Market Shrugs Off Compaq and Intel With Aplomb

The big warning and the big downgrade aren't having a wider effect this midday, as investors look away from tech for leadership.
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Remain calm, all is well. The disaster many were expecting failed to materialize.

True,

Compaq's

(CPQ)

profit warning

late Friday has spoiled the punch for many tech investors. A phalanx of brokerages downgraded Compaq, while a separate

BancBoston Robertson Stephens

downgrade of

Intel

(INTC) - Get Report

on the eve of the chip giant's earnings report hasn't helped matters either. But relative to the news and traders' worst pre-opening fears -- not to mention recent gains -- the declines thus far are downright underwhelming.

The developments this morning apparently caught some market players and TV pundits by surprise. But while valuation of some technology stocks is arguably outrageous, the absence of panic today is not.

First and foremost, Compaq may be a technology stock, but all technology stocks are not Compaq. "Technology" is a grossly overused term and investors do themselves a disservice when they allow the press (or their broker or day-trading cousin) to lump PC makers, software developers, chip and equipment plays, component makers, Internet companies, service providers, et al., into one category.

And the red flag from Compaq -- although late in the cycle and fairly drastic -- was not a total shock. Many analysts had been expecting a warning from Compaq because the PC giant has been struggling for several quarters to simultaneously digest its

Digital Equipment

acquisition and adapt to ever-increasing price competition. Moreover, traders had all weekend to mull the announcement over.

Additionally, "I think people are looking for other forms of leadership," said Bob Basel, director of listed trading at

Salomon Smith Barney

. "Tech is not getting it done,

but people are looking to other areas."

That attitude helped major market averages establish multiple new highs last week, despite ongoing concerns about breadth, and continues to buttress the most widely followed proxies today.

The

Dow Jones Industrial Average

broke into positive territory at midmorning and lately was up 65 to 10,239 after having traded as low as 10,096.69.

Dow gainers were led by

American Express

(AXP) - Get Report

,

United Technologies

and

Caterpillar

(CAT) - Get Report

; the last was benefiting from an upgrade by

Merrill Lynch

.

The

Nasdaq Composite Index

was down half a point to 2592, well off its initial decline as low as 2526.84.

Compaq was down 21.8% and Intel was off 6.3%, leading a retreat in the vast majority of tech bellwethers, such as

Dell

(DELL) - Get Report

, down 5.5%. The

Nasdaq 100

was off 0.7%, the

Morgan Stanley High-Tech 35

was down 2.4% and the

Philadelphia Stock Exchange Semiconductor Index

was off 3.9%.

But while traditional tech investors were grappling with the aforementioned, Internet supporters were strolling merrily along with their business of confounding time-honored rules of investing.

Big gainers this morning include

AboveNet

(ABOV)

,

Net.B@nk

(NTBK)

and

Go2Net

(GNET)

.

TheStreet.com Internet Sector

index was up 52, or 7.1%, to 784 while

TheStreet.com E-Commerce Index

was higher by 3, or 2.5%, to 135.

RealNetworks

(RNWK) - Get Report

was another big winner in Netland, up 11.7% on word of its partnership with

IBM

(IBM) - Get Report

to develop standards for online music transmission.

IBM, however, was down 2.4% and was the biggest drag on the Dow, seconded by fellow tech component

Hewlett-Packard

(HWP)

.

The

S&P 500

was up half a point to 1349, up from its morning low of 1,333.07. Helping offset weakness in tech stalwarts was strength in brokers such as

Merrill Lynch

(MER)

and

Donaldson Lufkin & Jenrette

(DLJ)

, as well as consumer-focused firms such as

Pfizer

(PFE) - Get Report

and

Walt Disney

(DIS) - Get Report

.

The

American Stock Exchange Broker/Dealer Index

was up 2.1% and the

Morgan Stanley Consumer Index

was up 0.7%. As with the Dow, assorted cyclical names were also aiding the S&P 500; the

Morgan Stanley Cyclical Index

was up 1.2% while the

Philadelphia Stock Exchange Gold & Silver Index

was higher by 3.6%.

Amid talk of a long-awaited breakout for small-caps, the

Russell 2000

was up 3 to 409.

Jay Meagrow, vice president of trading at

McDonald

in Cleveland, suggested the morning gyrations will likely recede as the day progresses.

The bounce emerged as investors began "picking away" at the big-cap tech names so hurt at the opening, he said. "People are sitting around, thinking we're at bottoms again. People were talking about how Compaq was cheap at 30 or 31. If you said it then, how can you not say it now?"

But the trader thinks the comeback will falter. "I'm not saying the techs will beat everything else down, but I don't think we'll hold this" rally, he said. "Sellers don't want to sell anymore at these levels. I think we'll end right around flat to 20 down on the Dow. I don't think we'll have a whole lot to do the rest of the day."

In

New York Stock Exchange

trading, declining stocks were leading advancers 1,460 to 1,387 on 450 million shares. In

Nasdaq Stock Market

activity, losers were leading 2,009 to 1,698 on 650 million shares. New 52-week highs were leading new lows by 79 to 51 on the Big Board and by 114 to 83 on the Nasdaq.

