June 2, 2000

Market Data as of Close, 6/2/00:

o Dow Jones Industrial Average: 10,794.76 up 142.56, 1.34%

o Nasdaq Composite Index: 3,813.38 up 230.88, 6.44%

o S&P 500: 1,477.26 up 28.45, 1.96%

o TSC Internet: 945.42 up 95.50, 11.24%

o Russell 2000: 513.03 up 20.56, 4.17%

o 30-Year Treasury: 104 07/32 down 1/32, yield 5.935%

In Today's Bulletin:

o Midday Musings: Powerful Rally Holds Up as Debate on Future Continues
o Herb on TheStreet: About Those 'Risks' of Owning Internet Stocks

Also on

Wrong! Tactics and Strategies: The Identity of the Sacrificial Lamb

It was an act of desperation. It worked. And now JDS Uniphase is happily back in the fold.

Wing Tips: Northwest and American: Is It Love?

Even if the two airlines do merge, the East Coast would still be wrapped up in the friendly skies of United.

Market Features: Rebound in Tech Sentiment Looks Real, but Can Only Go So Far

The market's recent severe pessimism is dead, but a combination of factors will keep a lid on the upside.

Fixed-Income Forum: Another Foray Into Mortgage-Backed Securities

Reader raise some astute questions about last week's column on Ginnie Mae passthroughs.

Midday Musings: Powerful Rally Holds Up as Debate on Future Continues


Ellen Braitman

Senior Editor

6/2/00 1:25 PM ET


Nasdaq Composite Index and the

Dow Jones Industrial Average continued to soar through late morning trading and into the afternoon, as investors showed enthusiasm for a weaker-than-expected employment report. But some market watchers said fundamentals may not justify the gains.

"I'm not sure we haven't moved too far, too fast," said Matt Johnson, head of Nasdaq trading at

Lehman Brothers

. And Owen Burman, an equity portfolio manager at

Riggs Investment Management

, said the market "couldn't justify these prices two months ago and you certainly can't do it now."

Still, investors were ebullient. The Nasdaq lately jumped 192, or 5.4%, to 3775, having traded as high as 3790.36. The Dow was up 162, or 1.5%, to 10,814, off a high of 10,846.08.

Eight stocks added more than 10 points each to the Dow, led by



, which lately was up 8 3/8, or 6.2%, to 142 5/8, and

J.P. Morgan

(JPM) - Get Report

, which gained 6 11/16, or 5.1%, to 138 5/8.

On the Nasdaq, the biggest gainers include

Infosys Technologies

(INFY) - Get Report

, up 25, or 15.6%, to 185;

Check Point Software

(CHKP) - Get Report

, up 23 1/4, or 11.8%, to 220; and

Juniper Networks

(JNPR) - Get Report

up 18 1/4, or 9.6%, to 207 3/4.

Volume was up compared with the past several days of slowed activity, with 724 million shares changing hands on the

New York Stock Exchange and 1.17 billion on the

Nasdaq Stock Market

. Bob Basel, co-head of listed trading at

Salomon Smith Barney

, said money that's been sitting on the sidelines during the market downturn that preceded this week's rally is now coming back into the market.

And Basel said this morning's downturn in oil and gas, as well as a hit to drug stocks, is a result of investors taking profits they could use to put into financial companies and technology.


Philadelphia Stock Exchange/KBW Bank Index

was lately up 4.2%, while the

American Stock Exchange Oil & Gas Index

was down 2.3%. Johnson of Lehman Brothers said investors perceive that inflation is coming under control and commodity prices will begin to fall.


jobs data

that came out this morning from the

Labor Department

showed that 231,000 new nonfarm jobs were created in May, fewer than the 386,000 that had been expected. And unemployment reached 4.1%, higher than the 3.9% rate that was expected. Some market watchers think the

Federal Reserve may hold off raising rates when it next meets later this month.

Lehman Brothers today lowered its estimate of how much more the Fed will raise the target

fed funds rate this year, saying it expects 50 basis points more before year-end, down from its earlier projection of an additional 75 basis points. The fed funds target now stands at 6.5%, up from 4.75% at the beginning of the tightening cycle last year.

The bond market was continuing to rally on the jobs report, although it was off its best levels of the morning. The benchmark 10-year Treasury was up 17/32 to 102 24/32, its yield easing to 6.19%. The yield earlier came close to the psychologically important 6% level.

In other activity, Internet Sector

index was surging 66, or 7.8%, to 916, and E-Commerce Index

was up 7.4%.

Market Internals

Breadth was strongly positive on both major exchanges, and volume, as mentioned, was going gangbusters.

New York Stock Exchange:

2,157 advancers, 805 decliners, 724 million shares. 90 new lows, 16 new highs.

Nasdaq Stock Market:

2,940 advancers, 975 decliners, 1.17 billion shares. 73 new lows, 22 new highs.

For a look at stocks in the midsession news, see

Stocks to Watch, published separately.

Herb on TheStreet: About Those 'Risks' of Owning Internet Stocks


Herb Greenberg

Senior Columnist

6/2/00 6:30 AM ET

Look, I'm upfront with you guys: Got jammed yesterday and couldn't put together the kind of column you'd like to see. But that doesn't really matter because late Wednesday


wrote a piece about how the big dot-coms would finally have their comeuppance as the little dot-coms, starved for cash, start pulling out of many of their alliances.

