Stocks Aren't Rising but Concern Over Financials Is

The Nasdaq was narrowly in the black, but blue-chips were still down following strong retail data.
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Stocks were struggling at midday to get their legs back after being knocked down by a stronger-than-expected retail sales report this morning. For the most part, that struggle was unsuccessful.

Sales gained 1.2% overall, blowing past the consensus estimate of a 0.8% gain in the

Reuters

poll. The core rate, which excludes last month's booming auto sales, gained 0.7%, surpassing the expected 0.4% increase.

Stocks and bonds moved lower at the report's release. And, despite a midmorning breakout to the upside by the

Nasdaq Composite Index

, the major proxies were all looking listless at midday.

The

Dow Jones Industrial Average

was down 117.47, or 1.1%, to 10,912.86, led lower by financials

American Express

(AXP) - Get Report

and

J.P. Morgan

(JPM) - Get Report

. The

Nasdaq Composite Index

was up 5.72 to 2850.49, while the broader

S&P 500

was losing 10.72 to 1333.41

TheStreet.com Internet Sector

index was up 2.93 to 615.39, and the small-cap

Russell 2000

was 2.27 lower to 437.38.

"The market's trading at the top of its range," said Dan Marciano, head of trading at

First Albany

. Marciano cited the range's low and high ends at 10,500 and 11,200: "When it's at the top, it'll react adversely no matter what. We're base-building here for another move up. But it may take a while."

"It's just the latest part of this range-bound, data-driven market," offered Richard Cripps, chief market strategist at

Legg Mason

. "Investors need to gain clarity on the direction of interest rates."

While today's hot retail sales data took the market a bit by surprise, both Cripps and Marciano are looking forward to tomorrow's

Consumer Price Index

, the truest measure of inflation.

"Retail sales is part of the mosaic that the Fed will use" to form its monetary policy, said Cripps. "But the CPI is going to be a very important number tomorrow."

A range-bound market. Inflation fears. The market's full of well-worn themes today -- including the continuing malaise in the financial sector. Slumping financial stocks were driving the

Philadelphia Stock Exchange/KBW Bank Index

down 2.6%. The BKX is now about 14% off its level of Aug. 24.

That trend has a growing number of market participants concerned, Cripps included. He guardedly compared it to the period "when we had the weakness last fall. They're looking very weak. They can't trade. There's no bid."

"Obviously, I'm concerned with what the Fed's going to do," Legg Mason's Cripps added. "But I'm also worried that the financials can't discount what the Fed's going to do. It leads me to think that there's more out there about the investment environment that we don't know."

It's not totally clear how much of the damage in the BKX is due to fears over inflation and rising interest rates, of course. Financials have experienced their share of sector-specific problems lately. There's the still-fresh memory of the credit card problems

Bank One

(ONE) - Get Report

announced last month. There's the earnings worries over

Chase Manhattan

(CMB)

, which Warburg Dillon Read and Goldman Sachs ratified last week by cutting their estimates for the bank.

Today, the earnings worries have moved on to

Bank of America

(BAC) - Get Report

;

Credit Suisse First Boston

cut its fiscal 1999 earnings-per-share estimate by 15 cents to $4.70. Compounding matters is an article in the Heard on the Street section of today's editions of

The Wall Street Journal

that cites the declining quality of commercial loans.

"We just had the chairman of

Wachovia

(WB) - Get Report

here, and we spent a long time going through this whole issue," Cripps said. "Bank One is specific to them. First Union is specific to them. But look at the Nasdaq's small bank index, which doesn't have much relation to them -- it's getting walloped." Indeed, the index was lately down 1.2%, putting it about 6.1% off its Aug. 24 level.

Financials were also coming under pressure from another decline in the dollar after the second-quarter current-account deficit swelled to a record $80.67 billion. That plays into the capital-flight scenario bearish types have been pushing lately. Despite another tepid intervention by the

Bank of Japan

overnight, the greenback was lately quoted at 105.29 yen.

What strength the market was showing was concentrated in technology. The Philadelphia Semiconductor Index was soaring 3.3%. The Comp's big tech leaders were looking solid;

Qualcomm

(QCOM) - Get Report

for one, was rocketing 8% higher.

But breadth was looking very weak. Advancers were trailing decliners 782 to 2,008 on the NYSE, where there were 30 new 52-week highs against 135 new lows. In Nasdaq action, decliners were beating advancers 2,025 to 1,431, with 55 new highs and 42 new lows.

Thin volume suggested that many players were sitting this one out. Just 385 million shares had traded on the

New York Stock Exchange

, while 550 million shares changed hands on the

Nasdaq Stock Market

.

The 30-year Treasury was lately down a full point to 101 1/32, its yield rising to 6.122%.

Tuesday's Midday Watchlist

By Tara Murphy
Staff Reporter

(

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

.)

Mergers, acquisitions and joint ventures

Finnish telecom giant

Nokia

(NOK) - Get Report

was off 5/8 to 88 7/16 despite winning a $76 million deal with

Picus Communications

, Virginia Beach, Va., to supply high-speed data and voice digital subscriber line, or DSL, broadband network technology.

Motorola

(MOT)

was hopping 2 3/4 to 93 after it said it inked deals

IBM

(IBM) - Get Report

,

QNX Software Systems

and

Embedded Planet

to create technology for "smart cars," which use computers to supply real-time traffic updates and play music on demand. Motorola said it expects the invention to be ready for 2002 or 2003 car models.

Qualcomm

(QCOM) - Get Report

was soaring 9 15/16, or 6.4%, to 163 3/4 after it said it was in talks with several interested parties while it considers strategic alternatives for its phone business. Qualcom hopes to forge a deal by the end of the year. The company also said that it expects fourth-quarter earnings to meet or exceed the consensus estimate of 87 cents a share.

