Publish date:

Rate Worries Roar Back to the Fore as Volume Whimpers; Dobbs Bows Out

A Fed head wags his jawbone on the need for higher rates, and stocks and bonds plunge. Plus, <I>CNN's</I> Lou Dobbs takes a powder.

After four straight days of gains,

something

had to break and unfortunately (for those long) it wasn't the stifling heat in New York City. Major proxies suffered not-unsubstantial losses today after the bond market proved unable to sustain intraday gains for a second straight session.

Comments from

Federal Reserve Bank of St. Louis

President

William Poole

were credited with the fixed-income market's afternoon woes. Poole, a nonvoting member of the

Federal Open Market Committee

, said it's "ideal" if the market is "not surprised" when the Fed raises rates. At the

Boston Fed's

conference, the generally hawkish Fed president also said the U.S. is "more likely to have an inflation problem than people would have guessed six months ago." (Where have you gone,

Alice Rivlin

? The nation's bond bulls turn their lonely eyes to you.

Woo hoo hoo. Hey hey hey.

)

In reaction, the price of the 30-year Treasury bond fell 11/32 to 89 21/32, its yield rising to 6.00% for the first time since May 11, 1998.

Even before bonds went south, equity gauges were struggling due largely to weakness in technology bellwethers and airlines. The former suffered after

Donaldson Lufkin & Jenrette

trimmed fourth-quarter earning estimates on a six-pack of industry leaders, and the latter after

US Airways

(U) - Get UNITY SOFTWARE, INC. Report

warned of a profit shortfall.

The combination of the aforementioned sent the

Dow Jones Industrial Average

tumbling as low as 10,724.17 before closing off 143.74, or 1.3%, to 10,765.64.

Components

IBM

(IBM) - Get International Business Machines (IBM) Report

and

Hewlett-Packard

(HWP)

were on DLJ's hit list and among the biggest drags on the index. Other names sapping the Dow's strength included

Johnson & Johnson

(JNJ) - Get Johnson & Johnson (JNJ) Report

,

Procter & Gamble

(PG) - Get Procter & Gamble Company Report

and

DuPont

(DD) - Get DuPont de Nemours, Inc. Report

.

The

S&P 500

fell 17.19, or 1.3%, to 1317.33 as index components

Dell

(DELL) - Get Dell Technologies Inc Class C Report

,

EMC

(EMC)

,

Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

and

Compaq

(CPQ)

were also marked down by DLJ. Each slid at between 2.6% and 4.9%, leading the

Morgan Stanley High-Tech 35

down 2.9%.

Not surprisingly, the

Nasdaq Composite Index

lost 49.65, or 2%, to 2474.56 as

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

,

MCI WorldCom

(WCOM)

, and

Intel

(INTC) - Get Intel Corporation (INTC) Report

joined the DLJ-demoted tech giants on the downside. The

Nasdaq 100

shed 3.1%.

Internet favorites such as

Yahoo!

(YHOO)

also suffered, sending

TheStreet.com Internet Sector

index down 16.32, or 2.8%, to 569.55.

However,

Infoseek

(SEEK)

soared 14.9% on word

Disney

(DIS) - Get Walt Disney Company Report

will seek to acquire the 57% of the company it does not already own. Also, Net IPOs

DrKoop.com

(KOOP:Nasdaq) and

BackWeb

(BWEB:Nasdaq) had stellar opening sessions, rising 81.9% and 64%, respectively.

Meanwhile, airline stocks, which so notably shook-off the ill-effects of

UAL's

(UAL) - Get United Airlines Holdings, Inc. Report

profit warning

yesterday, couldn't overcome a red flag from US Airways. The

American Stock Exchange Airline Index

fell 3.1% and the

Dow Jones Transportation Average

lost 56.58, or 1.6%, to 3425.38.

"I'm not reading too much into it," Ned Collins, executive VP of U.S. stocks at

Daiwa Securities America

, said of today's decline, noting the Dow remains only about 3% from its all-time high. "I don't think it's the end of the parade or beginning of the end. Volume has dried up a little and it looks more like a lack of bids vs. aggressive sellers."

Trading volumes improved from yesterday's dismal showing, but still demonstrated about as much spunk as a

Carnegie Deli

waitress on the last shift when the AC has given out and all the (lean) pastrami is gone.

In

New York Stock Exchange

trading, 686 million shares were traded while declining stocks led advancers 1,789 to 1,132. In

Nasdaq Stock Market

activity, 851.6 million shares were exchanged while losers led 2,245 to 1,648. New 52-week highs led new lows 70 to 43 in Big Board activity and by 87 to 43 in over-the-counter trading.

