Growth Fans Take a Stand and Send Their Faves Higher

Tech stocks make a remarkable turnaround in late action on diminished rate fears.
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SAN FRANCISCO -- Cannons to the right of them (yesterday's

NAPM

data). Cannons to the left of them (today's housing numbers). Cannons in front of them (the

FOMC

meeting June 29-30). It wasn't quite

The Charge of the Light Brigade

, but investors stared down a potential world of hurt today, leading major proxies back from early losses.

Similar to yesterday's manufacturing data, a

Commerce Department

report that

new home sales

jumped 9.2% in April convinced traders the

Federal Reserve

will raise interest rates later this month. A hasty retreat in some individual stocks notwithstanding, growth stocks mounted a furious afternoon comeback in concert with bonds, leaving major equity proxies mixed.

The price of the 30-year Treasury bond rose 4/32 to 90 18/32, its yield falling to 5.93%.

The

Nasdaq Composite Index

fell as low as 2364.59 but improved throughout the afternoon to close up 20.38, or 0.8%, to 2432.41.

TheStreet.com Internet Sector

index dropped as low as 528.19 before closing down a scant 0.26 to 556.61.

Yahoo!

(YHOO)

best represented the action among tech leaders, sliding to as low as 130 1/2 before closing up 2.9% to 142 1/2 after agreeing to acquire

Online Anywhere

for about $80 million. Similarly,

Ameritrade

(AMTD) - Get Report

fell as low as 73 before closing up 7.2% to 85 5/8; the firm set a 3-for-1 stock split last night. Elsewhere,

Amazon.com

(AMZN) - Get Report

fell as low as 97 1/2 but recovered to end up 6% at 112 1/8.

Texas Instruments

(TXN) - Get Report

was a standout among traditional bellwethers, rising 4% on news it will acquire software company

Telogy Networks

for $435 million. Chip equipment makers such as

Applied Materials

(AMAT) - Get Report

were also solid performers, lifting the

Philadelphia Stock Exchange Semiconductor Index

5.4%. The

Nasdaq 100

rose 2.4%.

The picture wasn't so rosy among certain secondary tech names.

barnesandnoble.com

(BNBN)

shed 13.8% after parent

Barnes & Noble

(BKS) - Get Report

scuttled its proposed $600 million acquisition of

Ingram Book Group

due to regulatory opposition.

Marimba

(MRBA)

tumbled 19% after

Morgan Stanley Dean Witter

initiated coverage with a neutral rating.

Weak financials helped prevent blue-chip proxies from rallying as smartly as tech proxies. The

Dow Jones Industrial Average

fell 18.37, or 0.2%, to 10,577.89, although well off its session low of 10,464.55. The

S&P 500

rose 0.55 to 1294.81 after trading as low as 1277.47.

Merrill Lynch

(MER)

slid 6.1% after

Goldman Sachs

cut earnings estimates, citing the firm's planned online trading offerings. Downgrades from

CIBC World Markets

sent

Paine Webber Group

(PWJ)

scurrying 6.6% and

Morgan Stanley Dean Witter

(MWD)

down 3.8%. The

American Stock Exchange Broker/Dealer Index

fell 3.2%.

Among many losing banking stocks, Dow components

Citigroup

(C) - Get Report

and

J.P. Morgan

(JPM) - Get Report

also slouched; the

Philadelphia Stock Exchange/KBW Bank Index

slid 1%.

The Dow was also hampered by cyclicals such as

DuPont

(DD) - Get Report

, which fell 3.2%.

The

Russell 2000

closed down 0.72 to 436.74.

"The market firmed up a bit. I saw some institutions bottom-picking, especially on the tech side," one New York-based trader said. "I think things got so beat up over last week, they caught some nice bids."

America Online

(AOL)

failed to sustain its bounce to as high as 115 13/16, but the trader noted it closed well off its intraday low of 105 1/16, down 2.4% to 110 3/8.

"I think tomorrow they may come out gunning them, provided the bonds hold," he continued. "You like seeing days like this. It seems like there was some good support. I was a little surprised myself."

However, the trader conceded the market is basically in limbo until Friday's

employment report

and thus susceptible to wild swings intraday or day-to-day until then.

In

New York Stock Exchange

trading, 732.9 million shares were traded while declining issues bested advancers 1,613 to 1,335. In

Nasdaq Stock Market

activity, 899.6 million shares were exchanged while losers led 2,229 to 1,639. New 52-week lows led new highs 53 to 35 in NYSE trading and by 62 to 55 in over-the-counter trading.

