Stocks See a Huge Rally on the News -- Before the News

The news is the Fed's all-but-certain rate hike tomorrow, and Wall Street anticipated the heck out of it in today's record-setting session.
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With nothing to fear but fear (of the

Fed

) itself, stocks continued their recent rally, sending the

Dow Jones Industrial Average

to a new record in the process. Broader market averages failed to set new standards, but also advanced as market players parlayed the sense any rate hike tomorrow from the central bank will be the last for the foreseeable future.

"We're going through the same celebration rally we had on the last rate hike," said Paul Rabbitt, president of

RabbittAnalytics.com

in Hermosa Beach, Calif. "This time, there's such a broad consensus

about what the Fed will do we're celebrating ahead of time."

The Dow led the celebration, closing at its session high, up 199.15, or 1.8%, to 11,299.76, besting its previous high of 11,209.84, set

July 16.

Dow gainers featured

J.P. Morgan

(JPM) - Get Report

and other financials; growth names such as

General Electric

(GE) - Get Report

,

Johnson & Johnson

(JNJ) - Get Report

and

IBM

(IBM) - Get Report

; as well as cyclicals such as

AlliedSignal

(ALD)

. The

Philadelphia Stock Exchange/KBW Bank Index

rose 2.7%, the

S&P Barra Growth Index

gained 2.2% and the

Morgan Stanley Cyclical Index

rose 1.9%.

Because of its heavier weighting in resurgent commodity-based stocks, the Dow has outperformed the

S&P 500

both for the year to date and in the race back to new highs since the midsummer swoon. The S&P gained 23.61, or 1.8%, to 1360.22 today, but remains 4.1% below its all-time best of 1418.78.

In addition to financials, the S&P got a lift from multinationals such as drug stocks, which have rebounded recently on hopes a weakening dollar will improve their profit outlook. The

American Stock Exchange Pharmaceutical Index

climbed 3.1%.

Tech favorites such as

Intel

(INTC) - Get Report

and

Microsoft

(MSFT) - Get Report

further fueled the S&P's gains and helped send the

Nasdaq Composite Index

up 71.24, or 2.7%, to 2719.57. Still, the tech-be-nimble-tech-be-quick index remains 5.1% off its July 16 record of 2864.48.

TheStreet.com Internet Sector

index rose 14.54, or 2.6%, to 571.71 while the

Russell 2000

gained 2.87, or 0.7%, to 437.25.

"The backdrop for the stock market is still pretty favorable," said Robert Harrington, co-head of block trading at

PaineWebber

. "The Fed seems to be out in front of potential inflation in the system; they've responded with one rate hike and I'd be surprised if they didn't go tomorrow."

Harrington noted additional positives of the 30-year Treasury bond yielding below 6% again and the fact retail investors are still putting money into equities.

"It looked like once you made a new high on the Dow, it brought in more momentum players who seemed to buy across the board," he said of today's action, citing particular strength in drug makers and chip stocks. The

Philadelphia Stock Exchange Semiconductor Index

gained 3.2%.

Merger activity in a variety of sectors further inspired today's advance, other traders observed. The biggest deal involved

Florida Progress

(FPC)

, which gained 4.9% after

Carolina Power & Light

(CPL) - Get Report

offered $54 a share to acquire the power provider. CP&L slid 5.9%.

Still, the

Dow Jones Utility Average

edged down 0.06 to 319.58.

Among other notable deals and their fallout,

Forte Software

(FRTE)

jumped 26.1% thanks to a buyout offer from

Sun Microsystems

(SUNW) - Get Report

. Also,

OmniQuip International

(OMQP)

leapt 56.7% following a bid from

Textron

(TXT) - Get Report

. Sun Microsystems rose 0.7% while Textron gained 4.1%.

As for the sustainability of the advance, Harrington said stocks are now "somewhere near fair value in a lot of people's models," and could advance another 5% before caution is warranted.

"The higher we go, the more cautious you get, unless there's a real rally in the bonds which would make stocks more promising as far as P/Es," he said.

