Remain calm, all is well. The disaster many were expecting failed to materialize.
late Friday has spoiled the punch for many tech investors. A phalanx of brokerages downgraded Compaq, while a separate
BancBoston Robertson Stephens
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
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.
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
; the last was benefiting from an upgrade by
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
, down 5.5%. The
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
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.
was another big winner in Netland, up 11.7% on word of its partnership with
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
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
Donaldson Lufkin & Jenrette
, as well as consumer-focused firms such as
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
was up 3 to 409.
Jay Meagrow, vice president of trading at
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."
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
, 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
growth will continue apace while the
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
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
Investor Sentiment Poll, the respondents were split: 26% were somewhat bearish while 28% were somewhat bullish.
Monday's Midday Movers
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
forecast of 31 cents.
wrote about analysts' response to the debacle late
Morgan Stanley Dean Witter
downgraded the stock to neutral from outperform; BancBoston Robertson Stephens cut it to buy from strong buy;
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
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:
was flying 11 1/2, or 73.6%, to 27 1/8 after
agreed to invest in Internet company
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,
, over seven years. Big Entertainment recently announced an agreement to buy hollywood.com from
Separately, as part of an investment in
, CBS will receive 50% of the equity of
, which operates storeRunner.com, in exchange for about $100 million of promotion and branding support on CBS media over a six-year period.
, the world's second-largest automaker, was up 1 3/8 to 61 15/16 after agreeing to buy
of Britain, a vehicle maintenance and light-repair chain, for $1.6 billion in cash.
was up 6, or 33.6%, to 24 after announcing plans to buy
. After the deal, Equitex will change its name to
and will apply for the symbol NBNK.
Newport News Shipbuilding
was down 3 1/16, or 10%, to 27 11/16 after
The Wall Street Journal
said the Pentagon is expected to block
$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.
was down 6 3/4, or 8.5%, to 72 1/2 after filing with regulators for a 4 million-share offering.
offered his thoughts on the offering in a
column this morning.
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.
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.
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.
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.
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.