"I still think there's a chance for a summer rally but second-quarter earnings are much more important than what the Fed does," Collins said of the topic du jour. "Bonds have a 25-basis-point, if not 50, increase built in and stocks have a good portion of that. Maybe if the Fed does nothing it's a bigger disappointment."

It's just a trading range (whoa, ho, ho)
It's not the real thing (whoa, ho, ho, ho)

"I think there still are some people that will be surprised, but consensus is shifting toward the reality the

Fed

will raise rates," Ronny Kraft, CEO of

Gotham Capital Management

, said of Poole's comments and the market's reaction. "The question is what type of body language is associated. The only way the market gets smacked is if the Fed does a number of hikes or gives out body language it has an inclination to do so. I think it would be very inappropriate and unlikely the market would pull in on any significant level on one interest-rate hike."

The analysis is interesting because Kraft (among others) has been suggesting for some time equity markets are due for a major tumble.

"I don't think this is the big one," the hedge fund manager said. "The market has another leg up. The problem with reading the market right now is there's very little volume but it's higher on distribution days than accumulation days. We're in the summer and we'll be subject to these whipsaws. When you have volume pulled out you have volatility and markets do a lot of weird things."

Kraft does think a big unrest in the stock market is forthcoming -- due most likely to a burgeoning trade deficit and ultimate repatriation by foreigners holding dollars. However, the time is not at hand.

"We're calling for range-bound movement for next month and a half," he said, projecting the S&P 500 will remain bound between roughly 1280 and 1370.

Among other indices, the

Russell 2000

fell 2.89, or 0.6%, to 443.76; the

Dow Jones Utility Average

fell 0.90, or 0.3%, to 332.37; and the

American Stock Exchange Composite Index

dipped 5.23, or 0.7%, to 772.92.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

fell 73.08, or 1%, to 6937.67 and the

Mexican Stock Exchange IPC Index

rose 6.94, or 0.1%, to 5428.88.

Report: CNN Won't Have Dobbs to Kick Around Anymore

UPDATE (8:20 p.m. EDT) -- After this story originally ran,

CNN

reportedly confirmed that Lou Dobbs has resigned to join news and entertainment startup Space.com effective Friday

.

CNNfn

President

Lou Dobbs

will resign from the network after butting heads with

CNN

U.S. President

Rick Kaplan

,

Dow Jones

reported. The wire service cited "people at the cable network."

The long-simmering feud between Dobbs, host of

CNN's

"Moneyline," and Kaplan went loudly public May 20, when Kaplan ordered the network to switch to coverage of a speech by

President Clinton

during Dobbs' show and Dobbs resisted. "

CNN

President Rick Kaplan wants us to return to Littleton," Dobbs told viewers in finally relenting.

Dobbs, like Kaplan, is a member of

Time Warner

(TWX)

unit

CNN's

executive committee, and he has chafed at having to report to Kaplan.

Dow Jones'

initial report was silent on Dobbs' plans.

Naturally, Wall Street's rumor mill was churning this evening about what Dobbs will do next, even as sources at

CNN

report that a meeting purportedly scheduled to announce his resignation has been postponed twice.

"He's just sitting in his office waiting for a call from Ted," one television insider quipped, referring to

CNN

founder, sailing billionaire and

Atlanta Braves

owner

Ted Turner

. But the source, a veteran of the industry, speculated "nothing" is going to happen tonight, although Dobbs is not hosting "Moneyline" this evening (meaning the graphics folks at

CNN

can scrap the "with Lou Dobbs" part of the title).

One rumor has Dobbs heading up his own Internet company, and cases of champagne reportedly were chilling outside his office.

The Wall Street Journal Interactive Edition

reported that Dobbs is said to be planning an investment in

Space.com, which thus far is a one-page Web site featuring a

John F. Kennedy

quote and a teaser line.

However, the thought is "ridiculous," one Wall Street player said. "A legitimate journalist leaving to run an Internet company would signal the top of the market." (Of course, many a legitimate journalist would beg to differ.)

The source speculated it would make more sense for Dobbs to go to

CNBC

, perhaps to replace

Tyler Mathison

as

Maria Bartiromo's

co-host on the never-lived-up-to-the-hype "Business Center" program.

But TV insiders say the notoriously prickly Dobbs would never share the spotlight with anyone. If he were going to

CNBC

it'd be for something much bigger than a mere on-air job, they said.

--

TheStreet Recommends

Aaron L. Task and John J. Edwards III

Tuesday'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.