For now, however, "the path of least resistance seems to be up," the trader said. "I wish there were more to it, but I'm not sure there is."

In

New York Stock Exchange

trading, 679.5 million shares were exchanged while advancers led declining stocks 1,709 to 1,250. In

Nasdaq Stock Market

action 912.4 million shares traded while gainers led 2,107 to 1,826. New 52-week highs bested new lows 77 to 70 on the Big Board and 124 to 52 in over-the-counter trading.

Bulls on Parade

Naysayers noted the lack of compelling upside volume, and the fact that the

Dow Jones Transportation Average

remains some 15% off its record while the Dow industrials raced to a new high.

But the voices of dissent were drowned out today, as they have been so many times in this long-standing bull market.

In an email to clients today entitled

Tuesday's FOMC Meeting is Old News -- Rally to Continue

, Rabbitt reiterated his long-held bullishness, suggesting the Dow will trade between 11,500 and 10,500 in the next 30 days, with the S&P between 1425 and 1281, the Nasdaq between 2900 and 2450 and the Russell 2000 between 465 and 402.

"Short-term we're probably halfway through, then we'll get some backing and filling," he said in a phone interview. "But in generally I feel pretty good about the market."

That sentiment is based -- among other things -- on a belief the Fed will tighten tomorrow but not at its October meeting, as some players are now concerned about.

"I think this is probably the last hike," Rabbitt said, noting recent inventory building, higher mortgage rates and Y2K will "to some degree" slow the U.S. economy in the months ahead.

That view, in turn, has the strategist believing there is "limited downside risk in bonds," which further fuels his positive tidings regarding stocks. Rabbit noted bullish sentiment in fixed-income is at its lowest level since Oct. 19, 1987. "The extremely bearish sentiment assures strength in bonds over the next three to six months," he wrote.

Today, the price of the 30-year Treasury bond rose 4/32 to 101 30/32, its yield at 5.99%.

Among other indices, the Dow transports rose 47.69, or 1.5%, to 3198.42; and the

American Stock Exchange Composite Index

gained 4.72, or 0.6%, to 792.51.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

gained 45.74 to 7174.96 and the

Mexican Stock Exchange IPC Index

surged 115.89, or 2.3%, to 5215.15.

Monday's Company Report

By Tara Murphy
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.

)

Mergers, acquisitions and joint ventures

Continuing the consolidation trend in the world of utilities, Carolina Power & Light slid 2 5/16, or 5.9%, to 36 11/16 after it agreed to buy Florida Progress for about $5.3 billion in cash and stock. The deal values Florida Progress at $54 a share, a juicy premium over its Friday closing price of 44 5/8. Today,

Merrill Lynch

cut Carolina Power & Light's rating to a near-term neutral from accumulate, while PaineWebber upped its rating on Florida Progress to attractive from neutral. Florida Progress shares hopped 2 3/16 to 46 13/16.

Centura Banks

(CBC)

declined 2 1/8 to 49 7/8 after it announced plans to buy

Triangle Bancorp

(TGL)

in a stock swap valued at $608.4 million. Centura expects the acquisition to be accretive to earnings per share in 2001. Triangle shares jumped 5, or 30.3%, to 21 1/2.

MotivePower Industries

(MPO)

was off 1/8 to 12 1/8 after its share holders gave their stamp of approval for an expected merger with

Westington Air Brake

(WAB) - Get Report

, even though Westinghouse pushed back its own vote on the $560 million stock transaction. Westinghouse blamed market volatility in both companies share prices for the vote's delay. A new date for the meeting has not been set. The union would create a new rail road and services provider with revenues totaling $1.2 billion, maintaining the MPO ticker symbol. Shares of Westinghouse were off 1/4 to 19 13/16.

OmniQuip International rocketed 7 7/16, or 56.7%, to 20 5/8 after Textron agreed to acquire it for $21 a share in cash. Textron jumped 3 5/16 to 84 1/2 after it.

