Hope Springs Eternal as Most Indices End Higher

A peculiar trading session ends as market players look for the Fed to remain on the sidelines
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SAN FRANCISCO -- A peculiar session on Wall Street ended with major stock proxies higher, completing the market's best week since the one ended

Aug. 20. Today's performance left traders optimistic, despite the bond market's tepid response to a benign employment report.

The

Labor Department

reported payrolls declined by 8,000 in September vs. estimates for a gain of 218,000. Excluding the effects of Hurricane Floyd, the department said, new jobs would have risen only 50,000. However, the 0.5% gain in hourly wages was 0.2% higher than expected. The unemployment rate was unchanged at 4.2%.

The report fueled hopes the

Federal Reserve

will not raise interest rates at its Nov. 16 meeting (much less before). Nonetheless, the price of the 30-year Treasury bond fell 7/32 to 99 1/32, its yield rising to 6.20%. (Bond trading closed at 2 p.m. EDT today in anticipation of Monday's Columbus Day holiday, during which bonds are shuttered but stocks will trade.)

Today's peculiarities extended to equities, where rising proxies were accompanied by high-profile earning warnings from companies such as

Xerox

(XRX) - Get Report

, which fell 10 1/4, or 24%.

"It's not perfect, but sometimes the market doesn't let you create a perfect story," said Robert Harrington, co-head of block trading at

PaineWebber

. "It's very stock-specific, news-oriented trading as opposed to a complete bull market where it rolls from one group to the next. I thought the employment number was kind of a wash because of the wage number, and bonds handled it that way."

The

Dow Jones Industrial Average

rose as high as 10,655.78 before closing up 112.71, or 1.1%, to 10,649.76.

Dow gainers included

Johnson & Johnson

(JNJ) - Get Report

and

Merck

(MRK) - Get Report

as drug stocks were strong overall. The

American Stock Exchange Pharmaceutical Index

jumped 4% to 382.10.

The drug index's break above 370 was technically significant and sparked "good momentum," Harrington said, noting that

American Home Products'

(AHP)

settlement in the fen-phen lawsuit was "psychologically helping"; AHP rose 3.7%. Finally, drugs are "a safe place to be" amid "select profit-taking" in technology, he said.

Indeed,

IBM

(IBM) - Get Report

was the Dow's biggest negative influence, falling 2.5% after

Goldman Sachs

cut its earning estimates. Concern about IBM's profitability followed recent profit warnings by several companies with which IBM has distribution deals. Today,

BMC Software

(BMCS)

warned and fell 5.9%. BMC, like IBM, is a vendor of systems management software. The worry spread to

Unisys

(UIS) - Get Report

, which fell 4.6%.

The tech sector also got hit by weakness in chip equipment stocks.

Hi/fn

(HIFN)

stumbled 49.4% after warning of a first-quarter slowdown. Rival

PMC Sierra

(PMCS)

shed 10.4%. The

Philadelphia Stock Exchange Semiconductor Index

lost 2.4%.

Rattled by the aforementioned, the

Nasdaq Composite Index

fell as low as 2825.86 in early trading. But the tech-before-dishonor index rebounded smartly to close up 25.89, or 0.9%, to 2886.59, less than a point below its all-time high.

TheStreet.com Internet Sector

index followed a similar path, closing up 9.57, or 1.3%, to 732.79 after trading as low as 708.75.

The

S&P 500

rose 18.38, or 1.4%, to 1336.02 as strength in drug makers, retailers and airlines, overshadowed weakness in select techs and energy.

The

American Stock Exchange Airline Index

rose 1.9% thanks to a $1.65 decline in crude prices to $20.80 a barrel and positive comments from

Donaldson Lufkin & Jenrette

. The

American Stock Exchange Oil & Gas Index

and

Philadelphia Stock Exchange Oil Service Index

each fell more than 1.6%. Meanwhile, the

Morgan Stanley Cyclical Index

rose 1%.

The

American Stock Exchange Retailing Index

rose 4.3% following strong same-store sales reports from industry leaders such as

Dayton Hudson

(DH)

, which rose 5.7%. However,

Abercrombie & Fitch

(ANF) - Get Report

tumbled 14% amid concerns about its future growth.

Among financials, the

Philadelphia Stock Exchange/BKW Bank Index

rose 2.1%. However, the

American Stock Exchange Broker/Dealer Index

shed 1% after

Morgan Stanley Dean Witter

cut its ratings on

Merrill Lynch

(MER)

, down 2%;

Charles Schwab

(SCH)

, lower by 7.3%; and

TD Waterhouse

(TWE)

, which fell 4.6%.

