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midday07-02-99's MIDDAY UPDATE

July 2, 1999

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Market Data as of 7/2/99, 1:30 PM ET:

o Dow Jones Industrial Average: 11,124.04 up 57.62, 0.52%

o Nasdaq Composite Index: 2,726.38 up 20.20, 0.75%

o S&P 500: 1,387.57 up 6.61, 0.48%

o TSC Internet: 656.63 up 16.48, 2.57%

o Russell 2000: 455.67 up 1.25, 0.28%

o 30-Year Treasury: 89 19/32 up 1/32, yield 5.996%

In Today's Bulletin:

o Midday Musings: Looking to Take Records Into the Weekend, Wall Street Rallies
o Why Silicon Graphics, With Minimal Downside, May Be Looking Up

Also on

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Wrong! Dispatches from the Front: Supply Crunch

Cramer's using weakness in semis and Net names to put some money to work. And he's leaving real soon.

Retail: K-Swiss Jumps Into the Training-Shoe Sweepstakes

The white-shoe sneaker maker makes a bid to insulate itself from the trials and tribulations of fashion.

Europe: The Anglo File: Freeserve IPO Imminent

Dixons Group is getting ready to spin off Freeserve, and analysts have wildly different valuations for the ISP.

The Invisible Mouth: Reworking the Employment Numbers

The Mouth has looked at the data once again, and he still can't figure out why some people disagree with his outlook.

Fixed-Income Forum: How Do I Get the Yield of the Bond Futures Contract?

Technically, it has none. But there's a relationship between the futures' price and the bond's price.

Midday Musings: Looking to Take Records Into the Weekend, Wall Street Rallies


Heather Moore

Staff Reporter

The June

employment report

was about as balanced as the major equity indices for a large part of the morning. Come lunchtime on Wall Street, though, stocks were on pace to celebrate the long weekend with record highs.

The jobs number for June was stronger than anticipated -- the economy added 268,000 jobs, well above expectations for 220,000. But downward revisions to the May report and an uptick in the unemployment rate (to 4.3% from 4.2%, against economists' expectations for it to remain unchanged) helped sooth inflation anxiety this morning. Wages gained 0.4% against expectations of a 0.3% gain. (

looked at the 8:30 a.m. EDT release of the jobs report in an earlier



Dow Jones Industrial Average

recently was leaping 55 to 11,121, near its intraday high and above its May 13 all-time closing record of 11,107.19. With many components of the blue-chip proxy claiming 1-plus-change gains,

American Express

(AXP) - Get American Express Company Report

was gloating as the index's best performer, lately up 3.1%.


Nasdaq Composite Index

was climbing 22, or 0.8%, to 2728, also near its session high and in record territory.


(CSCO) - Get Cisco Systems, Inc. Report


Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

were upside standouts, with the

Nasdaq 100

up 0.6%. Internet Sector

index was rising 15, or 2.4%, to 655, while recently issued Internet names continued to feel the love.

The broader

S&P 500

was up 6 to 1387 and the small-cap

Russell 2000

was up 1 to 456. But the index rallying hardest thus far was the

Dow Jones Transportation Index

, lately up 1.5%. Market watchers said the transports, which have been lagging behind the industrials, were doing some catching up.

"Hey, maybe people just want to go home happy," mused Rosanne Lang, vice president of program trading at

Cantor Fitzgerald

, adding that the jobs numbers weren't "significantly surprisingly strong enough" to change investors' views on the


next move. "You know, they're going on vacation and maybe they're just looking for values, some of those laggers in the fields." Despite the long weekend, the trader still predicts a slight push in end-of-the-day trading.

The 30-year Treasury was up 5/32 to 89 21/32, easing its yield to exactly 6.00%. (For more on the fixed-income market, see today's early

Bond Focus.)

McCabe Offers a Skeptic's Take

Richard McCabe, chief market analyst at

Merrill Lynch

, said that despite Wednesday's Fed decision, the market still is locked in the trading range it began at the end of April.

"We've had two indices make marginal new highs but the net gain is still small," McCabe said. "The momentum has gotten very overbought again, so I think there's a limit to this rally's follow-through." He added that this week's bulls/bears sentiment, at 55.8% to 25.7% (18.5% called for a correction), also renders him skeptical of a new leg upward for stocks.

"There's too much optimism," he continued, "which is not usually an indication of a long-lasting advance. And the low put/call ratios this week haven't been encouraging. Even last week, when the market was going down, the put/call ratio didn't go up -- so I see that as unhealthy. ... But I do think the Fed will put the icing on the cake for the next few trading days."

As for bonds, McCabe said they're in a couple-of-months-long bottoming process, but that they haven't necessarily made a low yet. "That also limits stocks' upside," he said, predicting that bonds might rally in August on a stock decline or possibly on inflation-friendly data. The strategist expects stocks to drop 10% from their highs in July or August, but noted that if we saw a 10-day average of advancers-to-decliners around 2-to-1, he might change his tune.

