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Good Things Again Come in Small Packages (but Big-Caps Hold Their Own)

Market players trundled back from the weekend to turn in a choppy but consistently upside performance for blue-chip stocks, with small-caps continuing to outperform.


Dow Jones Industrial Average

was up nearly 60 points by 10:45 a.m. EDT but retreated soon thereafter, finishing after some swoops and turns up a mere 12.77 to 7835.18. The broader

S&P 500

held up somewhat better, adding 2.15 to 931.20, but the best performance of the day was again reserved for the indices with greater small-stock representation. The tech-heavy

Nasdaq Composite Index

was up 9.58 to a record 1645.35, its second straight new high, and the small-cap

Russell 2000

set its eighth record in a row with a rise of 2.95 to 435.99.

A glance at an intraday chart tells the large-to-small-rotation story better than the raw numbers. While the Dow, the S&P and the Nasdaq all ran up big in the early morning, troughed, rallied and dipped raggedly, the Russell moved up in a smooth, steady pattern throughout the day.

The bond market provided support to stocks as fixed-income traders reacted favorably to

Alan Greenspan's

latest Delphic musings, from a Friday-evening speech. The yield on the benchmark 30-year Treasury eased to 6.61%. In the futures pits, the September contract on the S&P 500 futures edged up 1.70 to 933.35.

Market internals were positive, volume moderate to heavy. On the

New York Stock Exchange

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, 1,774 advancers topped 1,071 decliners on volume of 470.8 million shares. Nasdaq advancers outpaced decliners by 2,468 to 1,898 on 659 million shares.

While many of Wall Street's chatterers have fully embraced the small-cap shift as a watershed event, Jeffrey Applegate, chief investment strategist at

Lehman Brothers

, believes this, too, shall pass. "I don't think it's sustainable," he said. "For small-caps to work, or some of the cyclicals to work, then you have to make a case that domestic GDP is going to be sort of sustainably strong." Instead, gross domestic product growth is on the wane and waning faster, he said.

"The economy is decelerating; moreover, the


is going to ensure that the economy decelerates, and a lot of small-caps are basically domestic only," said Applegate, who expects a Fed interest-rate hike in November. While small-caps thus will sustain extra knocks in a domestic slowdown, globe-spanning multinationals can redouble efforts in their booming overseas markets. But what about the Southeast Asian currency meltdown? Applegate shrugs it off.

"If you look at Southeast Asia, it's 4% of foreign profits, 2% of total profits" for U.S.-based multinationals, Applegate said. Galloping growth in areas like Latin America and Central Europe can compensate nicely for such regional damage, he said. So don't count the big bruisers out just yet -- they haven't even hit the canvas.

Monday's market action

(earnings estimates from

First Call


In a deal so complex it seems like some investment bankers responded to a dare,



agreed to buy 80% of




H&R Block

(HRB) - Get H&R Block, Inc. Report

in a stock swap worth about $1.2 billion. WorldCom also agreed to give CompuServe's 3 million consumer customers to

America Online


in exchange for AOL's network-backbone unit and $175 million. And

Bertelsmann AG

, AOL's partner in a European online service, will pay AOL $50 million to keep the American company in the venture. AOL stock was the biggest winner in the tangled web of dealsters, rising 6 1/8, or 8.8%, to an all-time high of 76 1/16. WorldCom rose 2 3/16 to 33 3/4. H&R Block, up most of the session, finished down 7/16 to 39 1/2. CompuServe lost 5/16 to 13 5/16.

Paper stocks got mulched on a set of near-term downgrades by

Merrill Lynch

. The firm cut

International Paper

(IP) - Get International Paper Company Report



(WY) - Get Weyerhaeuser Company Report


Champion International

(CHA) - Get China Telecom Corp. Ltd. Report





Buckeye Cellulose

(BKI) - Get Black Knight, Inc. Report

to reduce from neutral. Merrill sliced

Jefferson Smurfit



Willamette Industries

(WLL) - Get Whiting Petroleum Corporation Report

to neutral from accumulate, cut

Stone Container


to reduce from accumulate and lowered



to accumulate from buy. International Paper lost 9/16 to 53 1/2, Weyerhaeuser lost 2 to 55, Champion lost 2 3/8 to 57, Georgia-Pacific lost 1 11/16 to 89 7/16, Buckeye lost 1 7/16 to 39 7/16, Jefferson Smurfit lost 7/16 to 19 1/4, Willamette lost 2 to 78 11/16, Stone Container lost 1 1/14 to 15 7/8 and Bowater lost 7/16 to 52 9/16.

