Market Keeps Feet on Ground but Fails to Reach for the Stars

A negative open didn't shake stocks, but the afternoon rally didn't amount to much, either.
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It's Western front/before-the-storm time on Wall Street these days: quiet and (relatively) calm, that is, with many players bracing for

something

big.

A slouching bond market and more negativity among technology leaders got trading off to a negative start today. But major equity proxies avoided substantial losses early on, then recovered before ending decidedly undecided. Some view the action as evidence of a coming turnaround and new highs for market gauges, while others see disastrous portents. At present, neither argument is able to gain supremacy.

The

Dow Jones Industrial Average

traded as low as 9222.63 early on but fought back above break-even around 1:30 p.m. EST. The index slid again and then rebounded once more to close up 18.20, or 0.2%, to 9324.78 after reaching a session high of 9355.21.

IBM

(IBM) - Get Report

,

Union Carbide

(UK)

and

Merck

(MRK) - Get Report

were the Dow's biggest losers. Gainers were paced by

Caterpillar

(CAT) - Get Report

,

American Express

(AXP) - Get Report

, and

Citigroup

(C) - Get Report

.

The performance of the Dow components reflected broader market trends, as financials and select cyclical names fared best. Notably, the

Philadelphia Stock Exchange/KBW Bank Index

rose 1.7% while the

American Stock Exchange Broker/Dealer Index

gained 1.2%.

Faced with the same cross currents (and a heavier weighting in technology), the

S&P 500

shed 2.17, or 0.2%, to 1236.16, closing off its intraday low of 1222.02. The

Russell 2000

gained 2.13, or 0.5%, to 394.39.

IBM was one of several tech leaders to face investor (and analytical) scrutiny today. Big Blue saw its earnings estimates cut by

Lehman Brothers

, which did the same to

Hewlett-Packard

(HWP)

and

Sun Microsystems

(SUNW) - Get Report

. Additionally,

Donaldson Lufkin & Jenrette

downgraded

Intel

(INTC) - Get Report

, which fell 2.4%.

Most troubling,

Compaq

(CPQ)

said first-quarter sales may be weaker than expected and cut prices on some PCs by as much as 11%. In reaction,

Salomon Smith Barney

and

ING Baring Furman Selz

cut earnings estimates on the PC giant, whose shares dropped 6.2%.

The sum of the aforementioned sent the

Nasdaq Composite Index

as low as 2264.32 at its nadir. But while Intel stumbled, bellwethers such as

Cisco

(CSCO) - Get Report

and

Microsoft

(MSFT) - Get Report

closed with gains. The Nasdaq Comp ended the day up 7.15, or 0.3%, to 2295.18.

The

Nasdaq 100

gained 0.7% while chip and equipment makers (Intel notwithstanding) recovered some of the large losses sustained last week, sending the

Philadelphia Stock Exchange Semiconductor Index

up 1%.

Internet names also recovered from early weakness;

TheStreet.com Internet Sector Index

rose 14.58, or 2.9%, to 525.13, while

TheStreet.com E-Commerce Index

finished up 0.45, or 0.5%, to 97.56.

"You saw rotation out of tech, but I think the sector was fairly resilient today," said Jim Herrick, managing director of trading at

Robert W. Baird

in Milwaukee. "Compaq and Hewlett-Packard were weak again, but they're off their lows and chip makers weren't as bad -- they wanted to bounce. Plus, Internet names were strong. There was some resiliency there and that bodes well for the market."

Herrick noted a "tug of war" between wire houses today regarding technology, with respective upgrades of Hewlett-Packard by

J.P. Morgan

and

Gateway

(GTW)

by

NationsBanc Montgomery Securities

offsetting the aforementioned downgrades.

As for the strong financials, the trader attributed their gains to the fact that rates remain relatively low. With the economy still strong, "the cost of doing business is still low and they're still making money," Herrick said.