"Judging from the cars in the parking lot, the people on the train and the few calls I've gotten this morning," McCabe said, it feels like many folks have left early -- or not come in at all -- ahead of the July Fourth three-day weekend. Fridays before long weekends, he said, traditionally treat stocks well.

But for a preholiday session, volume, as

Adam Sandler

would say, is "not too shabby." On the

New York Stock Exchange

advancers were leading decliners 1,476 to 1,298 on 363 million shares. The ups had the downs 2,003 to 1,609 on 519 million shares in

Nasdaq Stock Market

activity. New 52-week highs were outpacing new lows 93 to 29 on the Big Board and 140 to 21 on the Nasdaq.

Friday's Midday Watchlist

By John J. Edwards III
Markets Editor

Earnings estimates from First Call. Earnings reported on a diluted basis unless otherwise specified


Mergers, acquisitions and joint ventures

Brazilian beverage behemoth



was up 2 9/16, or 22.9%, to 13 3/4 after late

yesterday agreeing to merge with Brazil's other bevvy behemoth,


. Brahma shareholders will receive one share of the combined company for each share held while Antarctica shareholders will receive 46.63 share in the new company for each share held.

Glenayre Technologies


was up 1 7/16, or 36.2%, to 5 15/32 after yesterday inking a pact with




AG Communication Systems

to form a venture to sell a platform supporting prepaid wireless telephone call services. Lucent was up 1 7/8 to 69 7/8.

Earnings/revenue reports and previews

Mirage Resorts


was down 1 5/8, or 9.7%, to 15 1/8 after late yesterday warning it expects to report second-quarter earnings of 7 cents to 10 cents a share, below the 21-analyst forecast of 24 cents. The company, which earned 18 cents in the year-ago period, cited competition in the Las Vegas market, low table-games win percentages and a slow start with a new resort in Mississippi.

Deutsche Banc Alex. Brown

dropped Mirage to market perform from buy, and

Donaldson Lufkin & Jenrette

cut it to market performance from top pick.

Down in sympathy were

Mandalay Resort Group


, the former Circus Circus, off 1 3/16, or 5.7%, to 19 3/4; and

Harrah's Entertainment


, off 1 7/16, or 6.7%, to 20 1/8.

ADAC Laboratories


was down 1/8 to 7 1/8 after late yesterday reporting a second-quarter loss of 39 cents a share, in a different millennium that the six-analyst prediction for a 18-cent profit. The company, which made 27 cents in the year-ago period, said it expects third-quarter revenue coming in 12% to 18% below second-quarter revenue. The company cited more stringent revenue recognition policies and increased competition in certain markets.


(CAG) - Get Conagra Brands, Inc. Report

was down 1/16 to 27 1/4 after late yesterday posting fourth-quarter earnings of 41 cents a share, on target with the 15-analyst forecast and above the year-ago 36 cents.

Day Runner


was plunging 2 3/16, or 17.7%, to 10 1/4 after late yesterday warning of a fourth-quarter loss of 14 cents to 18 cents a share. The company blamed tightened inventories. The five-analyst estimate called for earnings of 10 cents vs. the year-ago profit of 39 cents.

Evans & Sutherland Computer


was down 1 7/16, or 10.4%, to 12 1/2 after warning it expects to report a second-quarter loss in the range of 35 cents to 40 cents a share, a world away from the four-analyst consensus estimate of a profit of 11 cents a share.

Food Lion


was up 5/16 to 11 15/16 after late yesterday reporting second-quarter earnings of 14 cents a share, in line with the 14-analyst estimate and a penny ahead of the year-ago figure.

Ha-Lo Industries


was plummeting 3 11/16, or 37.3%, to 6 3/16 after late yesterday warning of a second-quarter earnings shortfall.

Credit Suisse First Boston


Barrington Research Associates

both downgraded the stock to hold from buy.



was down 2 1/16, or 9.4%, to 19 15/16 after warning its 1999 earnings would be $1.55 to $1.65 a share, below the two-analyst consensus estimate of $1.67.

Rogue Wave Software


was down 2, or 21.6%, to 7 5/16 after late yesterday warning that it expects to report third-quarter earnings of 4 cents a share, matching the year-ago figure. The four-analyst outlook called for 13 cents. Rogue Wave blamed poor European sales.

SG Cowen

knocked the stock to neutral from strong buy.

U.S.A. Floral Products


was down 7/8, or 11.7%, to 6 9/16 after late yesterday warning it sees second-quarter earnings of 10 cents to 15 cents a share, including a gain from antidumping duties. The six-analyst forecast called for operating earnings of 26 cents vs. the year-ago 34 cents. The company cited global pricing pressure for the expected shortfall.



was down 1/16 to 28 15/16 despite reporting a June same-store sales increase of 13%.

Offerings and stock actions

Sun Community Bancorp


was up 3/8 to 16 3/8 after

Everen Securities

priced its 1.65 million-share IPO midrange at $16 a share.

