with its loss of 6 3/8 to 52 1/2. The company late yesterday reported second-quarter earnings of 75 cents per share, 5 cents short of the

First Call

consensus expectation. Other computer makers were lower, including

IBM

(IBM) - Get Report

, off 3 7/8 to 170,

Dell

(DELL) - Get Report

, off 2 to 94 1/4, and

Compaq

(CPQ)

, off 1 1/4 to 94.

Gateway 2000

(GATE)

bucked the trend, rising 1 to a 52-week high of 69 3/4.

Netscape

(NSCP)

plunged 5 3/8 to 29 1/4 after warning in a

Securities and Exchange Commission

filing that it expects rising costs to hurt earnings.

A federal judge dismissed claims of fraud and promissory estoppel (doesn't he host

Nightline

?) filed by

News Corp.

(NWS) - Get Report

. News Corp. is seeking -- so far entirely unsuccessfully -- to force Time Warner to place its

Fox News

channel on TWX's New York cable systems. News Corp. rose 1/8 to 17 7/8 despite the setback. Separately,

CNBC

reported that

Goldman Sachs

is quietly shopping a big block of TWX shares, possibly helping

Seagram

(VO) - Get Report

to shed its take in the media conglomerate. Time Warner was up 1/2 to 47 3/4 and Seagram slipped 1/8 to 38 5/8.

U S West Media Group

(UMG)

and

AirTouch Communications

(ATI) - Get Report

put the finishing touches to a $5 billion deal merging U S West's domestic cellular business and its interest in

PrimeCo Personal Communications

into AirTouch. U S West separately said it would transfer its domestic directory business from the Media Group to

U S West Communications Group

(USW)

. U S West Media gained 5/8 to 19, AirTouch was unchanged at 25 3/4 and U S West Communications slid 1/4 to 34 7/8.

PairGain Technologies

(PAIR)

crumbled 3 7/8 to a 52-week low of 17 1/4 after

SoundView Financial Group

reportedly raised concerns about pricing pressures on the company.

The Street

cast a glance askance at some fishy moves by insiders in an

April 29 story.

Informix

(IFMX)

lost 1 3/8 to 10 1/16 after saying it plans to raise cash and refinance its leases to keep its business running smoothly. Other database software concerns also slipped, with

Oracle

(ORCL) - Get Report

down 1 1/2 to 44 3/8 and

Sybase

(SYBS)

down 5/8 to 15 1/2.

Carter-Wallace

(CAR) - Get Report

leapt 3 7/8 to a 52-week high of 18 on a

Business Week

report that a British consumer-products company plans to bid $24 per share for the company.

U.S. Surgical

(USS)

gave up 2 1/2 to 30 1/2 after a federal jury found in favor of privately held

Applied Medical Resource

in a patent suit.

Prudential

cut USS to hold from buy.

Abbott Laboratories

(ABT) - Get Report

skidded 1 1/8 to 66 after

Merrill Lynch

lowered its near-term rating to accumulate from buy. Merrill maintained a long-term buy.

Citing those annoying TV frogs -- oh, all right, the stock's price -- Lehman Brothers downgraded

Anheuser-Busch

(BUD) - Get Report

to neutral from buy. The beer baron dribbled down 1 1/4 to 43.

Yea, though I walk down Broad Street in the shadow of the Stock Exchange.¿

International Family Entertainment

(FAM) - Get Report

, whose voting Class A shares are controlled by televangelist

Pat Robertson

and his son Tim, saw its publicly traded Class B shares hop 1 1/2 to 24 1/8 after the company said it's in negotiations that may lead to some kind of deal. The company owns the

Family Channel

and other TV properties.

Reader's Digest

(RD)

added 3/8 to 25 amid rumors that money manager Michael Price had taken a stake in the magazine publisher. Price denied that in an interview with

Reuters

.

Orion Network Systems

(ONSI)

jumped 7/8 to 11 3/4 after

Morgan Stanley

initiated coverage at outperform.

On the heels of

Amazon.com's

(AMZN:Nasdaq) successful IPO

yesterday,

LHS Group

(LHSG:Nasdaq) debuted today at 16 and ascended 3 1/4 to 19 1/4.

US Diagnostic

(USDL)

plummeted 1 15/16 to 6 after filing for a five-day extension for the filing of its Form 10-Q. The company said it will report its first-quarter earnings no later than Tuesday.

Ericsson

(

(ERICY)

ERICY ADR) rose 1/8 to 35 1/8 after a Swedish newspaper reported that the company expects to sell 50 million mobile phones in 2000 out of a total market of 300 million.

Cowen

initiated coverage of Ericsson at buy.

Brazil's

Multicanal

(

(MPARY)

MPARY ADR) fell 1 3/4 to 12 53/64 after reporting a first-quarter loss of 1 cent per share, matching the year-ago figure. First Call has no estimates for the company.