As for the overall market, "you're seeing some choppiness right now but the trend is still upward," the trader said. "There are too many positive factors -- low interest rates and inflation, solid earnings and the economy doing well. Plus, Washington is quiet. That bodes well for the market."

In

New York Stock Exchange

trading, a sparse 699.6 million shares traded, while declining stocks edged advancers 1,572 to 1,398. In

Nasdaq Stock Market

activity, 774.9 million shares were exchanged, while losers led advancers 2,206 to 1,850. New 52-week lows led new highs 100 to 19 on the Big Board and by 73 to 46 in over-the-counter trading.

Worrywart at Wheat First

In stark contrast to Lehman Brothers chief investment strategist Jeffrey Applegate -- who upped his 1999 S&P 500 price target, as reported in today's

Midday Musings -- Don Hays, director of investment strategy at

Wheat First Union

in Richmond, Va., announced his asset allocation model has "once again increased the intensity of its defensive signal."

Hays today lowered the model's recommendation to 25% cash, 47% stocks and 28% bonds from an already defensive posture of 51.5% stocks, 38.5% bonds and 10% cash adopted Feb. 15. On

Friday,

TheStreet.com

forecast that a more defensive stance could be forthcoming from the veteran market watcher.

"This is very similar to the action

the model took on Aug. 3, 1998, right before the August selloff," Hays wrote. "Remembering that previous timely warning increases our nervousness."

Reached this afternoon, Hays said: "There's nothing that happened

today to improve the situation," noting the bond market's losses and negative breadth indicators. The price of the 30-year Treasury bond fell 1 10/32 to 93 28/32, its yield rising to 5.67%, its highest level since July 31, as traders reacted to a strong-than-expected report from the

National Association of Purchasing Management

.

"The market has been trying to have an oversold rally. Last week, last

Monday, it tried, but right now it is having a little trouble making any headway," Hays continued. "It has a period of time between now and April -- which is a time of seasonal consolidation -- when it could stay afloat

and it might even go more overvalued. But the market is more and more getting backed into a corner. The market is classically imbalanced and we think in the next one year to year-and-a-half it's going to go through some major period of getting its feet back on the ground."

Unless the market undergoes a "major personality change" with small-caps rising to the fore, Hays said the "minimum" downside risk for the Dow and S&P 500 is 16% with the maximum at 37% to 38%.

"When we make an allocation change we don't say the next day the market is going to plunge, but the risk is extremely high and reward extremely low at this point," he said.

Among other indices, the

Dow Jones Transportation Average

rose 18.43, or 0.6%, to 3225.86; the

Dow Jones Utility Average

slid 2.85, or 1%, to 291.02; and the

American Stock Exchange Composite Index

was unchanged at 698.29.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

lost 10.47 to 6302.22 and the

Mexican Stock Exchange IPC Index

dropped 43.06, or 1%, to 4217.74.

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.

)

Intel stumbled 2 7/8 to 117 1/16, off its session low of 114 11/16, after Donaldson Lufkin & Jenrette analyst Charles Boucher lowered his rating to market perform from buy. Boucher also cut his 1999 earnings estimate to $4.50 from $4.65 a share and his 2000 estimate to $5.30 from $5.45. He also dropped his price target to 160 from 175. DLJ noted that PC growth in the March quarter doesn't seem to be as good as expected and that much of the growth came in PCs priced below $1,000. Intel, meanwhile, cut prices on three of its Pentium II chips by 15% to 20% following Friday's introduction of its Pentium III.

Elsewhere in wounded tech, IBM lowered 1 3/8 to 168 3/8, H-P lowered 1/2 to 65 15/16 and Sun Microsystems lowered 1/8 to 97 1/4 after, as mentioned earlier, Lehman Brothers slashed 1999 earnings estimates by a nickel a share for each company because of fourth-quarter sales concerns.

