Net Stocks Turn from Leaders to Loners as Indices Skid

The SEC chairman's warnings had little effect on Net issues, but the stocks couldn't stem a late selloff elsewhere.
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Securities & Exchange Commission

Chairman

Arthur Levitt

, who resides just a few notches below

Alan Greenspan

in the Wall Street pantheon, warned investors about the potential dangers of investing both in and via the Internet. But Levitt's warning drew little reaction today, as investors focused on better-than-expected quarterly results from

Amazon.com

(AMZN) - Get Report

and

eBay

(EBAY) - Get Report

.

However, renewed concerns about Brazil and a reversal of

Monday's late-day program-driven surge sent stocks skidding into the close. The Internet and drug sectors were the best performers of the session, but all major proxies stumbled after early gains.

Returning to the downside of the up and down path it has been on since posting earnings on Friday,

IBM

(IBM) - Get Report

was the biggest drag on the

Dow Jones Industrial Average

. Big Blue fell 4.1% while

J.P. Morgan

(JPM) - Get Report

and

Chevron

(CHV)

also siphoned significant points from the Dow. The blue-chip index closed down 124.35, or 1.3%, to 9200.23, much nearer to its late-day low of 9195.34 than its morning high of 9385.86.

J.P. Morgan and

First Union

(FTU)

, which shed 8.5% after warning of an earnings shortfall, led the

Philadelphia Stock Exchange/KBW Bank Index

down 3.1%. Brazil's central bank dismissed the idea of a debt moratorium, but the real closed at 1.91 to the dollar, down 3.7% from yesterday and another new low. Meanwhile, market players estimated the country lost another $400 million in currency markets.

'It's just a good rotational correction,' said J.W. Genesis' Gary Kaltbaum. 'It's what you need, it's good, it's healthy. The big worry is IBM, but the tone of the market is good.'

The

Nasdaq Composite Index

closed off 26.27, or 1.1%, to 2407.14 after trading as high as 2464.12 intraday. The

Nasdaq 100

fell 1.5% and the

Philadelphia Stock Exchange Semiconductor Index

shed 3.3%, leaving the heavy lifting to the nascent Net names. The group was up for the challenge despite Levitt's warnings, but ultimately was unable to overcome the struggles of traditional tech bellwethers.

"I believe that investors need to remember the investment basics, and not allow the ease and speed with which they can trade to lull them either into a false sense of security or encourage them to trade too quickly or too often," Levitt said in a prepared statement. "Investing in the stock market -- however you do it and however easy it may be -- will always entail risk."

The SEC chieftain also mentioned concerns about margin buying, the limitations of electronic execution, Internet stock volatility and the need for better use of limit orders. But he offered no formal proposals addressing any of the issues, and the comments were largely overlooked.

TheStreet.com Internet Sector

index climbed 14.51, or 2.8%, to 534.60, thanks largely to gains by Amazon.com,

CMG Information Services

(CMGI)

and

RealNetworks

(RNWK) - Get Report

, which received a positive mention from

BancBoston Robertson Stephens

.

eBay, which is not an index component, rose 38%. Other big gainers in Netland included

uBid

(UBID)

,

broadcast.com

(BCST)

and

Geocities

(GCTY)

.

The

S&P 500

closed off 9.12, or 0.7%, to 1243.19 while the

Russell 2000

slipped 4.21, or 1%, to 421.12.

Not Reading Much Into the Drop

"It's hard to decipher" what caused the turnaround, but "I don't think there's a lot to read into it," said Robert Harrington, co-head of block trading at

PaineWebber

. "Some news earnings wise was pretty good and you've had a lot of split announcements but at some point maybe the good news is in there. I think we're trading in the top half of the range and at this point in the cycle one day you're up and one day you're down. There's a lot of people wondering have we gone to far and can we sustain these levels. It's a question whether we can or not."

Harrington observed the market rose yesterday despite some "narrow leadership." Simply stated, when stocks such as

Microsoft

(MSFT) - Get Report

and

AT&T

(T) - Get Report

suffer, "you get a down market," he said.

In NYSE trading, 893.8 million shares traded while declining stocks led advancers 1,941 to 1,055. In

Nasdaq Stock Market

activity, losers led 2,497 to 1,601 while 1.042 billion shares traded; more than a billion shares have traded in 14 of the last 15 sessions. New 52-week lows led new highs 73 to 51 on the Big Board but new highs led 109 to 39 in over-the-counter trading.

Despite the deteriorating market internals and the late-day sag for major proxies, Gary Kaltbaum, chief technical analyst at

J.W. Genesis Securities

in Boca Raton, Fla., was not overly concerned.

"It's just a good rotational correction," Kaltbaum said. "It's what you need, it's good, it's healthy. The big worry is IBM, but the tone of the market is good -- whenever certain things decide to go down you get others, like drugs and foods going up. The market continues to pay up for growth, which means technology, retail, and miscellaneous healthcare."