)

As noted above, Infoseek stormed up 6 5/16, or 14.9%, to 48 5/8 after Disney last night said it's in talks to buy the rest of the company, possibly in exchange for an Internet tracking stock. Disney, which has a 43% stake in Infoseek, lost 1 1/4 to 29 5/8. (

TheStreet.com

had a look at why it's still not quite a world of laughter for Disney shareholders in a

piece this afternoon.)

DrKoop.com, an online health-care company named after

C. Everett Koop

, the former surgeon general, rocketed 7 3/8, or 81.9%, to 16 7/16 with 26.6 million shares traded after the stock's 9.38 million-share IPO priced at $9 a share last night.

Bear Stearns

served as the company's lead underwriter. Competitor

Superior Consultant Holdings

(SUPC)

sank 2 13/16, or 7.8%, to 33 3/8.

Elsewhere in new issues, BackWeb Technologies soared 7 11/16, or 64.1%, to 19 11/16 after

Goldman Sachs

priced its 5.5 million-share IPO top-range at $12 a share. The Israeli company makes Internet software.

Mergers, acquisitions and joint ventures

Allstate

(ALL) - Get Allstate Corporation Report

revved up 1 7/16 to 38 after

The Wall Street Journal

reported the company is in talks to acquire the auto and homeowners' insurance operations of

CNA Financial

(CNA) - Get CNA Financial Corporation Report

in a deal valued at more than $500 million. CNA Financial lost 1/8 to 42 13/16.

American Mobile Satellite

(SKYC)

hopped up 3 9/16, or 21.6%, to an annual high of 20 3/16 after signing an agreement with privately held

WorldSpace

to buy the remaining 78% it doesn't own in

XM Satellite

for about $144 million.

Bank of New York

(BK) - Get Bank of New York Mellon Corporation Report

jumped 2 3/8, or 6.9%, to 37 1/16 after agreeing to sell its

BNY Financial

commerce-finance unit to the

GMAC

financing arm of

General Motors

(GM) - Get General Motors Company (GM) Report

for $1.8 billion in cash. GM slipped 1 3/8 to 67 3/4.

Crown Castle

(TWRS)

lowered 3/16 to 18 15/16 after saying it completed the previously announced sale-leaseback agreement under which it bought 619 wireless communications towers from

Powertel

(PTEL)

for about $262 million in cash. Powertel closed flat at 23 15/16.

Inprise

(INPR)

shot up 1 3/32, or 27.3%, to 5 1/8 after announcing a set of technology and licensing agreements with

Microsoft

(MSFT) - Get Microsoft Corporation (MSFT) Report

, including a total investment by Mister Softee of $125 million. Microsoft lowered 7/8 to 79 3/8.

Lycos

(LCOS)

tacked on 5/16 to 92 1/8 after saying it will be the exclusive preset portal on new

Packard Bell

and

NEC

(NIPNY)

computers. NEC added 1/4 to 56.

Earnings/revenue reports and previews

Norstan

(NRRD)

expanded 3/16 to 11 1/2 after reporting fourth-quarter earnings of 28 cents a share, 2 cents higher than the three-analyst forecast but below the year-ago 39 cents.

School Specialty

(SCHS)

excelled 9/16 to 17 13/16 after recording a fourth-quarter loss of 12 cents a share, narrower than the four-analyst outlook for a loss of 18 cents but wider than the year-ago loss of 9 cents.

Select Comfort

(AIRB)

collapsed 5 3/4, or 43.8%, to an all-time low of 7 7/16 after warning second-quarter earnings will fall significantly below the four-analyst forecast of 15 cents a share. Along with disappointing sales trends, the company blamed the warning on a switch to a new consumer credit provider, which has resulted in a reduction in credit approvals. (Last month,

TSC's

Herb Greenberg

wrote about Select's shenanigans with mattress studies.)

Unova

(UNA)

tumbled 1, or 7%, to 13 3/8 after last night saying it sees second-quarter earnings of 6 cents a share due to a continuation of problems identified in the first quarter. The five-analyst outlook called for earnings of 14 cents vs. the year-ago 17 cents. The problems include the transition to a new enterprise resource planning system at its

Intermec Technologies

subsidiary, right-sizing activities (yes, the company actually said "right-sizing activities" -- presumably with a straight face) at the

Cincinnati Machine

division, and new product introduction issues at the

German Honsberg Lamb

division.

Following Friday's warning from UAL's

United Airlines

, US Airways said its second-quarter earnings will come in around $1.80 to $1.85 a share. The 11-analyst estimate called for $2.15 a share. The airline cited softer-than-expected May traffic and higher-than- expected costs. US Airways tanked 2 11/16, or 5.2%, to 48 7/8. After

Deutsche Banc Alex. Brown

chopped its second-quarter earnings estimate to $2.65 from $3.10, UAL tanked 2 9/16 to 63 13/16.

