Interest-Rate Worries Keep the Clamps on Stocks

Bonds are plunging, and stocks can't get anything much going with that backdrop. Net issues are hurting again.
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So, you're expecting a 25-basis-point rate hike. What do you do now, hotshot? (Forget the speeding bus.)

At midday, the

Dow Jones Industrial Average

was up 23 to 10.737 while the

S&P 500

was off 5 to 1305. The tech-slathered

Nasdaq Composite Index

was up 7 to 2555, and the small-cap

Russell 2000

was up a fraction to 428.

Those even-Steven indices don't give much evidence of today's early rally, which, not surprisingly, evaporated almost immediately. That's been a persistent pattern in the face of the increasingly conventional wisdom that interest rates are going higher. And it doesn't help that it still isn't clear whether the stock market's priced that hike in yet.

"This is new territory for this market. It's been many years since we saw multiple hikes," said Pete Boockvar, equity strategist at

Miller Tabak Hirsch

. He said that the bond market holds the best key to that question -- and the bond market looks as if it isn't quite done selling off. The 30-year Treasury bond was lately off 24/32 to 87 2/32, its yield rising to 6.21%. (For more on the fixed-income market, see today's early

Bond Focus.)

Boockvar noted that the

Fed funds futures are close to completely pricing in a 25 basis point hike

Robin Griffiths, chief technical analyst at

HSBC James Capel

, said he doesn't see any uptrend ahead of the Aug. 24

Federal Open Market Committee

meeting. "I'm expecting it to drift lower between now and the end of the month," he said. "The rallies have been fierce but short-lived. It's been tough to make any money out of them."

Apart from the market's reaction to the prospect of rising interest rates and equity prices that he described as "too bloody high," Griffiths said the market's basically experiencing a seasonal dip right now, and lot depends on how bad things get at the end of the month.

Getting down to worst-case scenarios -- an excellent pastime on a hot summer day -- Griffiths said that a fall below 10K would be problematic, given investors' intractable affinity for nice, round numbers. But the charts themselves say that 9700 -- the Dow's 200-day moving average -- is a much more crucial support level. Any movement below that will be bad news for U.S. markets, he said.

Griffiths waxed stoic on the recent Net slump. "This isn't the end of the Internet boom. It's just one of many consolidations that all great booms have along the way." He said he sees institutions moving back into Net stocks as they become cheaper and cheaper.

Cheaper they've gotten:

TheStreet.com Internet Sector

index is sitting about 37% below its all-time high. And the interest-rate picture was weighing on the DOT again, sending it down 3 to 495.

As on any normal Monday in August, volume was thin, with 392 million changing hands on the

New York Stock Exchange

and 427 million shares traded on the

Nasdaq Stock Market

.

Thin markets like this are easily yanked around by the movement in the S&P 500 futures. But the futures didn't look like they'd be mustering the energy to make much of a move in any direction approaching midday.

"There's a distinct lack of interest right now," Brad Benshop, vice president of CME equities at

J.P. Morgan Futures

in Chicago, noted in distinctly uninterested tones. With the September S&P 500 futures going through a consolidation phase after falling through the 1327 level, Benshop listed the key support level as 1292. "We keep failing at 11 and continue to chop around." The September contract was lately trading up 1 to 1308.

Benshop said he's more bearish than bullish in the near term. "There's poor breadth and expanding new lows vs. new highs," he said. "The pit's more active on the down days than the up days. And the rallies aren't following through."

Not much was happening to alter that outlook today. Decliners were topping advancers 1,557 to 1,261 on the

New York Stock Exchange

with 139 new 52-week lows against 39 new highs. In

Nasdaq Stock Market

action, decliners were beating advancers 1,880 to 1,723 with 63 new lows and 35 new highs.

Monday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

Data General

(DGN)

was surging 4 3/16, or 31.8%, to 17 7/16 after

EMC

(EMC)

agreed to buy it for $1.1 billion in stock. EMC, lately down 2 13/16 to 57 3/16, will issue 0.3262 share for each Data General share. Based on Friday's closing prices, the deal values Data General at about $19.58 a share. EMC, a provider of enterprise storage systems, software and services, said it expects the takeover to be accretive to its fiscal 2000 earnings and "significantly" accretive to fiscal 2001 earnings.

Mergers, acquisitions and joint ventures

AT&T

(T) - Get Report

lost 1 to 50 11/16 and

America Online

(AOL)

moved up 3 3/4, to 88 7/16 after

The New York Times

said the companies are considering an arrangement that would diminish the role of

Excite@Home

(ATHM) - Get Report

by giving AOL and possibly other Internet providers enhanced access to AT&T's systems. Shares of ATHM sank 3 15/16, or 9.3%, to 38 3/4.

