Small-Caps, for Once, Aren't Left Behind as Dow Advances

The market is broadening, breadth is improving and technology seems to be slowing down.
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For a while now, many market strategists have been saying it would happen. For the future of the bull market, they'd cry, it

had

to happen.

And we sighed, rolled our eyes, even made a bit of fun.

But wouldn't ya know it -- it's happening, or at least it's started to: the market is broadening, breadth is improving, technology seems to be slowing down, and small-caps are in their dressing room applying facial powder for that any-day-now comeback.

And at midday midweek, today looks like it could be a confirmation of an upcoming market expansion. All day, breadth has been positive. And all day -- all week! -- the

Russell 2000

has been in the green.

Market internals -- long the bears' and skeptics' rally cry for why this market is unhealthy and will end miserably -- were shining. On the

New York Stock Exchange

, advancers were leading decliners 1,956 to 975 on 523.8 million shares. The ups had the downs 2,270 to 1,580 on 846.9 million shares in

Nasdaq Stock Market

activity.

And the Russell, positive even when the rest of the major indices were down at midmorning, was up 7.62, 0r 1.83%, to 424.86. Since the morning, however, the

Dow Jones Industrial Average

has picked up steam and looks set to close in another record.

Don't get too excited about small-caps just yet, warned Claudia Mott, small-cap strategist at

Prudential Securities

. The Russell's strength this week owes much to, what else, the Internet, specifically

E*Trade

(EGRP)

and

Ameritrade

(AMTD) - Get Report

. And by comparison, Mott said, the

S&P 600 Small-Cap Index

has not seen much of a revival. That index lately was climbing 2.3% to 166.10.

"I'm cautious," she said. "And today is probably the best day we've seen for small-caps. For as many calls from the press I've gotten, I've also gotten calls from money managers getting creamed because they don't or can't own Internet names. How do you as a value manager explain having

a more than $280-a-share

CMGI

(CMGI)

in your portfolio? And Ameritrade is up something like 1,000% since the beginning of the year."

What's more likely than a full-on small-cap resurrection, Mott said, is that select small-caps will benefit from continued strength in telecommunications stocks and a large-cap rotation to cyclicals such as chemicals, paper and financial stocks.

That doesn't sound too far off, especially with news that a major firm is shifting its weighting toward cyclicals.

Jeffrey Warantz, a senior equity strategist at

Salomon Smith Barney

, said the firm is placing greater weight on capital goods, machinery and other cyclical areas and lowering technology and health care to market weighters from overweighters relative to the overall market. (Specific percentages were not yet available, Warantz said.)

"The idea here," Warantz said, "is that tech and health care have been making you money for a few years, and they will continue to for a bit. They're not going to just suddenly fall apart. But there comes a time when they get fairly overextended. We're seeing earnings momentum picking up and the market has been broadening out these past few days. Personally, I didn't expect to see small-caps jump so quickly but I'm happy to see it -- that's a plus." The strategist named

Caterpillar

(CAT) - Get Report

and

Deere

(DE) - Get Report

as two names about which the firm is particularly positive.

Warantz said he expects the major indices to trade in a narrow range near-term and that he see investors starting to pay attention to positive earnings from some mid-cap companies and drive up those stocks. "So we may be flat but we'll be a lot healthier," he said. "I mean, in the last 12 months, 80% of stocks have trailed the

S&P

by 15%. I'd rather have laggards of under 60% than Dow 11,000."

After falling as low as 10,367.81, the Dow recently was up 101.18 to 10,495.19. One big reason was component

J.P. Morgan

(JPM) - Get Report

, which was soaring on Herculean earnings. The broader S&P 500 was up 0.22 to 1350.04.

The

Nasdaq Composite Index

was up 5.1 to 2588.69. The

Morgan Stanley High-Tech 35

was up 1.7% to 1070.1, and the

Philadelphia Stock Exchange Semiconductor Index

was up 3.2% to 391.86.

Internets were struck by some mild profit-taking.

TheStreet.com Internet Sector

index was down 21.79 to 754.39, and

TheStreet.com E-Commerce Index

was off 0.47 to 145.69.

The 30-year Treasury was down 5/32 to 96 9/32, sending its yield to 5.505%. (For more on the fixed-income market, see today's early

Bond Focus.)

Wednesday's Midday Movers

By Aaron L. Task
Senior Writer

Major averages, save the Dow and Russell, may be undecided, but don't blame a lack of corporate news. With earnings-reporting season getting under way in earnest, some of the biggest names on Wall Street have delivered earnings or significant news pertaining to the same.

Most prominently, Intel was down 1 3/4, or 2.9%, to 58 13/16 after

last night posting first-quarter earnings of 57 cents a share, 2 cents above the 33-analyst forecast and well ahead of the year-ago 36 cents. But the chipmaker said second-quarter revenue may be flat to slightly lower than the first quarter's $7.1 billion.

Credit Suisse First Boston

started coverage with a buy rating.

J.P. Morgan was up 9 7/16, or 7.5%, to 139 after posting first-quarter earnings of $3.01 a share, blowing away the 11-analyst estimate of $1.73 and up from the year-ago $1.80.

Infoseek

(SEEK)

was down 11 1/4, or 14.1%, to 68 5/8 after reporting a second-quarter loss of 39 cents a share vs. the nine-analyst estimate for a loss of 41 cents.

BT Alex. Brown

cut its recommendation to buy from strong buy.

