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August 25, 1999

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Market Data as of 8/25/99, 1:13 PM ET:

o Dow Jones Industrial Average: 11,208.58 down 74.72, -0.66%

o Nasdaq Composite Index: 2,767.31 up 14.94, 0.54%

o S&P 500: 1,362.04 down 1.46, -0.11%

o TSC Internet: 569.13 up 5.34, 0.95%

o Russell 2000: 435.68 down 1.44, -0.33%

o 30-Year Treasury: 10 321/32 up 1 , yield 5.871%

In Today's Bulletin:

o Midday Musings: Market's Post-Fed Muddle Continues
o Herb on TheStreet: *Extra* The Plot Thickens as Wall Street Plays Its Games With IDT/Net2Phone

Also on

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Midday Musings: Market's Post-Fed Muddle Continues


Eileen Kinsella

Staff Reporter

8/25/99 1:22 PM ET

The market was in need of a map this morning. Even a compass or a signpost would have helped. Stocks were doing their best to clear a path but it wasn't easy to reconcile yesterday's expected, and relatively friendly,


news with the storm rocking financial stocks after

Bank One


issued an earnings warning.

Overall, stocks continued the same indecisive activity that characterized prior, rate-ruled days. "I think the market reacted pretty much as expected" to the

Federal Open Market Committee

meeting, said Jim Volk, co-director of institutional trading at

D.A. Davidson

in Portland, Ore. "After the rate increases were digested, we had a pretty good tone at the opening. Now its testing again with a little broader selloff." Volk said the selloff was mostly "just profit-taking." The markets have had pretty good moves and are relatively overextended, he said.

Meanwhile the

Dow Jones Industrial Average

was staggering down 80, or 0.7%, to 11,204 under the weight of financial bellwethers

J.P. Morgan



American Express


, which accounted for a sizable portion of the early downdraft.

The squall started with Bank One, which late yesterday issued a 1999 earnings warning. Bank One got the old one-two punch itself, knocking its shares down 22.7%.

"Bank One caused a lot of turmoil in financial stocks, especially J.P. Morgan and American Express," said Gary Kaltbaum, chief technical analyst at

J.W. Genesis Securities

in Boca Raton, Fla. "Take those out and you're probably flat on the Dow."

The bond market was showing some mettle, with the benchmark 30-year Treasury up 30/32 to 103 19/32, its yield at 5.87%. "The bond market is up nicely. A lot of traders have been taking their cues from that," said Dan Mathisson, head stock trader at

D.E. Shaw Securities

. "Stocks are just drifting, the broader indices have been dropping. There is only one sector that has clear direction," said Mathisson, referring to financials.

With little else to go on ahead of



initial jobless claims

figures tomorrow, Mathisson said he is keeping a close watch on financials to see how they hold up today, and one eye on Internet stocks, which have recently had considerable momentum.

Indeed, tech stocks were the only things managing to put a green shine on trading screens today.


, up 4.2%, and



, up 3.8%, were among top gainers on the

Nasdaq Stock Market

. The

Nasdaq Composite Index

was up 7, or 0.3%, to 2760.


America Online





injected some fuel into

The Internet Sector

index, lately up 4, or 0.7%, to 568.

For the most part, it seems market observers are keeping their expectations in check, which is not the same thing as keeping them low. "It looks like the Fed has done their job and we're going to end up in a trading range for a while, with a bias to the upside for growth stocks" said Kaltbaum. "A lot of people are talking

Dow 12,000, and I think it's going to take some work for that to happen," said Kaltbaum. Still, I don't see any disasters and I think there is money to be made on the long side, he adds.

On the

New York Stock Exchange

decliners were beating advancers 1,568 to 1,263 on 466 million shares, while on the

Nasdaq Stock Market

decliners also outpaced advancers, 1,948 to 1,617, on 560 million shares. There were 39 new 52-week highs vs. 43 new lows on the Big Board, compared with 104 new highs and 37 new lows on the Nasdaq.


S&P 500

was off 4 to 1359, while the

Russell 2000

was down 1 1/2 to 437.

Tuesday's Midday Watchlist

By Tara Murphy
Staff Reporter


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


Bank One was plummeting 12 9/16, or 22.7%, to 43 1/16 after yesterday's postclose warning that it expects to report 1999 operating earnings of $3.60 to $3.65 a share, below the 25-analyst estimate of $3.92. Bank One blamed the shortfall on reduced growth and margin prospects at its credit card unit,

First USA




Warburg Dillon Read


Morgan Stanley Dean Witter

all downgraded the stock.

Credit Suisse First Boston

put a sell recommendation on the stock.