Salomon Smith Barney downgraded four equipment stocks:

ATMI

(ATMI)

lost 2 7/8, or 12.6%, to 19 7/8 and

Silicon Valley Group

(SVGI)

lost 3/4, or 5.7%, to 12 1/2 after the firm dropped both stocks to neutral from outperform;

Credence Systems

(CMOS)

, dropped to outperform from buy, lost 1 9/16, or 7.5%, to 19 11/16; and

Asyst Technologies

(ASYT)

, dropped to neutral from buy, lost 2 5/8, or 12.2%, to 19.

While saying the above companies may not have the revenue growth "to justify the current valuations," Salomon reiterated buy ratings on

Applied Materials

(AMAT) - Get Report

, which gained 1 3/8 to 57 1/16;

KLA-Tencor

(KLAC) - Get Report

, which gained 2 3/16 to 53 13/16; and

Electro Scientific Industries

(ESIO) - Get Report

, which gained 2 7/16, or 6.7%, to 39 1/4.

Still elsewhere, Compaq skidded 1 27/32, or 5.2%, to 33 17/32 after trimming prices on, among others, its DeskPro PCs by 9% and its Armada notebooks by 11%. Rival Gateway fell 1 11/16 to 71 despite an upgrade to buy from hold at NationsBanc Montgomery Securities.

Dell

(DELL) - Get Report

picked up 7/16 to 80 9/16.

Mergers, acquisitions and joint ventures

CMGI

(CMGI)

hopped 10 7/16, or 8.5%, to 133 3/8 after agreeing to acquire

Internet Profiles

, a provider of Web traffic verification, analysis and research, for an undisclosed amount.

Coca-Cola Enterprises

(CCE)

added 9/16 to 31 9/16 after saying it will buy a French bottling concern in a deal valued at $100 million.

Collagen Aesthetics

(CGEN) - Get Report

shot up 2 9/16, or 23.7%, to 13 3/8 after

Mentor

(MNTR)

offered to buy the company for $126 million, or $14.50 a share. Collagen said it's looking at the offer and will "respond in a timely fashion." Mentor lifted 7/16 to 15 13/16.

Duke Realty Investments

(DRE) - Get Report

slid 7/8 to 20 15/16 after agreeing to buy

Weeks

(WKS)

for $1.7 billion in stock and debt. Weeks grew 1 to 28.

Ingersoll-Rand

(IR) - Get Report

climbed 1 3/4 to 49 3/8 after agreeing to buy closely held

Harrow Industries

for $160 million.

North Face

(TNFI)

soared 3 13/16, or 29.9%, to 16 5/8 after saying its board approved an agreement covering a recapitalization which resulted in CEO James Fifield and

Leonard Green & Partners

acquiring North Face for $17 a share in cash.

Polaroid

(PRD)

gave up 1 5/16, or 5.5%, to 22 9/16 after

The Wall Street Journal

said the company is considering selling four business units that recently were part of its strategy to expand beyond the mature market in instant photography.

RealNetworks

(RNWK) - Get Report

scored 13 9/16, or 19.4%, to an all-time high of 83 5/8 after

GeoCities

(GCTY)

agreed to install the company's streaming media system to simplify audio and video broadcasting on its members' Web pages. GeoCities rose 3 7/8 to 102.

Total Systems Services

(TSS) - Get Report

tripped down 2 3/8, or 10.4%, to 20 3/8 after Citigroup said it won't renew its credit card processing contract with the company. Total said the loss of the contract shouldn't have a "material adverse effect" on fiscal 2000 earnings.

UGI

(UGI) - Get Report

shed 4 3/8, or 21.5%, to an annual low of 15 15/16 after agreeing to merge with

Unisource Worldwide

(UWW)

in a stock swap valued at $1.5 billion. Unisource jumped 1, or 14.3%, to 8. Under the agreement, UGI will issue 0.57 of a share for each Unisource share. Unisource Worldwide stockholders will own about 55% of the combined company.

Earnings/revenue reports and previews

Albertson's

(ABS)

lowered 1 3/8 to 55 5/8 after posting fourth-quarter earnings of 77 cents, in line with the 18-analyst view and up from the year-ago 71 cents.

