Low-Volume Skid Hits Market as Good Earnings Can't Lift Everything

The NYSE turned in its third-lowest volume of the year, with techs sliding while transports zipped higher.
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SAN FRANCISCO -- Tech stocks gave up the ghost while transports rose from the dead today in another session of low volume and volatility. All major averages fell from

Friday's record-setting grace as weakness in big-cap tech names overshadowed earnings-driven strength in airlines and select financials.

Having come the farthest, the fastest, the

Nasdaq Composite Index

suffered the biggest relative decline among the "big three" major proxies, falling 34.19, or 1.2%, to 2830.29.

There was modest weakness in most over-the-counter tech bellwethers, notably

Sun Microsystems

(SUNW) - Get Report

and

Novellus Systems

(NVLS)

, which tumbled 12.4% after posting second-quarter earnings of 31 cents a share, in line with the 20-analyst consensus but down from 46 cents a year ago. The

Nasdaq 100

shed 1.4%.

Also,

Microsoft

(MSFT) - Get Report

dipped 1.1% ahead of its earnings. After the close, the software giant posted fiscal fourth-quarter earnings of 40 cents a share vs. the 27-analyst consensus of 36 cents and year-ago results of 25 cents. Separately,

Ticketmaster Online-CitySearch

(TMCS)

leapt 17.8% on news Microsoft is taking a 9% stake in the company.

In

New York Stock Exchange

trading, bellwethers such as

Motorola

(MOT)

and

IBM

(IBM) - Get Report

also stumbled from recent heights. The

Morgan Stanley High-Tech 35

fell 2.1%. After the close, IBM posted second-quarter earnings of 91 cents a share vs. the 21-analyst consensus of 88 cents and 78 cents a year ago (see below).

Meanwhile, Internet stocks continue to fade.

TheStreet.com Internet Sector

index slid 21.97, or 3.4%, to 616.76 and is now down 22% from its April 12 high of 790.44.

Today's decline was spearheaded by

E*Trade

(EGRP)

, down 7.5%, as online brokers overall tumbled after a critical article in

Barron's

. Outside the DOT,

Charles Schwab

(SCH)

,

Ameritrade

(AMTD) - Get Report

,

DLJdirect

(DIR)

, and

TD Waterhouse

(TWE)

each fell at least 4.8%.

Among blue-chips, the

Dow Jones Industrial Average

fell 22.16, or 0.2%, to 11,187.68 while the

S&P 500

stumbled 11.13, or 0.8%, to 1407.65.

Dow decliners were led by

Johnson & Johnson

(JNJ) - Get Report

and

Coca-Cola

(KO) - Get Report

.

Aiding the Dow and S&P was strength in

Hewlett-Packard

(HWP)

, up 2% after naming

Lucent

(LU)

executive Carly Fiorina as its president and CEO.

Fiorina "handled herself well on the conference call with analysts by giving a nod to H-P's history while implying she can bring new ideas and aggressiveness,"

Merrill Lynch

analyst Steven Milunovich wrote in a midday email. "The stock is getting rich given that H-P is just now getting back into double-digit revenue growth. However, we think our thesis of enterprise hardware vendors as Internet infrastructure plays should not to be underestimated."

Additionally, better-than-expected earnings from

J.P. Morgan

(JPM) - Get Report

,

Citigroup

(C) - Get Report

and

Bank of America

(BAC) - Get Report

had some carryover impact on financials such as

American Express

(AXP) - Get Report

. However, the earning providers traded mixed and the

Philadelphia Stock Exchange/KBW Bank Index

shed 0.4%.

In a story with a happier ending for a group that's been living anything but a fairy tale of late, the

Dow Jones Transportation Average

rose 61.97, or 1.8%, to 3463.84. Better-than-expected earnings from carriers

Alaska Air Group

(ALK) - Get Report

,

Continental Airlines

(CAL) - Get Report

, and

Delta Air Lines

(DAL) - Get Report

aided the average, as did

CSX

(CSX) - Get Report

, which rose 4.6% on reports it is in talks to sell its international container-shipping business. The

American Stock Exchange Airline Index

gained 3.4%.

"The markets were pretty quiet," said one West Coast trader. "It's the usual summertime slowdown. I see some paring down by institutional accounts but don't necessarily see any major selling. It's not super-busy."

The trader, who requested anonymity, referred to himself as a "reserved bull" but observed "we need something significant to knock us. Otherwise, we'll keep chugging along."

In NYSE trading, 645 million shares were exchanged -- the third-slowest session of the year -- while declining stocks led advancers 1,733 to 1,175. In

Nasdaq Stock Market

action 950.2 million shares traded while losers led 2,220 to 1,782. New 52-week highs bested new lows 86 to 33 on the Big Board and by 190 to 41 in over-the-counter trading.