PSINet

(PSIX)

was up 3/8 to 45 7/8 after it said it is acquiring

Transaction Network Services

(TNI)

in a deal it values at $720 million. Shares of Transaction Network Services soared 10, or 26.2%, to 43 1/4.

Peninsular & Oriental Steam Navigation

of Britain denied it received a buyout offer worth about $11 billion from

Carnival

(CCL) - Get Report

, the world's biggest cruise operator. P&O's comments rebutted a report in Britain's

Mail on Sunday

, which reported that P&O had rejected the bid. Shares of Carnival hopped 1 3/8 to 48 3/8.

Standard Products

(SPD)

advanced 1/8 to 35 after it agreed to be bought by

Cooper Tire & Rubber

(CTB) - Get Report

for $760 million. The company, a leading player in auto plastic and rubber manufacturing, said it would assume a one-time, after-tax $15.3 million charge, or about 95 cents a share, the first quarter of fiscal 2000. The transaction will be completed in the fourth quarter. Shares of Cooper Tire declined 1/16 to 20 7/16.

Suez Lyonnaise des Eaux

is buying

United Water Resources

(UWR)

, the second-largest water distributor in the U.S., for $35 a share. Shares of United Water Resources increased 2 7/16, or 7.8%, to 33 1/2.

Forte Software leapt 4 3/8, or 26.1%, to 21 1/8 after Sun Microsystems agreed to buy it in a deal valued at $540 million. Sun gained 1/2 to 74 13/16.

Earnings/revenue reports and previews

Stewart & Stevenson

(SSSS) - Get Report

was up 1/4 to 13 after it posted second quarter earnings of 11 cents a share, beating the three-analyst estimate of 7 cents but down from the year-ago 30 cents.

Offerings and stock actions

Bamboo.com

(BAMB:Nasdaq) slashed the estimated price for its upcoming IPO for the third time to $7 a share from $8, a

Securities and Exchange Commission

filing said. The company, which provides virtual visit tours of real estate on the Internet, is hoping to rake in an estimated $25 million to $27.4 million through a 4 million-share offering. Bamboo.com initially filed Aug. 12 to sell 5 million shares in an estimated range of $10 to $12 a share. The IPO is expected to make its trading debut later this week.

Eskimo Pie

(EPIE)

increased an 1/8 to 10 1/16 after it said a private investor group put forward a cash purchase offer of $10.125 a share for all of Eskimo's outstanding stock. The group asked Eskimo's president and CEO to be part of the acquiring group. Eskimo's second largest shareholder Peak Management, which holds 10.7% of its shares, said on Friday that it has approved the offer.

Keynote Systems

(KEYN:Nasdaq) announced its plans to raise $40.2 million in a 4 million-share initial public offering. According to a SEC filing, the company's stock could possibly price between $10 to $12 a share.

BancBoston Robertson Stephens

,

Hambrecht & Quist

and

Dain Rauscher Wessels

are serving as the deal's underwriters. Keynote plans to raise an estimated $40.2 million in net proceeds.

Travelscape.com

has put IPO plans on hold due to volatile market conditions. The online travel company asked the SEC to withdraw its $50 million offering from consideration and also notified Nasdaq of the cancellation. Travelscape planned to offer 5 million common shares, pricing at $10 to $12 each. On an estimated IPO price of $11 a share, the company hoped to rake in roughly $50 million for debt repayment and working capital.

Analyst actions

Alloy Online

(ALOY)

advanced 3 3/4 to 13 3/4 after

Volpe Brown Whelan

upped its rating on the stock to strong buy from buy, citing "compelling relative valuation and several near-term positive catalysts.

American National Can

(CAN)

was up 3/8 to 16 3/4 after

Deutsche Banc Alex. Brown

started coverage with an initial buy rating.

Credit Suisse First Boston

initiated coverage of the stock with a strong buy rating and a price target of 33.

American Residential

(INV)

increased 1/2 to 7 3/4 after PaineWebber upgraded the stock to buy from attractive.

Barrett Resources

(BRR)

slipped 3/4 to 36 1/2 after

Lehman Brothers

lowered its rating on the stock to outperform from buy, citing a lower production growth outlook through 2000.

