Home on the Range: Rock-Solid Bond Launches a Mild Stock Rally

All's clear as long as the 30-year yield stays around 6%, traders seem to have decided.
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There's a school of thought, prevalent among strategists not only on Wall Street but at the

Federal Reserve

as well, that by looking at earnings and bond yields you can come up with a pretty good idea of where stocks should be. Most people who take that line of thinking see stocks as overvalued by 30% or more.

While there may at some point be some sort of reversion to the mean that brings valuations in line -- either through a quick selloff or a long and grinding market that doesn't get much of anywhere -- in day-to-day trading on Wall Street, where bond yields happen to be isn't nearly as important as what bonds happen to be doing.

"The market's in a frame of mind that as long as the

long bond yield is in a range of 6%, plus or minus 0.1%, that's OK," said Jon Olesky, head of block trading at

Morgan Stanley Dean Witter

. "It isn't necessarily a negative for the market as long as it stays within that range."

Stocks have shown just how much they're keying off that range today, falling at the open this morning when the bonds sold off, pushing the 30-year's yield up to 6.1%, and then recovering as the bonds bounced back.

Still, the market is pretty tentative as investors try to handicap how much of what is expected to be a good earnings was discounted in the recent rally. "It's going to be a good quarter," said Richard Cripps, chief market strategist at

Legg Mason

. "How much this is in current stock prices is the question we're all asking. If the market doesn't respond favorably to earnings, we're probably in for a lower third quarter for stock prices."

This concern, and worries about valuation levels, prompted Cripps to cut his stock allocation to 55% from 60% earlier this week, going to what for him is a neutral stance.

With the yield lately at 6.03%, the

Dow Jones Industrial Average

was lately up 11.09 to 11,198.45. The

S&P 500

was up 5.5 to 1401.36 and the

Nasdaq Composite

was up 26.64, or 1%, to 2,769.68.

TheStreet.com Internet Sector

index was up 13.67, or 2.1%, to 667.52 and the

Russell 2000

was up 0.1 to 452.7.

Decliners were outpacing advancers 1,484 to 1,238 on the

New York Stock Exchange

, with 423 million shares changing hands. There were 79 new highs against 23 new lows. In

Nasdaq Stock Market

action, advancers led decliners by a slight margin on 560 million shares. There were 111 new highs against 19 new lows.

Thursday's Midday Watchlist

By Heather Moore
Staff Reporter

Stocks of retailers announcing June same-store sales were mixed in reaction to the reports.

  • Consolidated Stores (CNS) - Get Report was falling 7 7/16, or 31.8%, to 15 15/16 after saying it expects to post a second-quarter loss of 2 cents to 4 cents a share, below the 13-analyst estimate of earnings of 6 cents. Its sales figures, up 3.5% over the year-earlier period, didn't seem to matter much.
  • Federated Department Stores (FD) was falling 1 1/16 to 55 13/16 despite sales that rose 8.4%.
  • Gap (GPS) - Get Report was rising 1 1/4 to 50 7/8 on a 13% sales gain.
  • Kmart (KM) was falling 1/8 to 16 1/4 despite sales up 9.2%.
  • Sears (S) - Get Report was falling 13/16 to 46 3/16 despite sales up 1.9%.
  • Wal-Mart (WMT) - Get Report was rising 3/16 to 48 3/16 on sales up 6.5%.

Salomon Smith Barney

announced its "10-plus exceptional names" list -- 15 stocks the firm considers to be attractive investment opportunities for the coming year. They are:

Earnings/revenue reports and previews

General Electric

(GE) - Get Report

was down 5/16 to 117 5/8 after posting second-quarter earnings of 85 cents a share, beating the 13-analyst estimate by a penny and moving up from the year-ago 74 cents.

Airborne Freight

(ABF)

was down 2 3/16, or 8.1%, to 25 after last night saying it sees second-quarter earnings of 45 cents to 55 cents a share, lower than both the 12-analyst prediction of 62 cents and the year-ago 66 cents. The company cited a lack of growth in domestic shipments. Today,

Morgan Stanley Dean Witter

downgraded it to neutral from outperform and

PaineWebber

lowered it to attractive from buy.

Bergen Brunswig

(BBC) - Get Report

was down 1, or 6.2%, to 15 3/16 after last night saying it expects to report third-quarter earnings of 25 cents to 27 cents a share, below the 14-analyst forecast of 31 cents. The company, which made 27 cents in the year-ago period, attributed the expected shortfall to negative industry trends hurting its PharMerica long-term care unit. Today,

Merrill Lynch

cut the stock to long-term accumulate from buy.

Biogen

(BGEN)

was up 3 to 68 before announcing what analysts think will be a stronger-than-expected quarter after today's closing bell. In a note this morning, Salomon Smith Barney analyst Meirav Chovav said she expected the company's multiple sclerosis drug,

Avonex

, to show $150 million in sales in the quarter, above her previous estimate of $143.6 million. She also thinks the biotech concern could earn 34 cents a share, above her 32-cent estimate.

Computer Horizons

(CHRZ)

was down 1 9/16, or 12%, to 11 7/16 after last night saying it expects to report second-quarter earnings of 23 cents to 25 cents a share, which would be below both the six-analyst forecast of 31 cents and the year-ago 34 cents. The company blamed a greater-than-expected market slowdown.

Epicor Software

(EPIC)

was down 1 5/8, or 23.2%, to 5 7/16 after last night saying it expects to post break-even results or a slight loss in the second quarter, citing continuing merger-related sales performance issues and a general slowdown in demand for resource planning software. The two-analyst view called for earnings of 12 cents a share vs. the year-ago 19 cents.

Gymboree

(GYMB)

was down 2 11/16, or 28.7%, to 6 11/16 after last night saying it expects to post a second-quarter loss of 20 cents to 25 cents a share and that quarterly revenue will be flat to 2% below year-ago figures. The 13-analyst prediction called for a loss of 2 cents vs. the year-ago loss of 3 cents. The company, which said its June same-store sales fell 33%, also said it will take a $13.5 million charge in the second quarter after revamping its brand and updating its stores.

Minntech

(MNTX) - Get Report

was down 1 5/8, or 11.7%, to 12 1/4 after last night saying it expects to post first-quarter earnings of 16 cents to 18 cents a share due to flat revenue. The three-analyst view called for 24 cents vs. the year-ago 21 cents. Today, PaineWebber dropped the stock to attractive from buy.

Yahoo!

(YHOO)

was up 3 15/16 to 171 after last night reporting second-quarter earnings of 11 cents a share, topping the 21-analyst estimate by 3 cents and moving ahead of the year-ago 1 cent. Today,

Credit Suisse First Boston

raised its 1999 earnings view to 41 cents a share from 38 cents and its 2000 view to 67 cents from 58 cents.

Offerings and stock actions

Interliant

(INIT)

was up 5 5/8, or 56.3%, to 15 11/16 after Merrill Lynch yesterday priced its 7 million-share IPO midrange at $10. The company is a Web site management company.

Miscellany

Tobacco names were gettin' smoked following yesterday's Florida court ruling. The

American Stock Exchange Tobacco Index

was down 2.7%. In the first class-action lawsuit brought by smokers ever to go to trial, a jury found that cigarette makers are liable for producing a defective product (which one?) that causes emphysema, lung cancer and other illnesses.

Mylan Laboratories

(MYL) - Get Report

was down 1 1/16 to 29 3/16 after a federal judge last night denied its motion to dismiss charges, saying Mylan violated antitrust laws by raising prices up to 3,200%. But the judge did dismiss some state charges.