Inflation, Schminflation

A report from Washington-based

Johnson Smick International

saying higher rates may not be a foregone conclusion was cited as a catalyst for the comeback. However, Johnson Smick declined to comment about whether such a report exists, much less send a copy to this reporter (or any other, I gather).

On the other hand, some market watchers say the inflation fears are (like) way overblown.

"The data over the next few weeks will confirm that a small amount of inflation is not a problem when examined realistically," Greg Smith, market strategist at

Prudential Securities

, wrote in a report today. "We expect to get more clarity regarding inflation over the summer months and hope that inflation doesn't remain too low to stunt the broadening profits story, which had begun in the first quarter."

(Yes, he's worried about inflation being too

low

).

"We feel that June will calm some concerns of inflation and that, barring any major earnings surprises from large companies, the month should be pretty good for both stocks and bonds," Smith continued.

Thomas McManus, equity portfolio strategist at

Banc of America Securities

, said as much yesterday in an interview with

TheStreet.com

.

"The earnings outlook is very good and therefore the broadening trend is evident," McManus said.

The strategist sees a window of about six months before the "cumulative effect" of rising long-term rates and any Fed tightening of short-term rates "will eventually have a moderating impact on the strength of the economy and trip away some momentum."

Until then, expect stocks of smaller-than-average market cap to do best, he said. Unable to name specifics, McManus said: "On average cyclicals are less attractive than growth" and recommended investors search for "stocks that behaved well" in the summer of 1997.

Among other indices, the

Dow Jones Transportation Average

fell 39.00, or 1.1%, to 3427.60; the

Dow Utility Average

declined 1.02, or 0.3%, to 324.40; and the

American Stock Exchange Composite Index

lost 4.88, or 0.6%, to 771.23.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

slipped 1.63 to 6850.75 and the

Mexican Stock Exchange IPC Index

lost 36.22, or 0.7%, to 5400.20.

Wednesday'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.

)

Following yesterday's brokerage slaughtering, Paine Webber sank 2 15/16, or 6.6%, to 41 13/16 and Morgan Stanley Dean Witter sank 3 1/2 to 88 1/4, above an earlier low of 85 1/4, after CIBC World Markets analyst Steven Eisman cut both stocks to buy from strong buy. The analyst lowered his 2000 earnings estimate for Paine Webber to $3.45 from $4 a share and his view for Morgan Stanley to $6.40 from $7 a share. Also, Eisman dropped his 2000 earnings forecast for Merrill Lynch to $5 from $5.70 a share, sending that stock down 4 9/16, or 6.1%, to 70 11/16.

Spanish language Web portal

StarMedia Network

(STRM) - Get Report

was among those that spent the session swimming in the overflowing Internet bloodbath. After recent gains from its IPO last week, the stock gave back 12 3/8, or 20.2%, to 48 15/16. But like most Net names, StarMedia closed above its intraday low -- the stock fell as low as 43 5/8 around noon.

Elsewhere,

DLJdirect

(DIR)

dropped 5 1/8, or 13.2%, to 33 5/8, and barnesandnoble.com dropped 2 3/4, or 13.8%, to 17 3/16, below its IPO price of $18 a share. As mentioned earlier, Barnes & Noble tacked on 1 1/4 to 28 5/8, bouncing up from an earlier low of 26 5/8, after calling off its planned $600 million merger with Ingram Book Group because of opposition from the feds.

Finally,

eToys

(ETYS)

shed 3 13/16, or 7%, to 50 5/16 ahead of competitor

Zany Brainy's

(ZANY:Nasdaq) initial offering, scheduled for tomorrow.

Mergers, acquisitions and joint ventures

Polish cable TV network

@Entertainment

(ATEN) - Get Report

surged 5 9/16, or 44.7%, to an annual high of 18 1/16 on news that Europe's second-largest cable company,

United Pan-Europe Communications

(UPCOY)

, agreed to buy it for $1.15 billion.

Microsoft

(MSFT) - Get Report

has an 8% stake in UPC, which lost 1 1/8 to 58 7/8.

Separately,

Macrovision

(MVSN)

said it received a two-year contract from Microsoft for its SafeDisc PC CD-ROM copy protection program. Macrovision picked up 5 1/2, or 12.6%, to 49 1/4.

Banyan Systems

(BNYN)

swelled 1, or 9.5%, to 11 5/8 after

CBS

(CBS) - Get Report

agreed to take a 35% stake in the company's

Switchboard

Web site for $135 million in promotion and branding across CBS media properties. CBS closed flat at 42 3/4.