Chemdex

(CMDX)

stumbled 1/16 to 22 1/8 despite

Morgan Stanley Dean Witter

giving the stock an initial outperform rating.

Continuus Software

(CNSW)

was off 1/4 to 5 3/4 despite

U.S. Bancorp Piper Jaffray

initial strong buy rating.

Cross Timbers Oil

(XTO)

advanced 1/2 to 12 3/16 after Lehman Brothers upped its rating to buy from outperform.

drugstore.com

(DSCM)

jumped 2 5/8, or 5.4%, to 51 5/16 after

Donaldson Lufkin & Jenrette

started coverage at buy.

Duke Energy

(DUK) - Get Report

increased 1/16 to 55 5/8 after

Warburg Dillon Read

raised its rating to buy from hold.

KeraVision

(KERA)

hopped 1 9/16, or 11.1%, to 15 3/4 after DLJ started coverage with an initial buy rating.

Warburg Dillon Read initiated coverage of

Lennox International

(LII) - Get Report

with a strong buy rating and a price target of 25. Lennox International climbed 3/8 to 17 3/8.

Nabisco Holdings

(NA)

was off 1/8 to 36 3/8 despite PaineWebber's upgrade to attractive from neutral.

Quokka Sports

(QKKA)

declined 1 3/8 to 10 1/4 despite

BancBoston Robertson Stephens

analyst Keith Benjamin's initial buy rating. Merrill Lynch started coverage of the stock with a near-term accumulate and a long-term buy.

Vignette

(VIGN)

soared 6 5/16, or 10.2%, to 67 13/16 after U.S. Bancorp Piper Jaffray initiated coverage with a strong buy rating.

Miscellany

AT&T

(T) - Get Report

was up 3/8 to 47 1/4 after it set a multiyear pact valued at more than $400 million with AlliedSignal. The deal calls for

AT&T Solutions

, AT&T's professional services division, to provide global networking management and standardize communications technology capabilities across AlliedSignal's infrastructure. Shares of AlliedSignal increased 2 15/16 to 65 7/8.

The Wall Street Journal

, citing people familiar with the matter, reported that law-enforcement authorities are probing whether

Bank of New York

(BK) - Get Report

was among a chain of banks that served as conduits for about $200 million that may have been diverted from loans to Russia made by the

International Monetary Fund

.

Filene's Basement

(BSMT) - Get Report

revealed plans to file a voluntary petition for Chapter 11 bankruptcy protection with the U.S. District Court in Boston. The discount-clothing retailer, which has posted disappointing results for four consecutive quarters, is attempting a comeback through job cuts and merchandise improvement. Filene's said it would continue to operate under court protection from its creditors while strategizing a restructuring plan.

FPIC Insurance Group

(FPIC)

fell 4 1/8, or 17.9%, to 18 13/16 after it said that it would assume a third quarter charge of $1.75 million for two executives severance payments. The medical liability insurer said CFO Robert Finch and

Florida Physicians Insurance

president Steven Smith will be paid a total of $1.75 million in a 28-month severance package. FPIC's stock began to decline on Aug. 10 after the company posted a 48% increase in second quarter earnings to $7.4 million. The increase was fueled by the release of $8.1 million in future claims reserves, up from the year-ago $4 million, leaving investors skeptical of solid earnings.

Northrop Grumman

(NOC) - Get Report

climbed 2 13/16 to 71 15/16 after it said a group led by its

Logicon

division had been awarded a $214 million contract for the Army's Battle Command Training Program at Fort Leavenworth, Kan. The U.S. Army Training & Doctrine Command, Mission Contracting Activity granted the contract, which includes one base year and four one-year options, potentially reaching $214 million. The training program prepares Army commanders and their staffs for the operational aspects of war using computer-based simulation.

Coleman Research

and

Scientific Applications International

will also contribute to the training program.

SG Cowen

analyst Cai von Rumohr upped his rating on Northrop Grumman to buy from neutral and set a 6-to-12-month price objective of 86.