Market Wraps Up Week at Records, but With Disturbing Complacency

The major volatility indices are hitting multimonth lows, indicating Wall Streeters may be a little too relaxed.
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SAN FRANCISCO -- Forget all this talk about small-caps.

Microsoft

(MSFT) - Get Report

, the monster truck, the big rig, the Godzilla of the great Northwest, rose 5.4% today in an otherwise soporific session. Meanwhile,

General Electric

(GE) - Get Report

, No. 2 in the market-cap pantheon, joined Microsoft on the road to all-time highs, taking major stock proxies along for the ride. That's really all you need to know.

Bill Gates'

wealth-creation machine enjoyed a double-Dutch treat of good news.

The Wall Street Journal

reported the firm may create a tracking stock for its Internet assets, giving the stock a boost at the open. Then, around 1:45 p.m. EDT, wire services ran headlines providing the secondary thrust: A jury in Connecticut federal court found the company not guilty of violating federal antitrust laws.

Microsoft's heavy lifting hoisted the

Nasdaq Composite Index

and

S&P 500

to new highs while the

Dow Jones Industrial Average

piggy-backed on the positive tidings to a record of its own.

However, the averages waffled as Microsoft failed to crack through the 100 level in the immediate wake of the jury decision. A furious level of activity (especially relative to everything else) had the stock bid as high as 99 7/8 but never higher. The software colossus closed up 5.4% to 99 7/16.

The Nasdaq Comp closed up 25.11, or 0.9%, to 2864.48 vs. a session high of 2871.90. Still, the Microsoft-, er, tech-primed index established its third consecutive record and ninth in the past 12 trading sessions.

The index was also aided by strength in

Sun Microsystems

(SUNW) - Get Report

, as well as

PMC-Sierra

(PMCS)

, which leapt 17.6% after posting better-than-expected earnings and receiving an upgrade from

Prudential Securities

. The Nasdaq 100 rose 1.2%, to a record 2459.48.

The S&P 500, meanwhile, rose 9.16, or 0.7%, to a record 1418.78.

The Dow Jones Industrial Average -- which does not count Mister Softee as a component -- rose as high as 11,213.33 before closing up 23.43, or 0.2%, to a record 11,209.84. Naysayers noted the index never threatened its intraday high of 11,236.76, set Tuesday.

In addition to GE, the Dow was led by

American Express

(AXP) - Get Report

,

United Technologies

(UTX) - Get Report

and

International Paper

(IP) - Get Report

.

Chevron

(CHV)

and

Merck

(MRK) - Get Report

were big restraints.

Meanwhile, recent struggles for industry bellwethers continued.

TheStreet.com Internet Sector

index fell 10.98, or 1.7%, to 638.73. Also, the

Russell 2000

slid 0.54, or 0.1%, to 465.26.

However, Internet IPOs had stellar sessions, led by

Paradyne Networks

(PDYN)

, up 231% from its offering price of $17.

"I think the market acts spectacular," said Ned Collins, executive VP of U.S. stocks at

Daiwa Securities America

. "There's been a whole lot of things and this market has taken it. Yes, it's dull and there are things people don't like but it's doing a great job and I think we have a chance to break out on the upside."

The

Federal Reserve

chairman's

Humphrey-Hawkins

testimony next week, tensions between Taiwan and China, recent problems in Latin America and the simple fact that stock averages -- and valuations -- are at all-time highs top most people's worry list.

Collins noted them all, and more. But "I really think it acts well. When you can't take 'em down any more than they've been able to, that's major underlying strength," he said. "Money flows have continued. You talk to specialists they say there's been some good buying" when there is stock being offered.

In

New York Stock Exchange

trading, 714.2 million shares were exchanged while advancers edged out declining stocks 1,453 to 1,448. In

Nasdaq Stock Market

action 1.06 billion shares traded while losers led 2,026 to 1,926. New 52-week highs bested new lows 111 to 29 on the Big Board and by 233 to 31 in over-the-counter trading.

The Pragmatic Bear

Lackluster market internals are another factor of concern mentioned by traders and everybody seems worried about

something

. Maybe that's why the trend is up. (Either Collins is in the minority or more honest about being optimistic.)

However, if market players are concerned, they're not taking action. As

CNBC's

Bob Pisani

noted (credit where credit is due), the

S&P 100 Volatility Index

closed down 7.9% to 18.13 today, levels not seen since around July 17, 1998 -- the summer peak last year, coincidentally or not.

Elsewhere, the widely watched

Chicago Board Options Exchange

put/call ratio totaled 0.37 at the close of trading and expiration today, compared with 0.60 yesterday. This kind of action suggests market players aren't worried after all.

Meanwhile, one died-in-the-fur bear admits being unable to take the pain.

"I'm a bear, but I'm pragmatic," said Aron Thompson, president of

Infinity Investments

, a small hedge fund outside Seattle. "I wish I could go short, but I don't have the stones to do it."

