Frightful Session Puts Dow, S&P Down for '99

Despite the tech-centered bloodletting, Wall Streeters seem confident this is just another bull-market correction.
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Yes, it was ugly on Wall Street, especially for those long technology stocks. Moreover, stocks tumbled toward the close after a mid-afternoon bounce failed to sustain its impetus. Still, it was not the "hide the children, only a mother could love it" kinda ugly traders experienced last August and September.

All major proxies ended with losses and at or near intraday lows, while market breadth was lousy again. However, optimists noted the declines again came on below-normal trading volume. Additionally, the bond market enjoyed only a modest upward bias, suggesting institutional investors haven't abandoned equities quite yet. The price of the 30-year Treasury bond rose 13/32 to 99 1/32, its yield falling to 5.32%.

The

Dow Jones Industrial Average

closed down 158.08, or 1.7%, to 9133.03, just above its low of the session. The close is the lowest for the blue-chip proxy since Jan. 22 and left the index down for the year, its 1.9% January gains having been erased (and then some).

Merck

(MRK) - Get Report

exerted the greatest negative influence on the Dow, followed by

AT&T

(T) - Get Report

and

Wal-Mart

(WMT) - Get Report

. All but three of the Dow's 30 components ended in arrears. (The lucky winners:

J.P. Morgan

(JPM) - Get Report

,

Coca-Cola

(KO) - Get Report

and

United Technologies

.)

Even a reportedly upbeat presentation by

Michael Dell

at the

Goldman Sachs Technology Conference

this morning could not prevent tech stocks (including

Dell

(DELL) - Get Report

) from suffering a continuation of recent selling only temporarily interrupted

Monday. Internet names, meanwhile, were waylaid by terms of the

three-way merger involving

Lycos

(LCOS)

,

TicketMaster Online-Citysearch

(TMCS)

and

USA Networks

(USAI) - Get Report

.

The

Nasdaq Composite Index

fell 94.13, or 3.9%, to 2310.79, suffering its third-biggest point decline in history. Nearly all tech bellwethers were saddled with losses and notable declines were sustained by

Intel

(INTC) - Get Report

,

Sun Microsystems

(SUNW) - Get Report

,

Cisco

(CSCO) - Get Report

and Dell. The

Nasdaq 100

shed 4.9% and the

Philadelphia Stock Exchange Semiconductor Index

lost 6.5%.

'Down 158 on the Dow you can live with,' said IJL's Doug Myers, 'but down 98 on the

Nasdaq 100, that's the sucker punch to the solar plexus.'

In

New York Stock Exchange

trading,

Lucent

(LU)

,

Texas Instruments

(TXN) - Get Report

and

IBM

(IBM) - Get Report

sustained similar declines; the

Morgan Stanley High-Tech 35

lost 4.9%.

TheStreet.com Internet Sector

index tumbled 48.59, or 9.6%, to 456.26, thanks largely to a 26.1% decline in Lycos. Shareholders were apparently frustrated the merger only offered about a 2% premium to Lycos' Monday closing price.

"There is the psychological impact of not quite getting the valuation impact people were thinking," said Roy Blumberg, chief investment strategist at

Chestnut Investment Group/First Allied Securities

. "There's a lot of psychology in these Internet stocks and it's deteriorating a little because maybe they're not worth as much as people think. When you change the psychology you change the momentum, and momentum was going the other way anyway."

Meanwhile,

TheStreet.com E-Commerce Index

shed 8.70, or 8.6%, to 93.10. Options on the E-Commerce Index begin trading on the

American Stock Exchange

Feb. 17; quotes became available Friday, under the symbol ICX. Lycos is not a component of the E-Commerce Index, but

Ameritrade

(AMTD) - Get Report

,

E*Trade

(EGRP)

and

Peapod

(PPOD)

are; each fell heavily today.

The

S&P 500

finished down 27.63, or 2.2%, to 1216.14 and is now in the red for the year. The

Russell 2000

closed down 8.20, or 2%, to 403.13.

In its immediate aftermath, market players were unable to pin the decline on any particular factor, nor could they ascertain what drove stocks down so fiercely in the final hour of trading.