U.K. telecom operator stocks were gaining ground today, spending a little while in the top five slots in the

FTSE 100

top-10 gainers chart. According to analysts quoted by


, the sector, which has underperformed the FTSE 100 index by 10% this month, was reacting to the Fed's decision to raise U.S. interest rates, removing doubt from skeptical investors who thought its decision could go either way.

Williams de Broe

analyst Nigel Hawkins added, "Telecom stocks tend to be a bit more closely correlated with the overall performance of the market." Although the explanation makes sense, investors' top picks seemed rather unusual, swaying to data transmission telecom operators instead of the traditional telecom voice service providers.

Colt Telecommunications


was jumping 3 1/4 to 84 3/16, while

Vodafone AirTouch


was leaping 5 1/16 to 196 1/16.

British Telecommunications


was soaring 7 3/4, or 5.3%, to 158 1/2 and

TeleWest Communications


was popping 1 to 40 5/8.

Mergers, acquisitions and joint ventures

Borg Warner Automotive


was off 3/16 to 48 1/2 after it said it inked a deal with a group of investors, including management to sell its

Coleman Cable

division for estimated $144 million less debt of about $4 million. Borg Warner bought the utility wire and cable subsidiary in March 1999, along with its acquisition of


. Borg Warner said, at the time of the purchase, that Kulman's cable and wireless and electronic transformer businesses were not in line with its strategic plans and would be sold.

Earnings/revenue reports and previews



was up 1 11/16, or 7.8% to 23 1/4 after it posted first-quarter earnings of 72 cents a share, 6 cents ahead of the five-analyst estimate, but down from the year-ago 86 cents. Fleetwood blamed the slump in earnings on a slowdown in manufactured housing sales and the effect of eliminating intercompany profits on retail inventory.



was off 1/2 to 41 5/16 after it posted third-quarter earnings of 66 cents a share, a penny shy of the seven-analyst estimate and down from the year-ago 81 cents.

Take-Two Interactive Software


was unchanged at 9 5/8 after it posted third-quarter earnings of 12 cents a share, 3 cents ahead of the three-analyst estimate.



was down 7/16 to 36 13/16 after it posted third-quarter earnings of 78 cents a share, 2 cents ahead of the one-analyst estimate of 76 cents. The company said today that it would shut down its Murray Bridge, Australia facility in its fourth quarter, assuming a restructuring charge of $900,000.

Analyst actions



was down 1 1/16 to 79 13/16, while



shares were off 1 5/8 to 77 1/16 after

Merrill Lynch

downgraded a host of biotech stocks,



Genzyme General



Idec Pharmaceuticals





were also included in the firm's rating cut. Shares of Genzyme General were falling 4 11/16, or 7.5%, to 57 9/16, while Idec was slipping 5 9/16 to 129 3/8. Medimune shares were tumbling 10 3/16, or 8.5%, to 109 5/8.



was unchanged at 24 1/16 after Merrill Lynch cut its rating on the shares to accumulate from buy.

Credit Suisse First Boston analyst Michael Mayo put a sell recommendation on




Chase Manhattan


Shares of Citigroup were off 1 11/16 to 47 1/4, while Chase was off 2 5/8 to 83 15/16.

Freemont General


was stumbling 7 1/2, or 44.6% to 9 1/4 after

Credit Suisse First Boston

analyst Charles Gates cut his rating on the stock to a hold from a buy and reduced 1999 earnings estimates to 95 cents from $2 and $1.50 from $2.30 for the year 2000. Merrill Lynch also downgraded the shares to a near-term neutral from a buy.

Liberate Technologies


was up 1/8 to 20 after Credit Suisse First Boston rolled out coverage on the shares with a buy rating.

Office Depot


was off 1/16 to 14 7/16 after Merrill Lynch lowered its rating to accumulate from buy.

O'Reilly Automotive


was down 2 1/14, or 5.5%, to 37 5/16 after Merrill Lynch downgraded the stock to accumulate from buy.

Merrill Lynch retail analysts took a hammer to their sector today, cutting its ratings on nine stocks.

Barnes & Noble



Dayton Hudson












J.C. Penney











were all included in the ratings cut.

Shares of Barnes & Noble were down 9/16 to 25 1/8, while Dayton Hudson was falling 3 3/4, or 5.7%, to 61 9/16. Kohl's shares were off 1 11/16 to 75 7/16 and Kmart was down 7/16 to 13 9/16, while Nordstrom shares were off 1/16 to 31 7/16. Shares of J.C. Penney were slipping 15/16 to 40 5/8 and Wal-Mart was declined 1 5/16 to 46 5/16. Sears was sliding 7/8 to 40, while Borders was off 11/16 to 13 5/16.

