High-Tech and Growth Issues Can't Generate Excitement

With Pru's Acampora downbeat on Net stocks and CSFB slamming banks, it's a sodden session on Wall Street.
Author:
Publish date:

Surely like somebody (or something) in the new

Star Wars

movie I haven't seen yet, banking and technology stocks find themselves pinned down by the crossfire of analysts' firepower this morning. The broader market continues to avoid taking a direct hit, but appears somewhat like a listing ship waiting to be torpedoed.

The

Nasdaq Composite Index

was down 55, or 2.2%, to 2465.

Dell

(DELL) - Get Report

,

Cisco

(CSCO) - Get Report

and

Applied Materials

(AMAT) - Get Report

were leading a near-complete retreat among Nasdaq tech bellwethers; the

Nasdaq 100

was down 1.9%.

Meanwhile, Net stocks were getting shellacked amid an ongoing debate about their lofty valuations.

TheStreet.com Internet Sector

index was down 32, or 5.2%, to 591 as industry leaders such as

Amazon.com

(AMZN) - Get Report

,

America Online

(AOL)

,

Lycos

(LCOS)

and

RealNetworks

(RNWK) - Get Report

faltered once again.

Jim Herrick, managing director of trading at

Robert W. Baird

in Milwaukee, said he'd heard a rumor

Prudential Securities

chief technical analyst Ralph Acampora downgraded Internet stocks today.

"That's why we're seeing this tumble," Herrick said. "Two sectors that have led us are letting us down. Throw in the Y2K issue -- a reason for the

Credit Suisse First Boston

downgrade on some money-centers -- and it's carried over" into the broader market.

Acampora was unavailable for comment, but a source at Prudential confirmed the influential technician issued a "cautionary note" on the group to Pru's sale force today. In the internal call, Acampora warned "certain support levels are being tested" by several names in the sector, the source said.

Outside the DOT,

Hauppage Digital

(HAUP)

and

Healtheon

(HLTH)

were each returning some of big gains registered last week, down 16% and 12.9%, respectively. Also,

TheStreet.com Inc.

(TSCM)

, the publisher of this Web site, was down 11.8% and

eToys

(ETYS)

was off 13.9% following some negative comments in

Barron's

.

Downbeat comments from

Donaldson Lufkin & Jenrette

chief investment officer Thomas Galvin were contributing to growth-stock woes. DLJ is raising its weighting in consumer staples to 17% from 11% in the firms' model portfolio. To raise cash to pay for the move, Galvin wrote, he is decreasing the position in technology to 19% from 22%, "in line with the gradual reduction in our technology overweighting since January."

Blue-chip averages fared better early on but have since slipped definitively into negative territory. The

Dow Jones Industrial Average

was down 104, or 1%, to 10,725 after rising as high as 10,856.42 early on.

Financial stocks were under the gun after the above-noted Credit Suisse First Boston unleashed a rare (and dreaded) sell recommendation on

Citigroup

(C) - Get Report

,

Chase

(CMB)

,

J.P. Morgan

(JPM) - Get Report

and

Bank One

(ONE) - Get Report

. The brokerage simultaneously downgraded

BankBoston

(BKB)

to hold from buy.

Not surprisingly, Citigroup and J.P. Morgan were among the Dow's biggest losers after the CSFB downgrade, with

American Express

(AXP) - Get Report

tumbling in sympathy; the

Philadelphia Stock Exchange/KBW Bank Index

was down 3.2%. However, a decline of 3.5% by

Hewlett-Packard

(HWP)

was not expected after the company announced a $2 billion stock buyback program

late Friday.

IBM

(IBM) - Get Report

, meanwhile, was off 2.1% and the single-biggest drag on the Dow; the

Morgan Stanley High-Tech 35

was off 2.2%.

Restrained by many of the same names as well as renewed weakness in airlines, the

S&P 500

was down 18, or 1.3%, to 1313. The

American Stock Exchange Airline Index

was down 2.6% after

BT Alex. Brown

joined a growing line of analysts to downgrade the group.

Meanwhile, small-caps were taking a respite from their recent rally; the

Russell 2000

was down 5 to 444.

"These markets are getting whipped around on fairly light volume," Herrrick said. "We've got a three-day weekend coming up and absent any major news and earnings, you get these swings. Portfolio managers are mainly sitting on their hands trying to get a feel on how the market going to go."