Meanwhile, the

Russell 2000

declined 0.40, or 0.1%, to 427.71.

In

New York Stock Exchange

trading, 897.4 million shares were exchanged while declining stocks led advancers 1,513 to 1,446. In

Nasdaq Stock Market

action 1.04 billion shares traded while gainers led 1,999 to 1,824. New 52-week lows bested new highs 131 to 43 on the Big Board and by 101 to 92 in over-the-counter trading.

Differing Takeaways

Harrington's "takeaway" from today is there were a lot of market players "fearful" that Dow 10,550 and S&P 1330 would prove to be short-term tops. The close above those levels "could get some momentum back in the market," he said. "I don't think anything will happen with rates. It seems to me the market is OK. November to April is historically when the market performs best. Maybe we're gearing up for that."

But a contrasting view comes from Richard Williams, vice president and analyst at

Jefferies

.

"Today shows we're trying to complete a short five-day pattern that suggests we have a little more upside before it reverses down," Williams said. "We're not quite to point where the downside begins, but it could begin anytime."

Williams sees the major averages "in a terminating wedge pattern, suggesting the "sideways action of the market" is set to expire, leading to "a new trend down."

The decline could potentially take the S&P as low as 1000 and the Dow as low as 9000 in the coming weeks, he said. The Nasdaq is the "least bearish" of the major averages, "but if it does turn it will be pretty nasty."

Most likely, the declines will be similar to those experienced from the July 16 high to the low on Aug. 10, or roughly 10% to 12%, Williams said.

"My best take is that this correction will be slightly larger than last year's, but once it's done, it sets up potentially another run up that could take us to new highs," he said.

Among other indices, the

Dow Jones Transportation Average

gained 34.79, or 1.1%, to 3081.71; the

Dow Jones Utility Average

rose 1.31, or 0.4%, to 299.67; and the

American Stock Exchange Composite Index

dipped 2.87, or 0.4%, to 781.49.

For the week, the Dow gained 3.7%, the S&P rose 4.1%, the Nasdaq leapt 5.5%, the Russell rose 1%, the DOT soared 13.2%, the Dow transports jumped 7.4%, the Dow utilities dipped 0.6% and the Amex Composite shed 0.6%.

Elsewhere in North American equities today, the

Toronto Stock Exchange 300

gained 41.94 to 7105.40 and the

Mexican Stock Exchange IPC Index

slid 69.40 to 5253.08. For the week, the TSE rose 5.1% and the IPC jumped 5.5%.

Friday's Company Report

By Tara Murphy
Staff Reporter

(

Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified. New highs and lows on a closing basis unless otherwise specified.

)

Mergers, acquisitions and joint ventures

DuPont's

(DD) - Get Report

DuPont Pharmaceuticals

division said it bought the global marketing rights and patent for a chemical compound called

Definity

through its purchase of

ImaRx Pharmaceuticals'

outstanding shares. DuPont plans to sell Definity as the first ultrasound contrast agent for heart, liver and kidney imaging in the U.S. Shares of DuPont climbed 1 7/8 to 67 1/4.

Separately, DuPont announced plans to spend $51 million to boost its operations in Kinston, Ontario.

Warburg Dillon Read

initiated coverage of DuPont with a hold rating.

EMC

(EMC)

said its merger with

Data General

(DGN)

should close shortly since it received regulatory and shareholder approval. EMC slipped 1/2 to 73 1/8, while Data General mounted 7/16 to 22 13/16.

KPN Telecom

announced its plans to team up with

Oracle

(ORCL) - Get Report

to sell business software packages on the Internet to small or mid-sized businesses in the Benelux. Oracle shares fell 9/16 to 45 1/4.

Phelps Dodge

(PD) - Get Report

said it would not up its $1.13 billion cash and stock bid for

Asarco

(AR) - Get Report

, after

Grupo Mexico

raised its original offer to $1.17 billion in cash. Shares of Phelps Dodge popped 1 5/8 to 56 1/16, while Asarco stumbled 7/16 to 29 5/16.

Separately, Asarco said it plans to meet with Grupo Mexico to talk about the new offer.

Polaroid

(PRD)

said it would sell its graphic business to

Andlinger

and assume a third-quarter charge of $40 million. Polaroid said the division has been losing roughly $10 million a year, for the last several years. After the deal's completion in the fourth quarter of this year, the division will be known as

PGI Graphics Imaging LLC

. Shares of Polaroid declined 1/18 to 27 3/8.