Talisman Energy


was up 5/16 to 30 1/8 after Morgan Stanley initiated coverage of the stock with a strong buy rating and a price target of 60.

Tech Data


was hopping 4 1/4, or 13%, to 37 after

Banc of America Securities

raised its rating on the stock to strong buy from buy.



was stumbling 1 5/8 to 70 1/16 after Lehman Brothers upped its 1999 estimates to $2.05 from $2.05.

Time Warner


was off 1/16 to 61 9/16 despite

ING Barings

raising the shares rating to a strong buy from a buy and set a 2000 price target of 85, reacting to the stock's 7% decline on Tuesday. Yesterday, Merrill Lynch analyst Jessica Reif Cohen sliced her estimates on Time Warner, based on declining U.S. market share for its music business, ongoing

WB Television

network losses and weakness in international markets. ING Barings said the stock overacted to the news.




was down 1 1/8 to 44 after a negotiator representing the company's largest union predicted the union would strike on Sept. 2.



was up 1/16 to 23 9/16 after it announced price cuts of up to 11% on most of its


commercial desktop PCs.

Cordant Technologies


, an aerospace components maker, was up 7/8 to 42 3/4 after it said its

Thiokol Propulsion

division signed a follow-on rocket motors contract with


worth more than $1.7 billion.

Delco Remy International


was up 10 1/8 after it announced that president and COO Thomas Synder would become the company's CEO on Jan. 1, 2000.


, formerly Eclipse Trading, said it will begin offering postclose trading hours today, joining other brokerages that are providing similar services to retail investors. MarketXT said that investors will be able to trade 400 widely held stocks, the 200 largest on both the NYSE and the Nasdaq, Monday through Thursday between 6 p.m. and 8 p.m. EDT.

Morgan Stanley Dean Witter's


Discover Brokerage


Mellon Bank's


Dreyfus Brokerage Services

are among the participating firms. Morgan Stanley was down 1 3/16 to 95 1/8 and Mellon was down 7/16 to 35 5/16.



was off 3/8 to 29 7/16 after it said its Internet unit has taken a controlling stake in online educational toy retailer

. Separately, Disney's marriage of its TV production studio and its


television network -- which was announced last month -- is proving difficult to pull off,

The Wall Street Journal




was down 1/16 to 31 7/16 after late yesterday unveiling plans to establish a separate

division to concentrate on Internet sales, and said it might offer shares in the unit in the future.

Herb on TheStreet: *Extra* The Plot Thickens as Wall Street Plays Its Games With IDT/Net2Phone


Herb Greenberg

Senior Columnist

8/25/99 1:08 PM ET

Don't forget to check out this morning's regular installment of Herb on TheStreet.

Yesterday was the first day that analysts of the three firms that took



public could recommend the stock. Not surprisingly, all of them recommended the stock, and at midday Wednesday the stock had accordingly put in a 66% gain over three days. (Monday's gain came amid rumors the analysts would recommend the stock.)

Just one problem:





IDT, the telecommunications company that's

no stranger to this column) owns 27.2 million shares, or 57%, of Net2Phone. So, something the analysts


tell you (tsk, tsk): If you really want to own Net2Phone, you should buy IDT -- assuming, of course, you think IDT is worth owning. (Go back and read this column's previous

coverage, do some additional homework, scan through the cultlike postings on the IDT message boards and make your own decision on IDT as an investment!)

Put another way, 0.77 Net2Phone share underlies every IDT share. That means if you believe Net2Phone is worth, say, 58, then IDT is worth around 45.

But, hey, before you go rushing out to buy IDT as a proxy for Net2Phone, you might want to familiarize yourself with



and its Internet spinoff,



, and



and its Internet spinoff,



. In both cases, Wall Street initially bid up the parent and the spinoff. Then investors in the spinoff realized what fools they were and the stocks of both collapsed.

As I write this, Net2Phone is trading at 62. Does anybody care that the analyst for

Deutsche Banc Alex. Brown

-- an underwriter on the deal -- initiated coverage with a fourth-quarter 2000 price target of 50 to 52? Apparently not, because in the last two days, the number of shares outstanding of Net2Phone has been bought and sold four times. (Calling P.T. Barnum!)

And while we're on the topic: Anybody ever use Net2Phone's service, which allows you to place a call through your PC over the Internet to another telephone, using a microphone on the PC as a mouthpiece? I have a friend who has the service. Each time he calls using it -- I swear! -- I can't


understand a word he's saying. And he uses a T-1 line! Imagine what it must sound like over a regular phone line.

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.

Mark Martinez assisted with the reporting of this column.

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