The tune was hardly "Hooray for Hollywood" today as

Hollywood Entertainment


was slammed 4, or 25%, to a 52-week low of 12 1/16 on worries about the retailer's sales.

Raymond James

cut the stock to neutral from buy and trimmed third-quarter earnings estimates.

Redwood Trust


dived 10 11/16 to 29 1/8 before a midafternoon halt. The company estimated that its third-quarter income would be 50 cents to 55 cents per share. The four-analyst consensus estimate called for 58 cents versus the year-ago 32 cents.



shot up 2 13/16, or 20.5%, to 16 5/8 after the company's chairman called analysts' 1998 estimates "conservative." The 11-analyst expectation for fiscal 1998 is 46 cents per share, compared with an estimate of 32 cents for 1997 and earnings of 13 cents in 1996.

Basin Exploration


hurtled 2 1/8, or 18.7%, to a four-year high of 13 5/8 after the company said it participated in drilling two Gulf of Mexico discovery wells.

Rauscher Pierce Refsnes

initiated coverage with a buy focus rating.


(IO) - Get ION Geophysical Corporation Report

received enough input to rocket 3 13/16, or 16.1%, to 27 9/16. The company reported first-quarter earnings of 26 cents per share, demolishing the 10-analyst forecast by 9 cents and beating the year-ago 22 cents.



plummeted 12 3/4, or 15.6%, to 69 1/8 after explaining why it pulled out of a


conference. The company murkily said it had to deal with a "potential development" that led it to alter third-quarter operating plans, "which certainly creates more risk this late in the quarter."



fell 1 11/16 to 19 3/4 and

Rexall Sundown


slid 7/8 to 37 after the companies late

Friday called off their planned merger. The

Securities and Exchange Commission

refused to approve pooling-of-interests accounting treatment for the combination.

General Signal

(GSX) - Get Gaotu Techedu Inc. Sponsored ADR Class A Report

crunched down 5 13/16, or 13%, to 38 15/16 after it said 1997 earnings may fall short of the $133.4 million, or $2.60 per share, earned in 1996. The nine-analyst outlook called for $2.89 in 1997.

Airlines jetted higher as some carriers raised certain fares by about 5%.

Northwest Airlines


, the trend's leader, rose 3 1/8, or 8.5%, to 40 1/4.

Delta Air Lines

(DAL) - Get Delta Air Lines, Inc. Report

rose 5 to 99 5/16,

United Airlines



(UAL) - Get United Airlines Holdings, Inc. Report

rose 2 3/8 to 78 7/8,

American Airlines




rose 4 3/16 to 110 7/16 and

US Airways

(U) - Get Unity Software, Inc. Report

rose 2 3/4 to 37 3/4. The

Dow Jones Transportation Average

climbed 67.02 to a record 3026.38.



was one of the Dow's better performers, up 2 5/16 to 80 11/16 after

Prudential Securities

upgraded the stock to buy from hold.

Fuqua Enterprises


leapt 5 15/16, or 22.5%, to an all-time high of 32 5/16 after

Graham-Field Health Products

(GFI) - Get Gold Fields Ltd. Report

agreed to acquire the company for $166 million in stock and the assumption of debt. GFI declined 7/8 to 17.



jumped 2 1/4, or 17.5%, to 15 1/8 after the company agreed to buy privately held

Algorithmic Research

of Israel for $83 million in cash and stock.

First Data

(FDC) - Get First Data Corporation Class A Report

surrendered 2 3/4 to 37 7/16 after

Morgan Stanley Dean Witter

downgraded the stock to outperform from strong buy.

Weider Nutrition International


plunged 1 7/8, or 15.2%, to a post-offering low of 10 1/2 after warning that its first-quarter earnings would be about 7 cents per share. The four-analyst expectation called for 13 cents, matching the year-earlier figure.

This story was originally published on Sept. 8, 1997