Comparing current valuations to historic patterns is "almost meaningless" because the "marketplace now is completely different" than in 1929, or 1987, or in Japan, Thompson said. "There's so much money going in you have to make radical adjustments to compare to historical P/Es."

Still, "any market with this kind of money momentum, the potential for that to happen in reverse is real strong," he said. "It's just illogical and impossible to pick the top. If you don't you're going to get crucified. Not for a reason anyone suspects, one day it'll just decided it's done and it'll hang itself. It's like a conversion -- like Saul on his horse getting zapped and becoming Paul. I just ain't good enough to pick that spot."

Back in January, Thompson put the roughly $10 million he runs almost entirely into cash.

"I'm a bear mostly in cash and taking a certain percentage of said cash and being speculative," he said.

Capitulating bears and complacency by everyone else. Isn't that supposed to be bad? Hard to make that argument looking at another week of records for major averages.

The price of the 30-year Treasury bond rose 14/32 to 91 4/32, its yield declining to 5.89%.

Among other indices, the

Dow Jones Transportation Average

rose 4.84, or 0.1%, to 3401.87; the

Dow Jones Utility Average

slid 0.33, or 0.1%, to 320.24; and the

American Stock Exchange Composite Index

dipped 3.63, or 0.4%, to 818.10.

For the week, the Dow industrials rose 16.14, or 0.1%; the S&P 500 advanced 15.50, or 1.1%; the Comp jumped 71.42, or 2.6%; the Russell 2000 grew 7.28, or 1.6%; while the DOT lost 26.11, or 3.9%. Additionally, the Dow transports shed 25.45, or 0.7%; the Dow utilities slid 1.47, or 0.5%; and the Amex Composite rose 5.37, or 0.7%.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

lost 7.09 to 7285.60 and the

Mexican Stock Exchange IPC Index

climbed 10.44 to 5886.41. For the week, the TSE rose 1.2% and the IPC lost 0.04%.

Friday'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.

)

Investors were tossed three buying biscuits today to bid up Microsoft. The usual Mister Softee earnings optimism was alive and well ahead of the company's report Monday. The 26-analyst view calls for 36 cents a share. As noted above, the software giant also got a boost from a

Wall Street Journal

story saying the company is closer to creating a tracking stock for its Microsoft Network properties. Microsoft may make an announcement as early as next week, the newspaper said. And then midafternoon came news that a federal jury in Connecticut ruled in favor of the company, saying Microsoft didn't violate antitrust laws in a case involving software firm

Bristol Technology

. The stock popped up 5 1/16, or 5.4%, to an all-time high of 99 7/16 on 57.7 million shares.

Mergers, acquisitions and joint ventures

No one got very excited about the news that

Cyprus Amax Minerals

(CYM)

and

Asarco

(AR) - Get Report

are combining in a $764.2 million stock transaction. Cyprus Amax lowered 9/16 to 14 while Asarco lowered 11/16 to 18 9/16. Cyprus Amax shareholders will get 0.77 of a share of the new company, to be called Asarco Cyprus, for each share of Cyprus Amax held, giving them about a 64% stake in the new company. Asarco shareholders will exchange their stock for Asarco Cyprus shares at a 1-for-1 ratio. Not impressed,

Warburg Dillon Read

cut Cyprus Amax to hold from buy.

Rite Aid

(RAD) - Get Report

rallied 1 1/2, or 6.9%, to 23 3/8 on market chatter the company will be taken out.

Gains from Net deals can disappear as quickly as they come.

Audiohighway.com

(AHWY)

erased 3 1/4, or 13.1%, to 21 3/4 after racing up 19% yesterday after it said it will put together an audiobooks channel on the Microsoft Network site

WindowsMedia.com

.

U S West

(USW)

hopped up 2 7/16 to 60 1/4 after

CNBC's David Faber

said the company's board is expected to approve

Qwest Communications'

(QWST)

$69-a-share takeover offer tonight.

Earnings/revenue reports and previews

Air Products & Chemicals

(APD) - Get Report

sliced off 4 3/8, or 10.6%, to 36 15/16 after it warned that it expects to report third-quarter earnings of 48 cents a share, below the 12-analyst outlook of 56 cents and down from the year-ago 63 cents.

Gillette

(G) - Get Report

picked up 2 1/2, or 5.6%, to 47 1/4 after last night posting second-quarter earnings in line with lowered analysts' estimates. The razor-blade maker earned 26 cents a share, matching the 13-analyst view but falling below the year-ago 33 cents.

Insurance firm

Horace Mann Educators

(HMN) - Get Report

dropped 2 7/16, or 8.4%, to 26 1/2 after warning that its second-quarter earnings will be about 34 cents a share, 16 cents below the six-analyst call and slightly up from last year's 31 cents.

Mercury Interactive

(MERQ)

swelled 7 3/8, or 20.2%, to an all-time high of 43 7/8 after yesterday reporting second-quarter earnings of 18 cents a share, 2 cents on top of the 11-analyst vision and up from last year's 10 cents. The company also yesterday named its CEO and co-founder, Amnon Landan, to the additional post of chairman.