In

New York Stock Exchange

trading, declining stocks were leading advancers 1,719 to 1,081 on 412 million shares. In

Nasdaq Stock Market

activity, losers were leading 2,313 to 1,375 on 515 million shares. New 52-week highs were leading new lows 50 to 26 on the Big Board and 73 to 38 on the Nasdaq.

Applegate Stays the Growth Course

With tech stocks reeling and the

Morgan Stanley Cyclical Index

up 0.7%, it seems investors have struck another blow for value in the growth-vs.-value conundrum. But one of the most successful strategists of recent years is sticking by his growth-stock guns.

"We have cast our lot with those who believe growth will continue to outperform," Jeffrey Applegate, chief investment strategist at

Lehman Brothers

, wrote in a market comment this weekend. "That said, the outperformance of growth to value should be significantly less than it was last year" when value bested growth by "a whopping" 48%.

Applegate expects growth to outpace value by around 9% this year, closer to its annual average since 1980.

"Such a broader market should mean that more active managers will outperform the market," he added. "It could also mean a capitalization-weighted portfolio won't help performance."

Applegate's belief in the power of growth stems mainly from a view "there is an acceleration in global growth and

earnings per share at hand, but not robust enough to support sustained outperformance of value."

Additionally, the long-bullish strategist believes growth stock investors have overreacted to the decision by the

Federal Open Market Committee

last week to adopt a tightening bias. Applegate does not believe the bias change would lead to an actual tightening, but notes higher interest rates -- should they emerge -- "would also inflict significant damage to the equity market overall and, sooner rather than later, cyclical value stocks."

Finally, the bond market's performance through Friday suggests "the bond market is fretting less about the

Fed's

resolve," he wrote.

The trend continued today; the price of the 30-year Treasury bond lately was up 7/32 to 92 27/32, its yield sliding to 5.75%.

Monday's Midday Movers

By Heather Moore
Staff Reporter

As noted above, financial stocks were feeling some temperate pressure from a downgrade to sell from hold on four bank names by Michael Mayo, bank analyst at Credit Suisse First Boston. Mayo cited Y2K worries for the downgrade. Bank One was losing 2 7/16 to 57 1/2, off an earlier low of 56 5/16; Citigroup was losing 3 to 64 13/16; Chase Manhattan was losing 3 5/16 to 75 5/8; and J.P. Morgan was losing 2 7/16 to 136 1/4, off an earlier low of 135 1/2.

In other news:

Avis

(AVI)

was down 4 1/2, or 12.7%, to 30 7/8 on word it's acquiring

Cendant's

(CD)

PHH

and

Wright Express

vehicle-management and fuel-card businesses in a deal valued at $1.8 billion. Cendant was up 1/16 to 19 1/4.

Bank of Ireland

(IRE)

was up 4 1/8, or 5.2%, to 83 5/8 after confirming it's in merger talks with

Alliance & Leicester

.

Telecom Italia

(TI)

was down 9 1/2, or 8.7%, to 99 1/2 after

Merrill Lynch

sliced it to near-term accumulate from buy. Following

Olivetti's

successful takeover agreement with the company Saturday, Italian Prime Minister Massimo D'Alema said Olivetti seemed willing to examine a merger with

Deutsche Telekom

(DT) - Get Report

. That's not what Olivetti seemed to be saying

yesterday, though. DT was flat at 39 1/2.

Texas Micro

(TEXM)

was up 1 5/8, or 35.1%, to 6 1/4 after

RadiSys

(RSYS) - Get Report

agreed to acquire it in a stock swap valued at about $115 million. Texas Micro shareholders will exchange four shares for one RadiSys share. RadiSys was down 2 5/8, or 7.7%, to 31 1/2.

Earnings/revenue movers

American Medical Security Group

(AMZ)

was down 4 7/8, or 35.5%, to 9 after saying it will post a second-quarter charge of $6 million, or 36 cents a share, to strengthen its medical claims reserves. American said it expects full-year earnings to fall below the four-analyst forecast for $1.11 a share.

Motorcar Parts & Accessories

(MPAA) - Get Report

was down 3 3/16, or 29%, to 7 7/8 after saying it sees a "significant" loss for its fourth quarter and possibly for the entire fiscal year. The single-analyst view called for earnings of 37 cents for the fourth quarter, vs. the year-ago 29 cents, and $1.07 for the year, vs. the year-ago $1.16.

ResortQuest

(RZT)

was down 5 15/16, or 40.3%, to 8 13/16 after saying it expects to post second-quarter earnings of 10 cents to 14 cents a share due to an increase in general and administrative expenses. The six-analyst forecast called for 18 cents vs. the year-ago 7 cents.