One More Time

With most market players feeling sanguine by the averages' ability to avoid serious declines, John Roque, stock market strategist at

Arnhold & S. Bleichroeder

, continues to fret about action in the bond market.

"I still think the bond market is going to have another leg down," Roque said. "I'm no economist but I can't see why everyone is getting so excited

about last week's

CPI

and

PPI

with oil moving higher. I don't see oil getting weaker and if it doesn't, I think comparisons are going to be harder for the next month."

The strategist observed (as did others) the bond market did not exactly rejoice at last week's apparently favorable economic data, perhaps reflecting the fact oil prices have risen in July indicating August PPI will rise. (Today, crude oil futures dipped 0.8% to $20.45 a barrel.)

Additionally, I've got to believe with business activity so strong, demand for money is great," he said. "That's why I expect bonds to get hit one more time."

Today, the price of the 30-year Treasury bond fell 1/32 to 90 31/32, its yield at 5.90%.

"I am fully invested but I know my risk is in the bond market," Roque continued. "Bull market runs don't stop until bonds get bearish so I have to pay attention, be more vigilant."

As for today's action, the strategist said the dollar's weakening vs. the yen and euro was most noteworthy in a largely quiet session for stocks. The dollar fell 0.48 yen to 118.26 (a five-week low) and by 0.0098 euro to 0.971.

"I don't now how this translates in terms of the market, but it says 'pay attention,'" he said. "When things look this good is when people start to make mistakes

and get careless."

Among other indices, the

Russell 2000

fell 3.89, or 0.8%, to 461.37; the

Dow Jones Utility Average

rose 1.17, or 0.4%, to 321.41; and the

American Stock Exchange Composite Index

lost 0.44, or 0.1% to 817.66.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

slipped 9.64 to 7275.94 while the

Mexican Stock Exchange IPC Index

rose 25.88 to 5912.29.

Hardware Woes Past, IBM Kicks Earnings Butt

It took almost all of 1998, but IBM seems to have put its significant hardware issues behind it.

Huge Cobalt reported second-quarter net income Monday of $1.7 billion, or 91 cents a share, easily beating the

First Call

consensus estimate of 88 cents. In the year-earlier period, the company earned $1.5 billion, or 75 cents a share. Revenue was particularly strong, up 16%, to $22 billion from $18.82 billion.

The reason for the somewhat routine earnings surprise can be attributed to easy year-over-year comparisons.

Compaq's

(CPQ)

early 1998 decision to flood the marketplace with cheap PC's forced IBM to play tit-for-tat. The game cost IBM's PC division $1 billion over the course of last year. In last year's second quarter, IBM reported flat year-over-year revenue and a 13% decline in hardware sales.

This year IBM improved strongly in its hardware division, especially in its PC and RS6000 divisions, and hardware sales shot up 21% on a year-over-year basis. IBM's stock, which was down 1 5/8 Monday to 134 5/8, is up 48% year-to-date.

--

Eric Moskowitz

Monday'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.

)

As noted above, recently sluggish airline names flew high, boosted by solid earnings reports.

Alaska Air climbed 1 3/8 to 43 1/4 ahead of a 3-for-2 stock split tonight and after this morning recording second-quarter earnings of $1.59 a share, topping both the 11-analyst forecast of $1.35 and the year-ago $1.51.

Continental climbed 2 7/8, or 7.5%, to 41 7/16 after reporting second-quarter earnings of $1.80 a share, beating the 12-analyst estimate of $1.73 but falling behind the year-earlier $2.11.

Delta climbed 3 1/8, or 5.3%, to 62 3/16 after posting fourth-quarter earnings of $2.40 a share, 9 cents ahead of the 11-analyst estimate and above the year-ago $2.26.

Even the prewarned

US Airways

(U)

got to join in the fun, rising 1 1/16 to 41 1/4 despite a downgrade to market perform from buy by

Donaldson Lufkin & Jenrette

. Last week, the company warned it would miss second-half earnings estimates.

Mergers, acquisitions and joint ventures

Broadcom

(BRCM)

slouched 3 to 136 3/4 on news it's acquiring privately held

HotHaus Technologies

for $280 million in stock.

CSX grew 2 1/4 to 51 3/16 following a report in

The Wall Street Journal

saying the company is in talks to sell its international container-shipping business to Danish

Maersk

for about $800 million.

CommNet Cellular

(CELS)

picked up 1/2 to 30 5/8 after

Vodafone AirTouch

(VOD) - Get Report

said it's buying the company via its subsidiary

AirTouch Cellular

for $764 million. Vodafone AirTouch lowered 13/16 to 213 7/16.