Harnischfeger

(HPH)

tumbled 1/2, or 6.5%, to 7 3/16 after posting a first-quarter loss of 36 cents a share, in line with the seven-analyst estimate and better than the year-earlier loss of 53 cents.

United Natural Foods

(UNFI) - Get Report

dropped 2 3/4, or 11%, to 22 1/2 even after reporting second-quarter earnings of 29 cents a share, in line with the four-analyst forecast and ahead of the year-ago 24 cents.

Offerings and stock actions

Quantum

(QNTM)

vaulted 3 1/8, or 19.1%, to 19 9/16 after saying it plans to replace its existing stock with two classes of tracking stock to reflect the separate performance of the company's two major businesses: hard disk drives, and DLT and storage systems.

Analyst actions

Among today's financial stars,

BankAmerica

(BAC) - Get Report

flourished 1 7/8 to 67 3/16 after Salomon Smith Barney reiterated a buy after meeting with the company's management last week.

Hutchinson Technology

(HTCH)

swelled 6 3/8, or 20.6%, to 37 3/8 after

Goldman Sachs

initiated coverage by placing the stock on its recommended list and setting a 12-month price target of 60 a share.

IDX Systems

(IDXC)

flew 3 5/16, or 14.1%, to 26 7/8 after ING Baring Furman Selz upgraded the stock to strong buy from buy.

Lehman Brothers

(LEH)

rallied 2 13/16, or 5.3%, to 55 13/16 after DL J upped it to buy from market perform.

MGM Grand

(MGG)

slipped 1/8 to 37 5/8 after

Prudential Securities

cut the stock to hold from accumulate.

Perot Systems

(PER) - Get Report

sloughed off 2 1/8 to 41 3/16 after

Morgan Stanley Dean Witter

started coverage with a neutral.

Warburg Dillon Read

began coverage with a buy and 12-month price target of 50 a share.

Miscellany

eBay

(EBAY) - Get Report

gave up 10 1/4 to 323 on word the government asked the online auctioneer for information as part of an investigation of possible illegal transactions involving eBay's Web site. The stock rose 12% Friday ahead of today's 3-for-1 stock split.

Immunex

(IMNX)

advanced 5 1/4 to 146 5/8 after announcing plans to start expanded Phase II clinical trials of its

Nuvance IL-4

receptor for long-term asthma control in the second quarter of 1999.

Maxxam

(MXM)

plunged 10 5/8, or 18.2%, to 47 7/8 after ending talks to give up logging rights to unspoiled California forests in exchange for as much as $400 million.

Omnipoint

(OMPT)

slipped 5/16 to 11 1/4 after its

Omnipoint Communications

unit unveiled a new pricing plan that will enable customers to make a flat-rate international call from a cellular phone.

Patriot American Hospitality

(PAH) - Get Report

climbed 1/2, or 9.2%, to 5 15/16 on word it's tossing its real estate investment trust status and plans convert to a regular tax-paying corporation. The firm also agreed to an equity investment of $1 billion from an investor group. Patriot, whose shares are paired with those of its operating company,

Wyndham International

, said James D. Carreker, chairman and CEO of Wyndham, was named to the additional position of CEO of Patriot American. Paul A. Nussbaum resigned as chairman and chief executive of Patriot American and was named chairman emeritus. Patriot American also posted fourth-quarter earnings of 22 cents a share, including charges, vs. the year-earlier 35 cents.

Charles Schwab

(SCH)

lost 1 7/8 to 72 11/16 after customers were unable to use the broker's Web site this morning for about 20 minutes. The company also suffered an hour-long breach in Web trading last Wednesday. While Schwab is still investigating the source of the problem, a spokeswoman says it could be related to the system enhancements Schwab is making.

SportsLine USA

(SPLN)

, publisher of

CBS SportsLine

, expanded 4 3/4, or 10.6%, to 49 5/8 after CFO Kenneth Sanders presented at the

20th Raymond James Investor Conference

in Orlando.