British Steel

(BST) - Get Report

advanced 3 13/16, or 17.2%, to an annual high of 26 after the Dutch steel and aluminum firm

Hoogovens

said it was in merger talks with the company.

Geon's

(GON)

flourished 2 3/8, or 7.5%, to an all-time high of 34 1/16 on plans to acquire

O'Sullivan

(OSL)

, a maker of polymer films for the auto and industrial markets. O'Sullivan shot up 2 13/16, or 30%, to an annual high of 12 3/16.

Halter Marine

(HLX) - Get Report

slipped 25/64, or 5.3%, to 6 59/64 while

Friede Goldman

(FGI)

rose 9/16 to 16 15/16 after the two agreed to merge. Halter Marine will exchange each share for 0.46 of a Friede Goldman share.

Metro Networks

(MTNT)

skidded 6 3/16, or 11.2%, to 49 3/4 after agreeing to be bought by

Westwood One

(WON)

in a stock swap valued around $900 million. According to the deal, each Metro share will be converted into the right to receive 1.5 Westwood One shares. Westwood lost 1/8 to 34 7/8.

Provant

(POVT)

grew 1 1/8, or 7.5%, to 16 1/8 after receiving an 18-month contract to provide a diversity training program for about 30,000

Home Depot

(HD) - Get Report

managers.

Texas Instruments excelled 4 5/16 to 110 15/16 after announcing plans to buy Telogy Networks, a privately held Internet telephony company, for $435 million in stock.

Earnings/revenue reports and previews

American Home Products

(AHP)

stabilized after last night's

warning that second-quarter earnings would likely come in about 7 cents below the 25-analyst outlook of 41 cents a share. The drug maker also warned that full-year 1999 earnings would fall about 11 cents shy of the 27-analyst forecast of $1.89 a share. The stock dropped sharply in late composite trading yesterday but bounced back somewhat today, rising 1 13/16 to 53 13/16. AHP earned 39 cents in the year-ago second quarter and $1.78 in 1998. The company blamed a global slump in grain and livestock prices and said it was considering strategic alternatives for its agricultural product and livestock units. Today,

Warburg Dillon Read

cut the stock to hold from buy and

Gruntal

sliced it to buy from strong buy.

Adobe Systems

(ADBE) - Get Report

flew 2 9/16 to 75 1/16 after saying it expects to report second-quarter earnings slightly above its previously estimated range of 62 cents to 66 cents a share. The 11-analyst view called for 64 cents a share. Adobe also said it would take a $15 million restructuring charge to cut about 9% of its worldwide staff.

Fast-food franchiser

CKE Restaurants

(CKR)

tanked 4 5/16, or 23.9%, to 13 3/4 after cutting its first-quarter earnings forecast to 35 cents to 37 cents a share, below the 12-analyst estimate for 45 cents. CKE cited weakness at its

Carl's Jr.

and

Hardee's

chains for the news.

Financial Federal

(FIF) - Get Report

lowered 1/8 to 23 5/16 after posting third-quarter earnings of 34 cents a share, 2 cents higher than the eight-analyst outlook and above the year-ago 27 cents.

iTurf

(TURF)

added 7/16 to 20 after reporting a first-quarter loss of 1 cent a share, a dime narrower than the four-analyst call and a penny wider than last year's break-even quarter.

Analyst actions

AdForce

(ADFC)

plunged 7 3/8, or 25.7%, to 21 9/16 even after

Volpe Brown

started coverage with a buy. Rather understandably, investors cared more that the company lost its third largest customer: Yahoo!'s

GeoCities

.

Software company Marimba slid 10 7/8, or 19.1%, to 46 after Morgan Stanley Dean Witter started it with a neutral rating.

Metro Information Services

(MISI)

dropped 4 15/16, or 20.8%, to 18 1/2 even after

Bear Stearns

started coverage with an attractive.

Sears

(S) - Get Report

added 1 3/4 to 50 7/8 after

Lehman Brothers

raised it to buy from outperform. The firm said it expects the No. 2 U.S. retailer to unveil a more aggressive marketing strategy later this month emphasizing price value after narrowing its vendor base by about 15%.

N/A = not applicable or not available

Miscellany

Sepracor

(SEPR)

slipped 1 1/4 to 62 13/16, off an earlier low of 60, on news the

Food and Drug Administration

issued a warning letter to the company saying it had made "unsubstantiated and misleading" safety and efficacy claims about its recently approved asthma drug

Xopenex

.