Sauer

(SHS)

was down 1 7/8, or 13.9%, to 11 9/16 after it said it is in talks to acquire

Danfoss Fluid Power Business

.

Scottish & Newcastle

, one of the largest pub companies in the U.K., agreed to buy 826 bars, restaurants and hotels from

Greenalls

for $1.8 billion, in an effort to keep pace with fast-growing rivals.

Solectron

(SLR)

was up 1/8 to 73 7/8 after it said it would buy

Smart Modular Technologies

(SMOD)

in a deal valued at $2 billion in stock. Earlier today,

Banc of America

raised Solectron's fiscal 2000 earnings estimates to $1.58 a share from $1.50. Shares of Smart Modular were jumping 11, or 47%, to 34 1/2.

Earnings/revenue reports and previews

Able Telecom

(ABTE)

was up 11/16, or 8%, to 9 5/16 after it reported third-quarter earnings of 17 cents a share, in line with the single-analyst estimate and reversing the year-ago 72-cent loss.

Best Buy

(BBY) - Get Report

was sinking 4 11/16, or 7.7%, to 55 11/16 despite posting second-quarter earnings of 28 cents a share, beating both the 15-analyst estimate of 27 cents and the year-ago 21 cents.

Interstate Bakeries

(IBC)

was off 1/2 to 22 1/2 after it reported first-quarter earnings of 47 cents a share, in line with the nine-analyst estimate and flat with year-ago EPS.

Kroger

(KR) - Get Report

was up 7/8 to 24 1/8 after it posted second-quarter earnings of 24 cents a share, in line with the 14-analyst estimate and better than the year-ago 12 cents.

Miller Industries

(MLR) - Get Report

was up 1/16 to 2 15/16 after it reported first-quarter earnings of 3 cents a share, in line with the two-analyst estimate and down from 6 cents a year ago.

Pier 1 Imports

(PIR) - Get Report

was unchanged at 5 11/16 after it reported second-quarter earnings of 12 cents a diluted share, in line with the 16-analyst estimate and down from 17 cents a year ago. The company said same-store sales for the quarter declined 1.8%.

Analyst actions

Anaren Microwave

(ANEN)

was unchanged at 26 3/8 after

U.S. Bancorp Piper Jaffray

upped its price target to 35 from 30.

Cabot Industrial Trust

(CTR) - Get Report

was unchanged at 20 after

Salomon Smith Barney

lowered its rating to a neutral from an outperform.

Estee Lauder

(EL) - Get Report

was climbing 3 5/16, or 8.1%, to 43 7/8 after

Merrill Lynch

raised the stock's rating to accumulate from neutral and set a share price target close to 50.

EMC

(EMC)

was slipping 1/4 to 68 1/2 after

SG Cowen

analyst Richard Chu began coverage of the stock with a buy rating and set a price target of 77.

Federal Mogul

(FMO) - Get Report

was plummeting 10 3/4, or 27.3%, to 28 5/8 after Merrill Lynch cut its rating on the shares to near-term neutral/long-term accumulate from near- and long-term buy, citing earnings expectations.

Credit Lyonnais

also cut the stock to hold from a buy.

Lexington Corporate Properties

(LXP) - Get Report

was up 1/8 to 11 3/8 after Salomon sliced the stock's rating to a neutral from an outperform.

Mack-Cali Realty

(CLI) - Get Report

was off 1/16 to 27 5/16 after Salomon Smith Barney downgraded the shares to outperform from buy.

Mypoints.com

(MYPT)

was declining 1 1/16 to 20 1/2 after Salomon rolled out coverage of the stock with a buy rating.

PairGain

(PAIR)

was down 1/16 to 12 1/16 after

Warburg Dillon Read

sliced its third-quarter estimate to a 5-cent loss from a 2-cent profit, and slashed its year estimate to a 2-cent loss from a 24-cent profit. U.S. Bancorp Piper Jaffray, meanwhile, cut its third-quarter estimate to a 3-cent loss from a 2-cent profit and its fiscal 1999 target to a 4-cent profit from a 17-cent profit.

Offerings and stock actions

U.S. Industries

(USI) - Get Report

was up 1/16 to 16 5/8 after it said it would buy back up to $100 million worth of common stock.

PurchasPro.com

(PPRO)

was soaring up 15 7/8, or 132%, to 28 in its trading debut.

Prudential Securites

priced the 4 million shares in midrange at $12.

Miscellany

Hibbet Sporting Goods

(HIBB) - Get Report

was off 1/8 to 17 5/8 after it tapped president and COO Michael Newsome to become its first CEO. Newsome will continue act as the company's president.

Bank stocks may be ripe for a beating, according to today's Heard on the Street column in

The Wall Street Journal

. Bank stocks have fallen 11% since the last

Federal Reserve

rate increase, compounding banks' existing problems of slower loan growth and other revenue challenges. Bigger problems may lie ahead, the column says, as a result of declining commercial loan quality and rising interest rates weighing down securities portfolios.

Federal prosecutors charged

Princeton Economics International

Chairman Martin Armstrong with securities fraud for allegedly stealing $1 billion from Japanese investors. Prosecutors said that Princeton Economics, which isn't affiliated with the Ivy League university, hid hundreds of millions in trading losses in 300 Japanese investors' accounts. Officials claim that Princeton, which told investors that their accounts would be individually handled and conservatively invested, combined the accounts, applying money from one to the interest payments on another. Armstrong could serve up to 10 years in jail if convicted.

Thai Airways International

is seeking to obtain $576 million in new 12-year foreign currency loans to finance the acquisition of five

Boeing

(BA) - Get Report

aircraft.