Applegate Ups the Ante

Perhaps another factor in the market's performance thus far is word Jeffery Applegate, chief investment strategist at

Lehman Brothers

, upped his 1999 price target on the S&P 500 to 1450 from 1350 and earning estimates to $48.50 from $47.50.

Applegate's increased optimism is based largely on expectations

GDP

growth will continue apace while the

Federal Reserve

will keep the fed funds rate unchanged at 4.75%. The strategist forecast the long bond will trade at 5.25% by year end.

Continuing the rally begun on

Good Friday, the bond was heading in that direction this morning. Of late, the price of the 30-year Treasury bond was up 13/32 to 97 8/32, its yield dipping to 5.44%. (For more on the fixed-income market, see today's early

Bond Focus.)

TheStreet.com's

readers were caught off guard by the market's resilience this morning. A solid 47% said "

all tech stocks will get creamed" when asked to gauge how Compaq's preannouncement would affect the market. Meanwhile, in the weekly

TSC

Investor Sentiment Poll, the respondents were split: 26% were somewhat bearish while 28% were somewhat bullish.

Monday's Midday Movers

By Heather Moore
Staff Reporter

Compaq, the world's largest PC maker, was down 6 13/16, or 21.8%, to 24 3/16 following Friday's warning that it expects first-quarter earnings of 15 cents a share, less than half the 33-analyst

First Call

forecast of 31 cents.

TheStreet.com

wrote about analysts' response to the debacle late

Friday. Today,

Morgan Stanley Dean Witter

downgraded the stock to neutral from outperform; BancBoston Robertson Stephens cut it to buy from strong buy;

Goldman Sachs

dropped it to market performer from its recommended list; and

Credit Suisse First Boston

kept its buy rating on Compaq but lowered its 1999 earnings estimate for the company to $1.25 from $1.70 a share.

In sympathy, Dell was down 2 3/8, or 5.5%, to 41 1/4 and

Gateway

(GTW)

was down 2 15/16 to 69 13/16. Hewlett-Packard was down 3 5/8, or 5.2%, to 66 after BancBoston Robertson Stephens analyst Daniel Niles lowered it long-term attractive from buy. Intel was down 4 1/8, or 6.3%, to 61 3/8 after the firm dropped it to long-term attractive from strong buy.

In other news:

Big Entertainment

(BIGE)

was flying 11 1/2, or 73.6%, to 27 1/8 after

CBS

(CBS) - Get Report

agreed to invest in Internet company

hollywood.com

as part of a joint venture. CBS was up 3/16 to 45 1/8. Big Entertainment will own 65% of the venture and CBS will own 35%. The new venture will receive $100 million in promotion, branding and content from CBS and its radio and outdoor subsidiary,

Infinity Broadcasting

(INF) - Get Report

, over seven years. Big Entertainment recently announced an agreement to buy hollywood.com from

Times Mirror

(TMC)

.

Separately, as part of an investment in

storeRunner.com

, CBS will receive 50% of the equity of

storeRunner

, which operates storeRunner.com, in exchange for about $100 million of promotion and branding support on CBS media over a six-year period.

Ford

(F) - Get Report

, the world's second-largest automaker, was up 1 3/8 to 61 15/16 after agreeing to buy

Kwik-Fit

of Britain, a vehicle maintenance and light-repair chain, for $1.6 billion in cash.

Equitex

(EQTX)

was up 6, or 33.6%, to 24 after announcing plans to buy

First TeleBanc

. After the deal, Equitex will change its name to

Net1Bank

and will apply for the symbol NBNK.

Newport News Shipbuilding

(NNS)

was down 3 1/16, or 10%, to 27 11/16 after

The Wall Street Journal

said the Pentagon is expected to block

General Dynamics'

(GD) - Get Report

$1.4 billion acquisition of the company. General Dynamics was up 1/2 to 67 1/16.

RealNetworks was up 24 3/16, or 11.7%, to 232 1/4 after setting a pact with IBM to develop an application that will enable consumers to receive and process music and related data from the Internet using IBM security features. IBM was down 4 3/8 to 181 15/16.

theglobe.com

(TGLO)

was down 6 3/4, or 8.5%, to 72 1/2 after filing with regulators for a 4 million-share offering.

TSC

columnist

James Cramer

offered his thoughts on the offering in a

column this morning.

Earnings/revenue movers

BB&T

(BBT) - Get Report

was up 7/16 to 73 7/8 after recording first-quarter earnings of 48 cents a share, a penny ahead of the 20-analyst view and above the year-ago 41 cents.

Bear Stearns

(BSC)

was up 7/8 to 50 1/2 after posting third-quarter earnings of $1.42 a share, smashing the five-analyst estimate of $1.15 and moving up from the year-ago $1.09.

Dow Jones

(DJ)

was up 1 5/16 to 49 7/16 after reporting first-quarter earnings of 44 cents a share, beating the nine-analyst estimate by 6 cents and the year-ago figure by 4 cents.

Gannett

(GCI) - Get Report

was down 1 3/8 to 61 7/8 even after reporting first-quarter earnings of 64 cents a share, 2 cents higher than the 13-analyst outlook and above the year-ago 56 cents.

Novellus

(NVLS)

was down 3 1/16 to 60 11/16 even after announcing first-quarter earnings of 25 cents a share, in line with the 18-analyst estimate but down from the year-ago 60 cents.