That got me to thinking about the column I wrote on

March 10 of last year headlined, "Time to Reflect About the Possible Risks of Internet Stocks." That may have broken the record for generating the highest amount of hostile email


received by this column. (Sent the

Hostile React-O-Meter

to the repair shop after



And they were angry about what, the truth? So, ripping off Cramer's famous rewrites, it's time to take another look at the same column (with my new comments in



If you had paid too much attention to the risks associated with owning Internet stocks over the past year or two (like the ones this column kept harping on), you would have paid a high price in the form of missed opportunity. However, at these levels (words I'll live to regret, no doubt) it might be wise, just for the heck of it, to think about what could go wrong. (Remember


(DELL) - Get Report


Never mind, Dell. As it turns out, while my concerns about Internet stocks may have been early, they didn't necessarily turn out to be wrong.

It's one thing to compare some of these companies to


(CSCO) - Get Report

, which in its earlier days -- when its stock was a rocket -- traded at 10 times forward revenue. It's another to blindly believe in, say, an


(EBAY) - Get Report

at 20 times projected gross annual sales of $1 billion -- and we're being conservative by using gross sales, not actual revenues. If you use actual revs, and generously figure that the company will generate $100 million this year, you're still dealing with a stock that trades at a hefty 200 times forward revs.

eBay wound up going much higher before going much lower. But it has clearly carved out a niche as being the leader of its pack.

The purpose of today's sermon isn't to try to pop bubbles; it's to remind you that every company, especially those that are growing quickly, has risk.

Risk. Back in those days it was a four-letter word.

For example:


: There's no debate that it has rapidly developed a strong brand and loyal following. But it also charges a hefty commission, while an alliance between





does the same thing for free, relying instead on ad revenues. What if eBay is forced to revise its business strategy and switch to advertising? (Of course, you could argue: What if eBay


advertising?) There's also a flood of competition both on- and offline and a risk -- just a risk -- that someone will aggregate local auction sites. How would that affect eBay? (It may never happen, but you've got to consider the possibility.)

Onsale! It was taken out of its misery by (EGGS) . Seen Egghead lately? Splattered.


: Much of its revenue growth has come from sponsorship deals, but the pace of those deals is believed to have slowed and the prices of those deals are believed to have plummeted.


, according to my spies, reportedly did a deal for less than $1 million. ( wouldn't comment.) What if the slowdown continues, or if these deals are done at even paltrier prices?

And look at today: fighting for its life! Not good for future revs to Yahoo!, which, by the way, is the class act in its space.

America Online


: See Yahoo! above. And what happens if subscribers, realizing they can get everything AOL has on the Internet, switch to





(ATHM) - Get Report

or some other provider? And what would happen if international growth were to lag expectations?

Here's a twist: When I move to San Diego I'll have cable access, so I'll be dropping my Earthlink and using what's now called Excite@Home. But I have to be honest: I don't think I can get my family to drop the AOL email.

(AMZN) - Get Report

: What would happen if a company like, say, starts aggressively undercutting Amazon, forcing its margins to fall by half? And Amazon recently raised $1.2 billion in a convertible debt offering. What would happen if it got in a cash squeeze and couldn't make the payments on that loan, or repay that loan? (Just asking.) Eventually it will have to. And Amazon recently bought a stake in


, presumably using borrowed money (see the convertible debt). What happens if doesn't deliver the payback Amazon expects? (Fabulous site, by the way; have you seen it? Unfortunately, there are other good drugstore sites, too.)

As I've written in the past, Amazon's margins are already in trouble, but not because of competition from!


(CNET) - Get Report

: Aiming to raise $173 million in a convert offering (see Amazon, above, for risks); runs a well-respected online tech news publication, but has tough competition on the news-gathering front from



. A risk, no?

Yes, but let's face it, I'm biased on this one: Content is king as long as it generates revenues.

Preview Travel


: Great for making travel reservations, but one of the pickiest of my jet-setting colleagues prefers

in what has become a crowded field. (What if others do, too?)

Preview has since been bought by Travelocity.



: Smart folks; good service. They count the ad spending of other companies as their revenue, for placing those ads on other Internet sites, while the typical ad agency just counts commissions of around 17% as revs for the same service. (OK, DoubleClick tracks who uses the ads, but what if Wall Street finally figures it out and treats it like just another ad agency?!) And what if


, a very large customer, ever decides to do biz elsewhere?

As always, there are risks you never think of, such as the debate over privacy issues, which put DoubleClick in the spotlight. The company, however, continues to chug along despite Alta Vista no longer accounting for a large chunk of revs.





: Both very good services, but what if users migrate to cable or ADSL (if and when it ever becomes available)?

Or what if the two of them merge, which they did! And, remember, I'll be dropping my Earthlink in eight weeks!


Everybody who uses it loves it -- when it works the way it's supposed to. And what happens if the cable companies can't get their acts together and roll out the service any faster? (I'm still waiting, and it's been a year since my cable company said it would be a year.) What if ADSL or some other broadband technology leapfrogs cable? What if, in the end, cable gets too many users and feels like the pre-cable days? (Just a what if.)

DSL has become real competition despite its snafus. Excite@Home, meanwhile, just can't get any respect on Wall Street. At least not right now.



: What if it can't ever overcome being a third-rate service that makes third-rate merger decisions?

Finally getting itself acquired!


Now that


(DIS) - Get Report

owns a big stake in the search service, it's stopped taking porno ads. What if in the process it lost a big chunk of revenue? (Infoseek won't comment on that, other than to say it weighed all the implications of its move.)

Disney has since bought the whole thing. And I ask you this: Do you know anybody who uses I forgot it existed until I wrote that last sentence.

The list could go on, but you get the picture: These are risks that may never materialize. (DID YOU HEAR WHAT I SAID? THEY MAY NEVER MATERIALIZE, SO GO BUG SOMEONE ELSE BEFORE YOU SEND THAT EMAIL!) But just in case they do, this column, as a public service, didn't want you to feel you weren't warned.

Couldn't have said it better myself.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Copyright 2000,