Continental

(CAL) - Get Caleres, Inc. Report

shaved off 1/2 to 40 11/16 after Deutsche lowered its second-quarter view for the company to $1.65 from $1.95.

Analyst actions

As mentioned earlier, Donaldson Lufkin & Jenrette trimmed fourth-quarter earnings estimates on six big-tech names, citing curtailed Y2K-related spending. Compaq lost 15/16 to 22 15/16; Dell lost 1 3/4 to 34; H-P lost 3 7/16 to 90 9/16; IBM lost 3 7/8 to 116 5/8; Sun Microsystems lost 1 5/8 to 59 3/16; and EMC lost 2 to 51 3/4. Separately,

U.S. Bancorp Piper Jaffray

analyst Ashok Kumar said analysts' consensus second-quarter earning estimate for Compaq of 22 cents a share is too high due to product write-downs.

Applied Materials

(AMAT) - Get Applied Materials, Inc. Report

climbed 1/16 to 61 13/16,

LAM Research

(LRCX) - Get Lam Research Corporation (LRCX) Report

climbed 1 5/8, or 5.4%, to 31 7/8 and

Novellus Systems

(NVLS)

climbed 1 3/8 to 56 1/16 after

Warburg Dillon Read

initiated coverage of the semiconductor equipment makers with buys. The firm set a price target of 67 for Applied Materials, 47 for LAM and 69 for Novellus.

Bell Atlantic

(BEL)

rung up 1 1/2 to 56 15/16,

GTE

(GTE) - Get Gran Tierra Energy Inc. Report

rung up 2 3/8 to 66 7/8 and

Ameritech

(AIT) - Get Applied Industrial Technologies, Inc. Report

rung up 1 1/16 to 69 11/16 after

CIBC World Markets

raised its recommendation on the stocks to strong buy from hold. The firm also lifted MCI WorldCom, which gave up 2 3/8 to 89, and

SBC Communications

(SBC)

, which advanced 1 to 55, to strong buy from buy.

Meanwhile,

Morgan Stanley Dean Witter

began coverage of WorldCom,

Sprint

undefined

and SBC with outperforms. Sprint lost 3/4 to 56 5/16. The firm also began coverage of GTE and Bell Atlantic with strong buys and Ameritech,

AT&T

(T) - Get AT&T Inc. Report

and

BellSouth

(BLS)

with neutrals. Telephone skidded 1/16 to 53 7/16; BellSouth skidded 3/4 to 46 1/8.

Ciena

(CIEN) - Get Ciena Corporation Report

sloughed off 1 7/16 to 32 3/16 even after

Prudential Securities

raised its price target for the stock to 41 from 31 a share.

Lyondell Chemical

(LYO)

swelled 1 1/4, or 6.5%, to 20 3/8 after

J.P. Morgan

started coverage with a buy, citing valuation, rebounding earnings and cash flow generation.

Neff

(NFF)

fell 1 3/4, or 11.1%, to 14 after Morgan Stanley Dean Witter dropped it to neutral from strong buy based on price and valuation.

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

dwindled 3 1/16 to 117, off an earlier intraday high of 123, after

Lehman Brothers

increased its 12-month price target to 140 from 125 a share.

Miscellany

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

,

Merrill Lynch

(MER)

and

Bernard L. Madoff Investment Securities

are expected to announce plans to create a new electronic trading system,

The Wall Street Journal

reported. Goldman shed 2 3/16 to 63 3/4; Merrill shed 7/8 to 73.

WellPoint Health Networks

(WLP)

surged 2 11/16 to 86 1/8 on last night's news it will replace

Harnischfeger Industries

(HPH)

in the S&P 500 after today's close. Yesterday, Harnischfeger filed a voluntary petition for reorganization under Chapter 11 bankruptcy. Separately, WellPoint filed with regulators to resell 9 million shares.

Elsewhere,

Labor Ready

(LRW)

grew 1 3/4 to 38 7/16 on word it will replace

Resound

(RSND)

in the

S&P SmallCap 600

after Friday's close. Resound is being acquired by

GN Acquisition

.

Finally,

Westamerica Bancorp

(WABC) - Get Westamerica Bancorporation Report

grew 1 3/16 to 35 31/16 on word it will replace

Nine West

(NIN)

in the

S&P MidCap 400

on June 14. Nine West is being acquired by

Jones Apparel

(JNY)

.