Analyst actions



was down 9/16, or 9.5%, to 5 3/8 after

Merrill Lynch

slapped it to near-term neutral from accumulate.


(CR) - Get Crane Co. Report

was down 2 7/16, or 7.7%, to 29 1/8 after DLJ cut it to market performance from buy.



was down 1 1/2, or 10.2%, to 13 3/8 after DLJ lowered it to market performance from buy.

Jefferson Smurfit


was up 13/16 to 25 1/16 after

Morgan Stanley Dean Witter

initiated coverage at outperform.



was up 5/16 to 31 after


upped it to buy from attractive.

PMI Group


was down 11/16 to 67 1/4 after PaineWebber trimmed it to attractive from buy.



was up 11 1/8, or 30.5%, to 47 5/8 after late yesterday announcing a deal to provide search services to

America Online's



unit. AOL was up 1 3/4 to 113 7/8.


(RNWK) - Get RealNetworks, Inc. Report

was up 8 7/16, or 10.8%, to 86 3/8, benefiting from yesterday's news that the company will supply software to


(MSFT) - Get Microsoft Corporation (MSFT) Report

WebTV Networks

unit. Mister Softee was up 3/4 to 91 7/8. Why Silicon Graphics, With Minimal Downside, May Be Looking Up


Adam Lashinsky

Silicon Valley Columnist

Silicon Graphics


is the technology company investors love to hate: too many disappointments, too little strategy, too many risks. Now, however, it's time for savvy bottom-fishers to look again, if for no other reason than because SGI's investments represent the lion's share of the overall value of the company.

Don't look to Wall Street for the nod on SGI, however. Of the 14 analysts tracked by


, 12 have a hold rating on SGI and two have moderate buys. None rates the company a strong buy. That's even as some of those same analysts report what appears to be a recovery in SGI's main businesses, powerful computer workstations and servers.

"It does look as if the company has been having a slightly better-than-expected quarter," says Laura Conigliaro, hardware analyst with

Goldman Sachs

in New York, who thinks there's a chance Silicon Graphics could break even in the quarter. "That gives them at least some sense of feeling more stable under circumstances that have been anything but." (Conigliaro has a neutral rating on SGI; Goldman has performed investment banking services for the company.)

One well-connected source who is long the stock thinks SGI easily will beat the expectations of analysts who think the Mountain View, Calif., company will lose about $7.6 million, or 4 cents a share, in its just-ended fiscal fourth quarter. The company is scheduled to report earnings on July 21.

SGI is one of Silicon Valley's stars-turned-walking-wounded. Founded by James Clark in 1981 before he went on to start





, SGI's lightning-fast computers catered to the graphic arts community and to Hollywood special-effects artists. But the company lost steam when plain-vanilla computers based on


(MSFT) - Get Microsoft Corporation (MSFT) Report



(INTC) - Get Intel Corporation (INTC) Report

technology cut into its edge. The stock price retreated steadily from a high in the mid-40s in late 1995 to less than 8 at the depth of last year's tech trough.

Now CEO Richard Belluzzo, a former



executive, has been stanching the losses. Lately, constant rumors that SGI is a takeover target for the likes of


(DELL) - Get Dell Technologies Inc Class C Report

or H-P, as well as hopes of a better-than-expected quarter, have revived the stock. It has been inching up this week from around 14 1/2 to Thursday's close of 17 1/16.

A spokeswoman for Silicon Graphics (still the company's legal name, despite the marketing campaign to call it simply "SGI") supplied the customary "no comment" on rumors and speculation. Further, company executives weren't available to discuss performance in the pre-earnings-release quiet period.

The upside of owning SGI may be questionable, but the downside clearly is minimal. That's because although SGI's overall market capitalization is $3.2 billion, its investment in spinoff

MIPS Technologies


alone is worth $1.4 billion. Add in the $750 million in cash and short-term investments SGI holds ($200 million from the sale of MIPS shares in May plus $550 million at the end of March), and the rest of SGI is worth just $1 billion. Considering the company's annualized sales are $2.7 billion, this company isn't even trading for one times sales when you back out the MIPS stake.

"They'll never get back to where they once where," says Steve Milunovich, an analyst with

Merrill Lynch

, who rates SGI an accumulate. "But I don't think there's a lot of downside."

Wal-Mart, the Banker

Sometimes today's latest "news" isn't new at all. Take


(WMT) - Get Walmart Inc. Report

recent step to inch into the banking business by offering check-cashing and other services in its stores. "Wal-Mart is the latest of several retailers to aspire to offer financial services," wrote

The Wall Street Journal

on Wednesday. "Retailers see such banking services as a way of providing one-stop shopping to customers, who can take care of almost any need at their stores."

This shocking new trend sounds an awful lot like the failed effort by


(S) - Get SENTINELONE, INC. Report

to sell everything from "socks to stocks" during the 1980s.

Didn't work then. Won't work now.

But have a nice day.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a monthly column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

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