Providian Financial

(PVN)

shot up quickly and remained strong all day, at one point up as much as 17 before closing up 9, or 10.2%, to 97. Analysts were befuddled to explain the surge, leading some to wonder whether the credit card giant was about to announce a settlement with the

San Francisco District Attorney's

office, which has been investigating Providian for allegations it overcharged thousands of clients for late fees. But the rumor of a settlement apparently was just that.

Volvo

(VOLVY)

is buying a 5% stake in

Mitsubishi Motors

of Japan and forming a strategic truck and bus alliance. Volvo stumbled 3/16 to 28 1/16.

Earnings/revenue reports and previews

Analogic

(ALOG)

posted fourth-quarter EPS of 30 cents, greatly missing the single-analyst estimate of 45 cents and the year-ago 56 cents. Shares of Analogic slumped 2 1/2, or 8.6%, to 26 5/8.

Clark/Bardes

(CLKB)

said it expects to post third-quarter earnings of 8 cents to 10 cents a share, missing the five-analyst estimate of 15 cents and the year-ago 11 cents. Clark/Bardes was halted just after 3 p.m. EDT, last trading at 17 11/16.

Consolidated Papers

(CDP)

mounted 1 15/16, or 6.9%, to 29 7/8 after it posted third-quarter earnings of 21 cents a share, well ahead of the 10-analyst estimate of 15 cents and above the year-ago 19 cents.

Ericsson's

(ERICY)

new handset models could lead to stronger fourth-quarter results compared with those in the second quarter and boost earnings in 2000, according to a

Reuters

report. Ericsson shares bounced 1 7/8, or 5.9%, to 34.

First Virginia Banks

(FVB)

hopped 5/16 to 45 7/16 posted third-quarter earnings of 69 cents a share, in line with the 11-analyst estimate of 69 cents and up from the year-ago 62 cents.

HA-LO Industries

(HMK)

tumbled 13/16, or 13.6%, to 5 1/8 after it said that it expects to post a third-quarter loss of 3 cents to 5 cents, greatly below the nine-analyst estimate of a 9-cent profit, and the year-ago 17-cent gain.

Hi/fn, whose stock got crushed yesterday, said it expects to report fourth-quarter earnings above the five-analyst estimate of 37 cents. Hi/fn said, after its shares were halted on the

Nasdaq Stock Market

, that after a 30% price decline, two major customers had sliced their specialty semiconductor orders for the fourth quarter.

SG Cowen

and

BancBoston Robertson Stephens

cut their ratings on the shares to neutral from buy and long-term attractive from buy, respectively. Shares of Hi/fn plummeted 36 9/16, or 49.4%, to 37 3/4.

Idec Pharmaceuticals

(IDPH)

fell 1 1/4 to 104 1/2 after it said it anticipates posting third-quarter earnings of 42 cents a share, beating the 11-analyst estimate of 41 cents a share and the year-ago 8 cents.

Landmark Systems

(LDMK)

slid 2, or 22.5%, to 6 7/8 after it said it expects to post third-quarter earnings of 1 cent to 2 cents per share, greatly below the two-analyst estimate of 16 cents a share.

M&T Bank

(MTB) - Get Report

skidded 4 1/16 to 465 after it reported third-quarter earnings of $8.29 a share, beating the three-analyst estimate of $8.25 and the year-ago $6.81.

RPM

(RPM) - Get Report

stumbled 1/16 to 12 13/16 after it posted first-quarter earnings of 31 cents a share, in line with the six-analyst estimate and up from the year-ago 29 cents.

SLI

(SLI)

declined 7/16 to 11 after it warned it expects third-quarter earnings to come in at 20 cents to 25 cents a share, below the seven-analyst estimate of 35 cents. For the full year, before restructuring and other charges, the company expects to post earnings of $1.36 to $1.46 a share, below the seven-analyst estimate of $1.72.

Retailers' September same-store sales were up, with discount chains in the lead, according to

The Wall Street Journal

. The newspaper reported that some analysts plan to up their earnings estimates for

Wal-Mart

(WMT) - Get Report

,

Dayton Hudson

(DH)

and

Costco

(COST) - Get Report

as a result of the strong sales. Shares of Dayton Hudson hopped 3 11/16, or 5.6%, to 68 11/16 and Wal-Mart advanced 1/4 to 16 1/8, while Costco jumped 4 9/16, or 5.8%, to 82.