AOL also announced a strategic alliance with

Proxicom

(PXCM)

which will provide AOL 's corporate customers with Internet, extranet, and intranet development services. Proxicom jumped 3 7/8, or 11.8%, to 36 1/2 on the news.

And AOL wasn't done, inking an instant-messaging deal with

Juno Online Services

(JWEB)

that had Juno jumping 2, or 13.7%, to 16 5/8.

American Tower

(AMT) - Get Report

rose 5/8 to 22 3 /8 after it said it is acquiring the rights to 2,100 communications towers from

AirTouch Communications

, a unit of

Vodafone AirTouch

(VOD) - Get Report

. Vodafone AirTouch gained 1 3/8 to 187 5 /16.

Ashland

(ASH) - Get Report

rose 1/16 to 39 1/2 after it made a tender offer to shareholders of

Superfos

, a Danish construction company, at $21 a share.

Cisco

(CSCO) - Get Report

gained 3/4 to 63 after it announced plans to invest $1 billion into

KPMG LLP

, the U.S. division of

KPMG International

. Separately, Cisco is expected to post its fourth-quarter earnings tomorrow. The 30-analyst estimate calls for the company to earn 20 cents a share

General Electric

(GE) - Get Report

lost 7/8 to 106 1/8 after its unit,

GE Medical Systems

, said it was buying

OEC Medical Systems

(OXE)

for $36 a share in stock. OEC Medical rose 1/2 to 34 1/8.

Tandy

(TAN) - Get Report

lost 3 1/16, or 6.9%, to 41 5/8 after the company said it expects to seal an alliance this year with major Internet service provider to sell high-speed Internet connections through its

Radio Shack

retail chain.

Earnings/revenue reports and previews

.

May Department Stores

(MAY)

lost 3/8 to 38 9/16 after it reported second-quarter earnings of 43 cents a share, two cents ahead of the 18-analyst estimate and up from the year-ago 35 cents.

Wal-Mart

(WMT) - Get Report

is expected to post second-quarter earnings tomorrow. The 17-analyst estimate calls for the company to earn 28 cents a share.

Offerings and stock actions

Advanstar

, a business information company, said it canceled its planned $175 million to $231 million IPO, citing adverse market conditions.

HotJobs.com

cut the number of shares and the price-per-share of its upcoming IPO. The company said it will now offer 3 million shares in a $9 to $11 range, down from the original 4.75 million shares in a $12 to $14 range.

Analyst actions

Boston Scientific

(BSX) - Get Report

rose 2 3/4, or 9%, to 32 3/4 after

Prudential Securities

upped the rating to strong buy from accumulate.

Capital One Financial

(COF) - Get Report

added 1/16 to 40 5/8 after

Paine Webber

raised its rating to attractive from neutral.

Dell

(DELL) - Get Report

gained 1 7/16 to 41 1/4 after BancBoston Robertson Stephens upgraded shares to long-term attractive from market performer and set a price target of 48.

Efficient Networks

(EFNT)

lost 2, or 5%, to 39 after

Credit Suisse First Boston

started coverage with a buy recommendation.

Electronic Data Systems

(EDS)

slipped 3/4 to 57 3/4 after PaineWebber raised its rating to buy from attractive.

Household International

(HI) - Get Report

added 5/8 to 40 7/8 after PaineWebber lifted its rating to buy from attractive.

Impac Commercial Holdings

(ICH)

lost 3/16 to 5 11/16 after PaineWebber cut its rating to neutral from attractive.

Priority Health

(PHCC)

shed 4 5/8, or 13.7%, to 29 7/16 after

Lehman Brothers

cut its rating to neutral from buy.

Miscellany

Advanced Micro Devices

(AMD) - Get Report

gained 1 7/8, or 10% to 19 1/4 after it introduced the 650-megahertz AMD Athlon processor, which it said is "the world's fastest and highest-performance microprocessor for x86 computer systems." BancBoston Robertson Stephens raised its rating to buy from long-term accumulate.

Iomega

(IOM)

lost 1/16 to 3 7/8 after it named Philip Husby chief financial officer. Husby held the same position at

Ogden

(OG)

.

MCI WorldCom

(WCOM)

lost 3 3/16 to 78 after setting some new calling plans. Under the MCI 5 Cents Everyday program, callers who pay $1.95 a month would be charged 5 cents a minute on all residential state-to-state long-distance calls made between 7 p.m. and 7 a.m. on weekdays and all day Saturday and Sunday, along with weekday daytime calling for 25 cents a minute. Under another plan, MCI 5 Cents Everyday Plus, the cost would be 5 cents a minute from 7 p.m. to 7 a.m. and 10 cents a minute for weekday daytime calling for a monthly fee of just $4.95.