Drug makers were among the session's standouts, partially inspired by

Warner-Lambert's

(WLA)

acquisition of

Agouron Pharmaceuticals

(AGPH)

. Warner-Lambert rose 4.5% on the news, announced

last night, while Agouron gained 11.4%. The

American Stock Exchange Pharmaceutical Index

climbed 1.4%.

Last week, Kaltbaum

warned of the potential for a top in big technology stocks. He remains on the lookout for such a move, but does not see today's reversal as an indication it is at hand.

"If Microsoft,

Dell

(DELL) - Get Report

,

Cisco

(CSCO) - Get Report

, and

MCI WorldCom

(WCOM)

continue to well, the rest are lining up behind them," he said. "It seems there's a floor under the market and a strong floor under growth. There's a lot of liquidity from Microsoft on down to

Fossil

(FOSL) - Get Report

, which rose 6.3% today on seemingly no news.

The "key day" in the recent upturn was

Jan. 13, when the Nasdaq opened down 100 and finished nearly unchanged, the technician said. "That tells you the market wants to go higher even with IBM giving up and the Dow down."

Among other indices, the

Dow Jones Transportation Average

fell 50.34, or 1.6%, to 3089.10; the

Dow Jones Utility Average

slid 4.19, or 1.4%, to 303.82; and the

American Stock Exchange Composite Index

rose 0.83, or 0.1%, to 707.19.

The price of the 30-year Treasury bond slid 2/32 to 101 23/32, its yield rising to 5.14%.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

lost 11.74 to 6651.71 and the

Mexican Stock Exchange IPC Index

rose 49.38, or 1.3%, to 3815.35.

Wednesday'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.

)

Amazon.com shot up 10 5/8, or 9.2%, to 125 5/8 after

last night posting a fourth-quarter loss of 14 cents a share, 4 cents narrower than the 21-analyst view but deeper than the year-ago loss of 8 cents.

TheStreet.com

examined Amazon's results in a

story last night.

eBay, meanwhile, soared 83 1/2, or 38%, to 303 1/2 after the online retailer reported fourth-quarter earnings of 7 cents a share, 3 cents ahead of the nine-analyst outlook and up from the year-ago 1 cent. The company also set a 3-for-1 stock split.

Donaldson Lufkin & Jenrette

upgraded the stock to buy from market perform and bumped up the stock's price target to 360 from 100 a share. Rival uBid lifted 17 7/8, or 24.8%, to 89 15/16.

Mergers, acquisitions and joint ventures

Agouron Pharmaceuticals jumped 6 1/16, or 11.4%, to 59 1/8 after agreeing to be acquired by Warner-Lambert in a stock deal valued at $2.1 billion. Warner-Lambert hopped 3 1/8 to 72 1/4.

TheStreet.com

looked at the deal in a

story today.

Digital River

(DRIV) - Get Report

excelled 9 11/16, or 26%, to 46 11/16 after announcing

CompUSA's

(CPU)

Web site will offer the firm's software products. CompUSA lost 3/8 to 11 3/8.

First Citizens

(FSTC)

grew 9, or 31%, to an all-time high of 38 3/8 after agreeing to be acquired by

BB&T

(BBT) - Get Report

in a stock swap valued at $125.9 million. BB&T slipped 1 1/4 to 37 3/16.

Imagion

(IMON)

skidded 3 25/32, or 32.4%, to 7 29/32 after saying rumors of a deal with

America Online

(AOL)

are unfounded.

Park Place Entertainment

(PPE)

climbed 7/16, or 7.1%, to 6 5/8 even after denying market rumors the company is in merger talks with

Circus Circus Enterprises

(CIR) - Get Report

. Circus Circus added 3/16 to 12 9/16.

Qwest Communications

(QWST)

took in 1 13/16 to 57 7/8 after signing a $13 million multi-year contract with AOL to provide increased Internet communications services nationwide.

Rock Bottom Restaurants

(BREW) - Get Report

expanded 1 13/16, or 27.9%, to an annual high of 8 5/8 after announcing its has received three buyout offers, including one from a group led by its chairman and CEO, Frank Day.

Earnings/revenue reports and previews

Avery Denison

(AVY) - Get Report

brought in 4 15/16, or 11.5%, to 48 after posting fourth-quarter earnings of 54 cents a share, in line with the seven-analyst view and up from 52 cents a year ago. The company said it will take restructuring charges of between 40- and 42 cents in the first quarter to pay for job cuts of up to 9% of its workforce. Analysts at

Merrill Lynch

and

Brown Brothers Harriman

separately upgraded recommendations.

Broadcom

(BRCM)

advanced 17 5/16, or 13.5%, to 145 after reporting fourth-quarter earnings of 26 cents a share, 8 cents better than the eight-analyst expectation and up from the year-ago 6 cents. The company also set a 2-for-1 stock split.

Borders Group

(BGP)

sliced off 3 1/8, or 15.4%, to an annual low of 17 1/8 after its forecast fourth-quarter and full-year earnings below the 13-analyst view of $1.09 and $1.16 a share, respectively. On Jan. 7, the company warned its fourth-quarter results would not meet forecasts, then at $1.22 a share.