Xerox slumped 10 1/4, or 23.9%, to 32 1/2 after it warned that it expects to post essentially flat revenue for the third quarter and see about a 10% to 12% slump in earnings compared with the year-ago 53 cents a share. The 13-analyst consensus estimate called for the company to earn 58 cents a share in the quarter. Xerox blamed weaker revenue in combination with an unfavorable product mix and heightened competitive pressures.

Prudential Securities

lowered its rating on Xerox to accumulate from buy, while cutting its fiscal 1999 and 2000 earnings estimates to $2.42 from $2.57 a share and to $2.70 from $2.85 per share, respectively.

PaineWebber

also cut its rating to neutral from buy, while

Goldman Sachs

removed the stock from its recommended list and rated it a market perform.

Separately,

Credit Suisse First Boston

upped its rating on the stock to a buy to a hold.

York Research

(YORK)

slipped 3/16 to 4 after it reported second-quarter earnings of 3 cents a share, beating the single-analyst estimate of 1 cent, but down from the year-ago 14 cents.

Offerings and stock actions

J.P. Morgan

, Goldman Sachs and

Salomon Smith Barney

priced a 14 million-share offering for

AES

(AES) - Get Report

at $57.1875 a share. Shares of AES tumbled 15/16 to 56 1/4.

Aetna

(AET)

slipped 3/16 to 52 1/2 after it announced it plans to set a $1 billion-share repurchasing plan. Separately, another lawsuit against Aetna was filed yesterday in Mississippi federal court, claiming that the HMO denied participants care.

Donaldson Lufkin & Jenrette

,

Banc of America

, and

Deutsche Banc Alex.Brown

priced a 7 million-share IPO for

E-Stamp

(ESTM)

above range at 17. Shares of E-Stamp jumped 5 3/8, or 31.6%, to 22 3/8.

Genentech

(DNA)

said

Roche Holdings

plans to sell 20 million shares of Genentech stock in an underwritten public offering, which will represent 15.6% of the company's outstanding common stock. The company also said its board approved a 2-for-1 stock split. In the wake of the planned offering, Roche's economic and voting ownership of Genentech will be trimmed to about 65%. In conjunction with the offering, Roche also plans to issue U.S. dollar-denominated bonds exchangeable with Roche for up to about 5.5 million shares of Genentech stock owned by Roche. Shares of Genetech plummeted 15 1/16, or 8.7%, to 157 3/4.

Interwoven

(IWOV)

soared 23 7/8, or 140.4%, to 41 in its trading debut. Credit Suisse First Boston priced the 3.2 million-share IPO above-range at $17 a share.

Jupiter Communications

(JPTR)

leapt 14 1/2, or 69%, to 35 1/2 on its first day. DLJ priced the 3.1 million-share IPO above-range at $21.

K-Swiss

(KSWS)

set a $25 million-share repurchasing plan. K-Swiss fell 1/8 to 17.

Bear Stearns

priced

TriZetto Group's

(TZIX)

4.2 million-share IPO at $9, the low end of the estimated $9 to $10 range. TriZetto shares were unchanged at 9.

Analyst actions

PaineWebber initiated coverage of

Automatic Data Processing

(AUD)

and

Tanning Technology

(TANN)

with buy ratings. Automatic Data Processing shares were up 3/4 to 44 15/16, while Tanning shares added 15/16 to 45 1/8.

DLJ raised its ratings on

AMR

(AMR)

and

Northwest

(NWAC)

to outperform from market perform. AMR shares gained 1 1/2 to 62 7/8, while Northwest mounted 11/16 to 29 1/16.

Merrill Lynch initiated coverage of

Applied Micro Circuits

(AMCC)

with near-term accumulate, long-term buy ratings. Shares of Applied Micro cratered 6 5/8, or 8.7%, to 68 15/16.

Credit Suisse First Boston initiated coverage of

CD Radio

(CDRD)

as a buy. Shares of CD Radio bounced 1 7/16, or 5.6%, to 27.

Warburg Dillon Read

rolled out coverage of

Cytec Industries

(CYT)

with a buy rating. Cytec skidded 3 7/16, or 12.2%, to 24 9/16.

Warburg Dillon Read raised its rating on

Dow Chemical

(DOW) - Get Report

to buy from a hold and set a price target of 130. Dow popped 15/16 to 115 3/4.

Warburg initiated coverage of

Engelhard

(EC) - Get Report

with a strong buy rating. Engelhard advanced 3/8 to 18 15/16.