"I don't have a handle whether there was index arbitrage shenanigans or computer-driven stuff going on" toward the close, said Doug Myers, vice president of institutional trading at

Interstate/Johnson Lane

in Atlanta. "There's nothing news-wise that stuck out. Nothing today that much more unsetting than yesterday, except the Nasdaq. That's the stinger. Down 158 on the Dow you can live with, but down 98 on the

Nasdaq 100, that's the sucker punch to the solar plexus."

The late-day swoon almost guarantees weakness tomorrow, at least at the opening, Myers said. "You're going to definitely have a touch of the chills; they aren't going to be gone by tomorrow," he said. "It will take a few days to work this one out of the system."

In NYSE action, a relatively sparse 715.1 million shares traded while declining stocks whipped advancers 1,997 to 982. In

Nasdaq Stock Market

activity, losers led 2,820 to 1,216 while 915.1 million shares traded on an index for which billion-share sessions have become commonplace. New 52-week lows led new highs 84 to 15 on the Big Board and by 73 to 36 in over-the-counter trading.

Remain Calm, Not All Is Terrible

The action today is part of a "topping process" begun late last year, during which there has been "distribution under the guise of a limited number of stocks moving the market averages because they have such heavy weightings," Blumberg said. "If you look at the portfolio of a value player or a growth-at-a-reasonable-price investor, you're not seeing the same reflection on the downside because that's not what moved the averages to the upside."

The trend is a precursor (or onset?) of "another intermediate correction within an ongoing bull market," the strategist said. "Bear markets come from tighter monetary policy or shocks to the system. You've still got a healthy rate environment and monetary policy, and OK corporate earnings. Any pullback here will probably be smaller than the one last fall."

Blumberg continues to recommend investors raise cash at "whatever level is enough to manage an intermediate-term correction leading to an opportunity to put money back to work."

The strategist declined to specify the length or magnitude of the correction but did predict it will "finally lead to a change in leadership" from the big-cap tech stocks. "My guess is it will be to economically sensitive stocks but it's too soon to know."

Among other indices, the

Dow Jones Transportation Average

54.11, or 1.7%, to 3155.14; the

Dow Jones Utility Average

dipped 2.34, or 0.8%, to 293.72; and the

American Stock Exchange Composite Index

fell 10.66, or 1.5%, to 692.24.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

plunged 139.80, or 2.1%, to 6443.97 and the

Mexican Stock Exchange IPC Index

tumbled 69.86, or 1.7%, to 3946.94.

Tuesday'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.

)

As noted above, USA Networks reeled in 3 5/8, or 9.6%, to an all-time high of 41 5/8 after agreeing to buy Lycos in a deal linking the Internet portal with the company's

Home Shopping Network

,

Internet Shopping Network/First Auction

and TicketMaster-CitySearch units. The new company, to be called

USA/Lycos Interactive Networks

, will be chaired by USA Chairman and CEO

Barry Diller

. Lycos CEO Robert Davis will serve as president and chief executive.

Lycos, meanwhile, depressed 33 3/16, or 26.1%, to 94 1/4.

Yahoo!

(YHOO)

declined 17 5/8, or 11.1%, to 140 3/4;

Amazon.com

(AMZN) - Get Report

declined 9 1/16, or 8.3%, to 100; and

America Online

(AOL)

declined 11 1/16, or 7%, to 147 15/16.

Mergers, acquisitions and joint ventures

Bankers Trust

(BT)

slipped 1 11/16 to 86 after

Deutsche Bank's

chief executive, Rolf Breuer, said in an interview on German television that the bank's acquisition of the company would not make economic sense if it were delayed too long.

Quest Diagnostic

(DGX) - Get Report

jumped 2 11/16, or 13.8%, to 22 1/8 after

SmithKline Beecham

(SBH) - Get Report

agreed to sell its clinical laboratory operations to the company for about $1.3 billion in cash and stock. Under the deal, SmithKline Beecham will receive about $1 billion in cash and 12.6 million newly issued Quest Diagnostic shares, and will hold 29.5% of Quest. SmithKline added 15/16 to 67 1/8.

Meanwhile,

Express Scripts

(ESRX)

swelled 4 3/4, or 7.7%, to 66 7/16 after saying it will buy SmithKline's

Diversified Pharmaceutical Services

unit for $700 million in cash.