PMC-Sierra climbed 12 5/16, or 17.6%, to an all-time high of 82 1/2 on the heel's of yesterday's hot earnings report. The company said it earned 23 cents in the second quarter, a nickel above the 18-analyst view and up from the year-before 15 cents. Prudential lifted the stock to strong buy from accumulate.

Charles Schwab

(SCH)

shaved off 2 15/16, or 5.3%, to 52 7/16 after it warned that its profit margins may shrink later this year. Schwab posted second-quarter earnings of 18 cents a share, a penny above the eight-analyst view and up from last year's 9 cents.

Seagate Technology

(SEG)

declined 3 7/16, or 11.5%, to 26 9/16 after yesterday reporting fourth-quarter earnings of 30 cents a share, 4 cents below the 11-analyst consensus and up from the previous year's 9 cents.

Morgan Stanley Dean Witter

started the disk drive maker with a cool neutral rating today.

Veritas

(VRTS) - Get Report

flourished 7 15/16, or 14.9%, to an all-time high of 61 3/16 after it yesterday reported second-quarter earnings of 16 cents a share, 2 cents above the 17-analyst estimate and up from the previous year's 8 cents a share.

In other earnings news:

Offerings and stock actions

Efficient Networks

(EFNT)

wasn't done yet. The high-speed DSL firm expanded 7 7/16, or 14.6%, to 58 5/8 after it rocketed about 240% in its trading debut yesterday.

Paradyne Networks soared 39 3/16, or 230.5%, to 56 1/4 in its first day of trading. Lead underwriter

Donaldson Lufkin & Jenrette

priced Paradyne at $17 yesterday, above its $14-to-$16 pricing range.

Elsewhere in new issues,

Audible

(ADBL)

flew 12, or 133.3%, to 21 after

Credit Suisse First Boston

priced its 4 million-share first offering midrange at $9. And

Ravisent Technologies

(RVST)

vaulted 5 9/16, or 46.4%, to 17 5/8 after

Bears Stearns

priced its 5 million-share offering at $12.

Analyst actions

Alcoa added 5/16 to 61 1/16 after

Morgan Stanley Dean Witter

upgraded stock to strong buy from neutral and Merrill Lynch upped it to near-term buy from neutral.

Altera

(ALTR) - Get Report

chopped off 4 1/8, or 9.1%, to 41 1/16 after Morgan Stanley Dean Witter cut the stock to outperform from strong buy. Credit Suisse First Boston started coverage of the stock with a buy and a price target of 53.

PaineWebber

lifted its price target to 52 while maintaining its buy rating. Last night, the company meet earnings estimates of 25 cents a share.

Finova

(FNV) - Get Report

lost 3 3/4, or 7.2%, to 48 11/16 in the face of another downgrade, this time from

J.P. Morgan

, which cut the company to long-term buy from buy. Yesterday

BancBoston Robertson Stephens

cut Finova to long-term attractive from buy on concerns over the financial services firm's profit margins. Finova reported second-quarter earnings of 83 cents a share yesterday morning, in line with the 17-analyst view and up from the previous year's 68 cents.

KN Energy

(KNE)

grew 1 7/16, or 7%, to 21 7/8 after

Banc of America Securities

pushed up the stock to buy from hold.

Natural MicroSystems

(NMSS)

excelled 1 7/16, or 12.9%, to 12 5/8 after

U.S. Bancorp Piper Jaffray

lifted the stock to buy from neutral with a price target of 15, saying "backlog and visibility improved

in the second quarter with strategic accounts leading the way."

Office Depot

(ODP) - Get Report

fell 1 1/2, or 7.4%, to 18 13/16 after Merrill Lynch cut the stock to accumulate from buy. Yesterday, the company met second-quarter earnings expectations of 21 cents a share.

Profit Recovery

(PRGX) - Get Report

tacked on 3, or 7.4%, to 43 5/8 after Merrill raised it to near-term buy from accumulate.

Quantum

(QNTM)

slipped 1 3/8, or 5.1%, to 25 13/16 after

Hambrecht & Quist

cut it to market perform from buy.

Sawtek

(SAWS)

swelled 6 7/8, or 11.7%, to an all-time high of 66 1/8 after U.S. Bancorp Piper Jaffray raised it to strong buy from buy with a price target of 70.

Security Dynamics

(SDTI)

deflated 3 3/16, or 13.4%, to 20 3/4 after Prudential slashed it to hold from accumulate. Yesterday, the company matched earnings estimates of 15 cents a share.

Miscellany

AdForce

(ADFC:Nasdaq) jumped 4, or 16%, to 29.

TSC's

Adam Lashinsky

wrote earlier about how AdForce replaced lost revenue when

GeoCities

ceased to be one of its clients.

GlobeSpan Semiconductor

(GSPN)

grew 3 5/16, or 5.7%, to 61 7/8 on no discernible news.

Staff Reporter

Erin Arvedlund contributed to this story.

As originally published, this story contained errors. Please see Corrections and Clarifications

.