PaineWebber upped its rating on

Ferrellgas

(FGP) - Get Report

to buy from attractive. Ferrellgas stumbled 1/16 to 16 3/8.

BancBoston Robertson Stephens upped its rating on

Harbinger

(HRBC)

to long-term attractive from market performer. Shares of Harbinger added 1 5/8, or 8.1%, to 21 11/16.

Merrill Lynch added

Infinity Broadcasting

(INF) - Get Report

to its

Focus One

list. Infinity advanced 5/8 to 31 3/4.

PaineWebber started

Keane

(KEA)

and

Perot Systems

(PER) - Get Report

with neutral ratings. Keane slid 7/16 to 21 7/8, while Perot shares bounced 1/8 to 18 1/2.

Morgan Stanley

raised its rating on

Kennametal

(KMT) - Get Report

to outperform from neutral. Shares of Kennametal climbed 1 15/16, or 7.4%, to 28.

Morgan Stanley Dean Witter sliced its rating on

Merrill Lynch

(MER)

and

TD Waterhouse

(TWE)

to neutral from outperform. Morgan Stanley also downgraded

Charles Schwab

(SCH)

to neutral from outperform. Shares of Merrill Lynch slid 1 7/16 to 68 9/16 and TD Waterhouse fell 5/8 to 12 7/8, while Schwab declined 2 3/16, or 6.1%, to 33 9/16.

ING Barings

rolled out coverage of

priceline.com

(PCLN)

with a strong buy rating. Shares of priceline bounced 1 3/8 to 73 3/4.

Goldman Sachs upgraded shares of

Southern Peru Copper

(PCU)

to market outperformer from market performer. Southern Peru hopped 1 3/16, or 7%, to 18 1/16.

Merrill Lynch started coverage of

TranSwitch

(TXCC)

with a near-term and long-term accumulate. TranSwitch shares declined 9 1/8, or 15.7%, to 49.

Goldman Sachs upped its rating of

Tredegar

(TG) - Get Report

to market outperformer from market performer. Shares of Tredegar jumped 5/8 to 22 7/8.

Goldman Sachs raised its rating on

Plains All American

(PAA) - Get Report

to its recommended list. Shares of Plains were unchanged at 18 1/2.

Lehman Brothers began coverage of

PMC-Sierra

(PMCS)

with a buy rating. PMC-Sierra was slumped 10 3/8, or 10.3%, to 89 1/2.

DLJ began coverage of

Starwood

(HOT)

with a market perform rating and sliced its rating on

Marriott

(MAR) - Get Report

to market perform. Shares of Starwood were down 1/4 to 20 11/16, while Marriott slipped 5/16 to 31 11/16.

PaineWebber its rating on

Southwest Air

(LUV) - Get Report

to attractive from buy. Shares of Southwest fell 5/16 to 17 13/16.

Salomon Smith Barney sliced its rating on

Vitesse Semiconductor

(VTSS)

to outperform from buy, in the wake of Hi/fn's announcement of fiscal 2000 first-quarter earnings woes. Hi/fn supplies components to Lucent, which gives Vitesse 20% of its business. Vitesse slid 3 13/16 to 82 3/8.

Miscellany

Ford

(F) - Get Report

and the

UAW

are still in talks to reach an accord before tonight's 11:59 p.m. strike deadline, the

Journal

reported. According to the newspaper, negotiations have been hindered by Ford's desire to spin off its

Visteon

parts division. Ford shares bounced 3/4 to 52 1/8.

IBM

(IBM) - Get Report

declined 2 7/8 to 113 1/2 announced its plans to combine its consumer PC business into its broader PC operation, cutting its workforce by 500 to 1000 jobs.

Mattel

(MAT) - Get Report

CEO Jill Barad told the company's board that she did not fully understand what was wrong at the company's

Learning Co.

division, but assured the board that she would produce a full accounting in the near future, the

Journal

reported. Mattel fell 1/2 to 11 13/16.

An advisory board said it will recommend that the

Food and Drug Administration

approve

Pfizer's

(PFE) - Get Report

anti-depression remedy

Zoloft

to treat post-traumatic stress disorder. Shares of Pfizer mounted 7/8 to 39 1/2.

Wendy's

(WEN) - Get Report

said it plans to shut down seven restaurants in the U.K. as a result of high real estate and operating costs. The company said the closures would not have a negative impact on fourth-quarter earnings. Shares of Wendy's were up 1/16 to 26.

Staff reporter

George Watson contributed to this story.