Sound Source International

(SSII)

, recently rumored as a takeover target, gave back 3/16, or 12%, to 1 3/8 even after announcing it hired

Wedbush Morgan

to explore strategic alternatives.

Earnings/revenue reports and previews

Cordant Technologies

(CDD)

grew 1 9/16 to 38 5/16 after posting fourth-quarter earnings of 80 cents a share, beating the six-analyst consensus by 2 cents and moving ahead of the year-ago 62 cents.

Duane Reade

(DRD) - Get Report

picked up 1 7/8, or 6%, to 33 1/4 after last night posting fourth-quarter earnings of 56 cents a share, 4 cents higher than expected.

Forward Air

(FWRD) - Get Report

brought in 3 1/4, or 14.1%, to an all-time high of 26 1/4 after last night beating fourth-quarter earnings estimates by a dime a share with a profit of 47 cents.

K-Swiss

(KSWS)

shot up 7 7/8, or 22.7%, to an all-time high of 42 1/2 after last night reporting fourth-quarter earnings of 65 cents a share, blowing away the four-analyst forecast by 11 cents and coming in ahead of the year-earlier 22 cents, and announcing a 2-for-1 stock split. Today,

Goldman Sachs

upped the stock to trading buy from market outperform.

Metamor

(MMWW)

climbed 1 to 23 1/16 after last night reporting fourth-quarter earnings a penny a share ahead of estimates.

Panamerican Beverages

(PB) - Get Report

sliced off 1 3/16, or 7.5%, to an annual low of 14 11/16 after late yesterday posting fourth-quarter earnings of 18 cents a share, 4 cents below the 11-analyst forecast and behind the year-ago 47 cents.

PC Connection

(PCCC)

vaulted 1 3/4, or 10.1%, to 19 1/16 after last night recording fourth-quarter earnings 3 cents a share above expectations.

Vishay Intertechnology

(VSH) - Get Report

lifted 1 1/2, or 13%, to 13 after last night reporting fourth-quarter earnings in line with estimates of 21 cents a share. Today,

Merrill Lynch

raised the stock to near-term accumulate from neutral and to long-term buy from accumulate.

In other earnings news:

Offerings and stock actions

Network Solutions

(NSOL)

dropped 26 1/8, or 15%, to 148 after saying 4.6 million shares held by

Science Applications International

and stockholders were sold a $170 apiece.

Analyst actions

Citadel Communications

(CITC)

took in 1 3/4, or 7.1%, to 26 3/8 after

BT Alex. Brown

started coverage with a buy.

Dassault Systemes

(DASTY)

tanked 5 3/4, or 12.7%, to 39 9/16 after

J.P. Morgan

cut it to long-term buy from buy.

ForSoft

(FORSF)

tanked 13/16, or 7.6%, to 9 7/8 after

Warburg Dillon Read

slashed it to buy from strong buy.

Kemet

(KMET)

surged 1 1/16, or 10.7%, to 11 after Merrill Lynch pushed up the stock to near-term accumulate from neutral while maintaining its long-term buy.

Parker Hannifin

(PH) - Get Report

rose 1 13/16, or 5.3%, to 36 after

Morgan Stanley Dean Witter

upgraded it to outperform from neutral.

Promus Hotel

(PRH) - Get Report

powered up 1 13/16, or 6%, to 31 13/16 after Morgan Stanley Dean Witter raised it to strong buy from outperform.

Sun International

(SIH)

declined 2 1/16, or 5.3%, to 37 1/4 after Merrill Lynch lowered it to neutral from accumulate while keeping it at long-term buy.

TMP Worldwide

(TMPW)

lost 3 15/16, or 7%, to 52 1/2 after Morgan Stanley Dean Witter dropped it to outperform from strong buy.

Miscellany

Dutch semiconductor equipment maker

ASM Lithography

(ASMLF)

fell 2 1/16 to 43 7/8 after saying CEO Willem Maris will retire Jan. 1.

Nike

(NKE) - Get Report

slid 1/4 to 50 3/4 after launching a Web site to sell some of its footwear and apparel online. On Feb. 1,

TheStreet.com

profiled the retailer and said it would unveil its e-commerce effort within 10 days.