Chronimed

(CHMD)

dropped 2 7/8, or 21.5%, to 10 1/2 after it reported second-quarter earnings of 16 cents a share, on target with the two-analyst outlook and above the year-ago 15 cents. The company warned that third- and fourth-quarter results will fall below analysts' expectations of 18 cents and 23 cents, respectively.

CKE Restaurants

(CKR)

slid 11/16 to 24 5/16 after saying it expects to report fourth-quarter earnings of 25 cents to 28 cents a share, below the 10-analyst outlook of 34 cents. The company earned 24 cents a year ago.

Cooper

(COO) - Get Report

plunged 4 3/16, or 24.9%, to 12 5/8 after forecasting its first-quarter revenue and sales will not meet expectations. The company is expected to earn 41 cents a share for the period ended Jan. 31, according to the two-analyst consensus.

DSP Group

(DSPG) - Get Report

collapsed 4 1/2, or 21.8%, to 16 3/16 after posting fourth-quarter earnings of 36 cents a share, in line with the four-analyst prediction and ahead of the year-ago 33 cents. But the company said it expects first-quarter earnings to fall from fourth-quarter levels; the estimate is for 37 cents.

First Union tumbled 4 7/8, or 8.5%, to 52 3/16 after saying its plan to eliminate a gain-on-sale method of accounting on certain securitizations will lower its 1999 earnings by 8 cents to 12 cents a share. The 27-analyst forecast called for $4.29 vs. the year-ago $3.77.

PaineWebber

,

Lehman Brothers

,

Goldman Sachs

and

BT Alex. Brown

each lowered recommendations.

Komag

(KMAG)

slipped 2 1/2, or 17.9%, to 11 1/2 after it reported a fourth-quarter loss of 30 cents a share, 10 cents better than the five-analyst forecast but down from the year-ago profit of 2 cents. The company sees its operating loss narrowing in the first quarter and expects a return to profitability in subsequent quarters if unit volume improves. The two-analyst first-quarter estimate calls for a loss of 17 cents.

RealNetworks surged 3 3/4, or 5.8%, to 68 after posting a fourth-quarter loss 2 cents narrower than expected last night. Today, BancBoston Robertson Stephens raised its 1999 earnings estimate to a loss of nil from a loss of 4 cents a share.

Rochester Medical

(ROCM)

stumbled 3 13/16, or 27.2%, to 10 3/16 despite posting a first-quarter loss of 14 cents a share, 2 cents better than the three-analyst consensus and up from a loss of 11 cents a year ago. However, the company said its second-quarter sales will be below expectations.

Sauer

(SHS)

slid 1 7/16, or 20%, to an all-time low of 5 3/4 after saying it expects to report fourth-quarter earnings of 8 cents to 10 cents a share, below the three-analyst call for 22 cents and the year-ago 14 cents.

Splash Technology

(SPLH)

tanked 1 7/8, or 19.7%, to 7 3/4 despite posting fourth-quarter earnings of 14 cents a share, down from 29 cents a year ago but 4 cents ahead of the four-analyst estimate

3Dfx

(TDFX)

lowered 2 1/16, or 13.9%, to 12 3/4 although its fourth-quarter earnings of 13 cents a share bested the six-analyst consensus of 6 cents; the company earned 15 cents a year ago.

Tupperware

(TUP) - Get Report

rose 3 5/8, or 23.5%, to 19 1/16 after reporting fourth-quarter earnings of 64 cents a share, down from 77 cents a year ago but a nickel better than the five-analyst consensus. The company forecast first-quarter sales will be "flat or slightly down" but officials expressed optimism about prospects for 1999.

Whirlpool

(WHR) - Get Report

fell 2 7/8, or 5.7%, to 47 7/16 after reporting fourth-quarter earnings of $1.09 a share, a penny better than the eight-analyst estimate and higher than the year-ago 85 cents. But the home appliance maker said its first-quarter results could be hurt by the Brazilian currency devaluation; a two-analyst outlook calls for $1.01.

Prudential Securities

cut its recommendation to hold from strong buy.

In other earnings news:

Offerings and stock actions

TST/Impreso

(TSTI)

vaulted 1, or 32.7%, to 4 1/4 after its board approved the buyback of up to 5% of its outstanding shares.

Analyst actions

Aspect Development

(ASDV)

brought in 6 7/8, or 29.3%, to 30 1/2 after

Credit Suisse First Boston

upped its recommendation to strong buy from buy.

@Home

(ATHM) - Get Report

expanded 7 1/4, or 6.6%, to 116 after Lehman Brothers initiated coverage with an outperform rating. Separately, broadcast.com jumped 14, or 10.1%, to 151 15/16 after receiving a buy rating from the brokerage.

DuPont Photomasks

(DPMI)

shot up 3 7/16, or 8%, to 46 3/4 after being upgraded to outperform from neutral at

Morgan Stanley Dean Witter

.

Miscellany

NeoTherapeutics

(NEOT)

lost 5/8, or 5.8%, to 10 1/8 even after saying its Neotrofin drug for memory improvement was well tolerated in patients with Alzheimer's disease during a Phase II study.