KLA-Tencor

(KLAC) - Get Report

was up 6 9/16, or 14.4%, to 52 3/16 after reporting third-quarter profits of 22 cents a share, down from 34 cents a year ago but 8 cents better than the 17-analyst forecast.

Lucent

(LU)

was up 4 1/16, or 7%, to 61 after saying its second-quarter earnings will meet or exceed the 30-analyst outlook of 15 cents a share, thus quelling rumors to the contrary.

Seagate

(SEG)

was up 2 7/16, or 9.2%, to 29 1/16 after reporting third-quarter profits of 49 cents a share, reversing a 10-cent loss a year earlier and besting the 10-analyst consensus by 3 cents. However, the disk-drive maker forecast that fourth-quarter revenue will be "flat" sequentially.

Earnings Movers

@Home

(ATHM) - Get Report

was down 5 3/4, or 3.2%, to 176 3/16 after meeting the 14-analyst consensus with a first-quarter operating loss of 7 cents a share vs. the year-ago loss of 10 cents.

E-Tek Dynamics

(ETEK)

was up 4 5/8, or 10.7%, to 48 after reporting third-quarter earnings of 14 cents a share vs. the seven-analyst consensus of 11 cents and year-ago earnings of 6 cents.

U.S. Bancorp Piper Jaffray

upped its recommendation to buy from neutral. Additionally, CEO Michael Fitzpatrick was named to the added post of chairman.

Identix

(IDX) - Get Report

was down 3/8, or 5.2%, to 6 7/8 after saying it sees third-quarter revenue coming in flat with the year-ago period and that it expects to post a quarterly loss. The three-analyst estimate called for earnings of 2 cents a share vs. the year-ago loss of 3 cents.

Inprise

(INPR)

was down 5/16, or 8.9%, to 3 1/4 after warning it expects a first-quarter loss of 54 cents to 56 cents a share, including charges, vs. the three-analyst view for break-even results. The company hired

Hambrecht & Quist

to weigh whether it should split into two. Inprise also appointed Dale Fuller interim president and CEO, replacing Delbert Yocam, who -- along with CFO Kathleen Fisher -- was asked to leave March 31.

Pope & Talbot

(POP)

was up 1 1/4, or 19.2%, to 7 3/4 after reporting a first-quarter loss of 17 cents per share, down from a 49-cent shortfall a year ago and 10 cents narrower than the loss projected by the five-analyst consensus.

Rowan Cos.

(RDC)

was down 13/16, or 6.2%, to 12 1/4 after reporting a first-quarter loss of 12 per share, double the loss projected by the 22-analyst consensus and reversing year-ago profits of 48 cents.

Sovereign Bancorp

(SVRN)

was up 1 3/8, or 7.9%, to 18 3/4 after saying first-quarter earnings will be in line with the consensus of 28 cents a share. The company earned 26 cents a year ago.

In Other News

Biomatrix

(BXM)

was down 5 15/16, or 6.6%, to 84 1/16 after

Prudential Securities

cut its recommendation to accumulate from strong buy.

TheStreet.com

this afternoon

reported on Biomatrix's travails.

Casella Waste Systems

(CWST) - Get Report

was up 3 7/16, or 16.8%, to 23 7/8 after announcing it will terminate its merger agreement with

KTI

(KTIE)

unless KIT allays its concerns about a variety of financial and operational issues. KTI was down 1 9/16, or 16.5%, to 8 1/16.

First Sierra Financial Services

(FSFH)

was up 7 1/16, or 38.2%, to 25 9/16 after announcing plans to set up a business-to-business Internet bank.

Florida Banks

(FLBK)

, one of yesterday's big winners, was down 9, or 29%, to 22 1/8 after

Wachovia

lowered its recommendation to neutral from buy. Similarly,

Net.B@nk

(NTBK)

was down 36 3/4, or 15.7%, to 197 3/8.

Harris

(HRS)

was up 5, or 17.9%, to 33 after saying it will spin off its Lanier Worldwide office equipment unit to shareholders to try and focus on its communications equipment business. As part of the reorganization, the company will cut 300 to 400 jobs, resulting in annual savings of $20 million to $30 million.

Indymac Mortgage

(NDE)

was up 2 5/8, or 22.2%, to 14 7/16 on news the company plans to do more business online rather than through brokers.

Oracle

(ORCL) - Get Report

was up 1 11/16, or 7.2%, to 25 15/16 after its board added 85 million shares to its stock-buyback plan.

priceline.com

(PCLN)

was up 14 1/2, or 17.8%, to 96 on news of a five-year marketing deal with

First USA

, a unit of

Bank One

(ONE) - Get Report

, which was up 1/2 to 58 5/8. The companies said the deal could mean $200 million in revenue for priceline.com and millions of new accounts for First USA.

Raytheon

(RTN) - Get Report

was up 3 13/16, or 6%, to 67 7/8 on expectations that recent developments in Kosovo will raise demand for the company's missiles.

Sagent Technology

(SGNT:Nasdaq) was up 5 5/8, or 62.5%, to 14 5/8 after 5 million shares were offered via an IPO at 9.

Sprint PCS Group

(PCS)

was down 4 7/8, or 8.9%, to 50 9/16 after

Morgan Stanley Dean Witter

lowered its recommendation to neutral from strong buy.

Ziff-Davis

(ZD)

was up 1, or 5.3%, to 20 after

Merrill Lynch

upped its recommendation to accumulate from neutral.