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Rattled Stock Market Stumbles Hard as Bond Yields Jump

With the long bond yielding 6.20%, market mavens are starting to wonder whether equities are less attractive than their fixed-income cousins.

They go down. They turn up a bit. They go down some more. Looking at a stock chart today is disturbingly like watching a stem christying skier picking his way down the slope. Leaving traders to wonder how much farther down it is to the lift.

"Even when you pick a really great bottom," complained Kevin O'Brien, who trades index futures for

Prudential Securities

at the

Chicago Merc

, "they never reward you with a rally."

The

Dow Jones Industrial Average

was down 129 to 10,538 and the

S&P 500

was off 19 to 1314.

Tech stocks were getting pummeled.

Advance Micro Devices'

(AMD) - Get Advanced Micro Devices, Inc. Report

profit warning, and the series of downgrades that followed it, prompted heavy selling in

Nasdaq 100

futures. The Nasdaq 100 was down 42, or 1.9%, to 2198, and the

Nasdaq Composite Index

was off 37, or 1.4%, to 2561. The

Philadelphia Stock Exchange Semiconductor

index was down 3.2%.

TheStreet.com Internet Sector

index was down 8, or 1.4%, to 580. The

Russell 2000

was down 3 to 444.

Breadth was bad and volume was light. Decliners beat advancers 1,898 to 864 on 401 million shares in

New York Stock Exchange

action. On the

Nasdaq Stock Market

declining issues topped advancers 2,074 to 1,450 with 542 million shares changing hands. New 52-week highs were outpacing new lows 47 to 41 on the Big Board and 53 to 31 on the Nasdaq.

All the hope people had at the beginning of the week that the move the market put on would give it the momentum to reach new highs, and damn the looming

Federal Open Market Committee

meeting, has slipped away. It's back to the same old chop.

"If I were to go long anything today it would be volatility," said Charles Crane, chief market strategist at

Key Asset Management

. "This thing remains very skittish, with any day's activity being driven by the latest headline. This is characteristic of a pretty fully valued stock market. With rates north of 6%, stocks are expensive even if you are optimistic on earnings."

And getting more expensive all the time, it seems. Early strength in the Treasury market faded into weakness, with the yield on the 30-year lately at 6.20% and everyone in the market talking about how it's headed to 6.25%. The problem with that, noted

Salomon Smith Barney

equity strategist John Manley, is that "at 6%, people say the risk is 6.25%. At 6.25%, the risk is 6.5%."

But for all that risk in bonds, Manley suspects that it may be time to start putting some money into them. When its yield hit 6.15%, the long bond was down about 15% on a total-return basis from its 52-week high. Historically, if you've put money into the market when that happened, you've come out ahead. Manley believes that we are entering a period where bonds may outperform stocks.

It's an idea that's getting a lot of play lately on Wall Street. "I think in the next 6 to 12 months, the two asset classes are going to be neck-and-neck in terms of return," said Crane, adding that at some point on that timeline, bonds will have outperformed. One gets the sense that there are a lot of portfolio managers waiting to see a turn in the bond market, hoping to move money into it.

They're raising that money now, and they're doing it by selling stocks.

Thursday's Midday Movers

By Heather Moore
Staff Reporter

Morgan Stanley Dean Witter

(MWD)

was down 1 5/8 to 91 5/8, off an earlier high of 95, after posting second-quarter earnings of $1.95 a share, better than the 14-analyst

First Call

estimate of $1.56 and up from the year-ago $1.37. Earlier this week,

Lehman Brothers

TheStreet Recommends

(LEH)

and

Goldman Sachs

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

both blew away earnings estimates.

CyberSource

(CYBS)

was climbing 3 7/16, or 31.3%, to 14 1/2 after

Merrill Lynch

priced its 4 million-share IPO above range at $11. The company develops and provides real-time e-commerce transaction services, such as global payment processing and fraud prevention, to online merchants.

Elsewhere in new issues,

Software.com

(SWCM)

was hopping 4 9/16, or 30.4%, to 19 5/8 after

Credit Suisse First Boston

priced its 6 million-share IPO above range at $15. The company offers browser-based email, desktop-based email, Internet-based voice mail and fax-mail messaging.

In other news:

Omnipoint

(OMPT)

was up 8 5/16, or 40.1%, to 29 1/8 after

VoiceStream Wireless

(VSTR)

agreed to buy it for about $2 billion in cash and stock. After

Donaldson Lufkin & Jenrette

lifted it to top pick from buy, VoiceStream was down 1/4 to 29 3/16.

Earnings/revenue movers

Advanced Micro Devices

(AMD) - Get Advanced Micro Devices, Inc. Report

was down 1 5/16, or 7.2%, to 16 7/8 after warning it will record a much wider-than-expected second-quarter loss due to collapsing prices and lower shipments for its K6 processors. AMD, whose main competitor is

Intel

(INTC) - Get Intel Corporation (INTC) Report

, sees an operating loss of about $200 million for the quarter. Today,

Morgan Stanley Dean Witter

lowered its full-year 1999 outlook to a loss of $4.33 from a loss of $1.50.

Micron Technology

(MU) - Get Micron Technology, Inc. (MU) Report

was down 3 1/16, or 7.1%, to 40 13/16 after last night reporting a third-quarter loss of 10 cents a share, below the 21-analyst expectation for a break-even quarter but narrower than the year-ago loss of 51 cents. Micron Tech also said it will record a fourth-quarter charge of $9 million to $12 million to shut down its communications unit. Today, DLJ cut the stock to market perform from buy.

Premisys Communications

(PRMS)

was down 1 1/8, or 14%, to 6 15/16 after last night saying it expects to record a fourth-quarter loss of 5 cents to 8 cents a share, which would be below the six-analyst forecast of earnings of a dime. The company, which earned 19 cents in the year-ago period, attributed the warning to a failure to obtain several large orders. Today,

Goldman Sachs

cut the stock to market perform from outperform.

SCM Microsystems

(SCMM)

was down 8 5/16, or 15.3%, to 46 after last night saying it sees second-quarter earnings of 10 cents to 13 cents a share, which would be below the three-analyst outlook of 24 cents. The company earned 11 cents in the year-ago period. SCM also said it will acquire a majority stake in

Dazzle Multimedia

, which provides digital video products for Internet and PC applications, for an undisclosed amount.

Zomax

(ZOMX)

was up 6 5/16, or 23.1%, to 33 5/8 after saying it sees second-quarter earnings of around 55 cents a share, which would top the five-analyst prediction of 31 cents and the year-ago 15 cents. The company said it benefited from the acquisition of

Kao Infosystems

and that higher capacity-utilization rates at its manufacturing plants and a stronger customer mix have helped operating margins.