General Motors

(GM) - Get Report

gave up 3/4 to 68 5/16 on word it's considering exercising an option to complete a takeover of

Saab

, the Swedish carmaker, by acquiring a second half of the company from Sweden's

Investor

.

Stamps.com

(STMP) - Get Report

rallied 5 3/4, or 14.3%, to an all-time high of 46 3/16 after striking a deal to provide computer-generated stamps and postage over

Office Depot's

(ODP) - Get Report

Web site. Office Depot lost 13/16 to 18.

Steven Madden

(SHOO) - Get Report

kicked up 1/4 to 13 7/16 on word it will sell its trendy, clunky shoes on America Online's new shopping site Shop AOL.

Ticketmaster Online-CitySearch expanded 6 1/16, or 17.8%, to 40 1/16 after agreeing to buy the entertainment portion of Microsoft's MSN Sidewalk online city guide in a stock deal valued at $240 million.

Separately,

Firstwave Technologies

(FSTW)

rocketed up 6 13/16, or 389.2%, to an annual high of 8 5/8 after saying Microsoft chose the company's Netgain sales product for its Embedded Systems group.

U S West

(USW)

declined 1/2 to 59 3/4 after accepting

Qwest Communications'

(QWST)

buyout offer. Also,

Global Crossing

(GBLX)

tacked on 1/4 to 46 3/8 after saying it will proceed with its $12.9 billion purchase of

Frontier

(FRO) - Get Report

, which fell 2 3/16 to 56 15/16

Earnings/revenue reports and previews

Service Experts

(SVE)

tanked 7 5/8, or 37.2%, to 12 7/8 after saying it sees second-quarter earnings of 23 cents to 28 cents a share due in part to disappointing results from its light commercial service business and weather-related discounts in its residential business. The 10-analyst prediction called for 50 cents vs. the year-earlier 44 cents.

Total Renal Care

(TRL)

collapsed 4 1/4, or 33%, to 8 5/8 after warning late last night that it expects to post second-quarter earnings of 20 cents to 22 cents a share, below the 10-analyst view of 35 cents. The company, which earned 31 cents in the year-ago period, cited higher operating expenses and lower operating revenue per treatment for services billed out of the company's Tacoma office. The company also said its chairman and CEO, Victor M.G. Chaltiel, resigned.

Viacom

(VIA) - Get Report

shaved off 9/16 to 44 3/16 after reporting second-quarter earnings of 8 cents a share, better than the 15-analyst estimate of 5 cents and moving up from the year-ago loss of 40 cents. Viacom also amended a previously filed registration statement with the

Securities and Exchange Commission

for a proposed 31 million-share IPO for

Blockbuster

, representing approximately 17.7% of its shares. Viacom estimates the IPO price will be $16 to $18 a share.

In other earnings news:

Analyst actions

Aerial Communications

(AERL)

tumbled 1 1/16, or 6.3%, to 15 7/8 after

ABN AMRO

downgraded it to hold from buy based on valuation.

Cybersource

(CYBS)

shot up 4 11/16, or 15.6%, to 34 7/8 after

J.P. Morgan

started coverage with a buy and a price target of 55.

PaineWebber

also started coverage with a buy. Merrill Lynch initiated coverage of the stock with a near-term accumulate and a long-term buy.

Quaker Oats

(OAT)

sloughed off 5/16 to 67 13/16 even after Merrill raised it to long-term buy from accumulate.

Symantec

(SYMC) - Get Report

excelled 2 9/16, or 8.7%, to an annual high of 32 1/34 after

Prudential

upgraded the stock to strong buy from accumulate.

Miscellany

AT&T

(T) - Get Report

advanced 5/16 to 55 13/16 after the

Journal

reported it will start a new Internet company in partnership with Tim Robertson, the son of evangelist

Pat Robertson

. The site aims to give parents a way to screen out pornographic material, hate sites and other information unsuitable for children.

Ford

(F) - Get Report

gave up 1/8 to 53 15/16 after the

Journal

said the company's assessing several initiatives to boost its stock price, including a possible divestiture of its auto-parts unit,

Visteon Automotive Systems

.

Hewlett-Packard flourished 2 1/4 to an all-time high of 116 1/4 after naming Lucent executive Carly Fiorina its new president and CEO. Lucent lowered 1 39/64 to 76 53/64.

Kopin

(KOPN) - Get Report

grew 8 1/16, or 28.9%, to an all-time high of 35 15/16 after

The Journal

said Japan's

Victor

is using a viewfinder made by Kopin in its newest JVC video camera.