Stocks Slip as Late Action Erodes Earlier Gains

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Healthy intraday gains for the major indices turned to dust in late-session action as market players remained skittish ahead of Friday's triple-witching options expiration.

The

Dow Jones Industrial Average

stood at 8000.43 at 2:55 p.m. EST, having peaked earlier at 8034.00, but it was swiftly chopped, falling to 7975.06 by 3 p.m. It finished the day down 18.90 at 7957.41. Other indices followed a similar course, with the broad

S&P 500

down 2.50 to 965.54 (having peaked at 974.30), the tech-clogged

Nasdaq Composite Index

down 5.63 to 1547.37 (having peaked at 1569.11) and the small-cap

Russell 2000

up 1.10 to 426.44 (having peaked at 427.17).

"Some of the technologies continued to sell off right at the end of the day," said Jay Meagrow, institutional trader at

McDonald

in Cleveland. "The banks started to slow a little bit, and a few people started to speed up their sells on their techs. Outside of the technologies, banks and oils, it was pretty stable. I think there were some programs in there."

Market breadth stayed steadily positive on the

New York Stock Exchange

, while the Nasdaq ended the day in a muddle. NYSE advancers led decliners by 1,643 to 1,299 on 618.9 million shares. New Big Board highs topped new lows by 188 to 60. On the Nasdaq, 2,239 advancers barely edged 2,211 decliners on 769.2 million shares. New Nasdaq lows outpaced new highs by 192 to 152. Meanwhile, the bond market sold off, with the benchmark 30-year Treasury bond shedding 18/32 to 101 22/32 in price. The yield rose to 6.003%, poking just above the psychologically important 6% level.

"Irrespective of what the Dow or even the Standard & Poor's does right here, we must remember that the market hasn't done very much since the middle of July," said Stanley Nabi, chief economist and chairman of the investment policy and strategy committee at the

Wood Struthers & Winthrop

unit of

Donaldson Lufkin & Jenrette

. "My guess is that we will make a new high sometime early next year, but it will be a struggle."

Overall, Nabi expects an average stock return of 10% or less next year, including both dividends and price appreciation. "We see the possibility of lower interest rates, which will support the market, but we also see difficult earnings comparisons," he said.

Nabi advises investors to look for "a portfolio that collectively can give you noncyclical 10 to 12% earnings growth, a 2% dividend and is trading below the market multiple." He pointed to

Becton Dickinson

(BDX) - Get Report

,

Avon Products

(AVP) - Get Report

,

CUC International

(CU)

and

Baxter

(BAX) - Get Report

as his current leading candidates.

William Barker, market strategist at

Rauscher Pierce Refsnes

in Dallas, said he still expects the Santa Claus rally to arrive, even if it practically has to share the Big Guy's sleigh. "I think it'll start next week and probably carry well into the month of January," Barker said. "I think the January effect will take hold. Money will go into mutual funds in a fairly big way as 401s and pension funds are funded."

Barker is looking for small- and mid-cap stocks, beaten down since the Oct. 27 market hoo-hah, to rebound smartly in the beginning of 1998. "After the October break people got pretty nervous, and when they're nervous they buy blue-chip, big, liquid names," he said. "Once we get the investor a little calmer about the economic outlook for next year, I think he'll go back to

smaller stocks."

As befits Rauscher's Texas roots and energy expertise, Barker likes the exploration and production sector in particular. "There's going to be a lot of consolidation in the industry next year," he said. "The small companies will become part of larger companies. They'll either grow by the drill bit or they'll grow by becoming part of larger companies."

Wednesday's market action

(earnings estimates from

First Call

; new highs and lows on a closing basis unless otherwise specified):

3M

(MMM) - Get Report

notched 35.81 points out of the Dow with its plummet of 9, or 9.6%, to 84 7/8. The company said it expects its fourth-quarter earnings to come in close to the year-ago 90 cents per share. The 10-analyst consensus estimate called for $1 per share. Triple-M cited the strong U.S. dollar and the weak economies of Japan, Asia in general and Brazil.

Salomon Smith Barney

and

Prudential Securities

were among the houses that rushed to cut estimates on the company.

Cincinnati Financial

(CINF) - Get Report

leapt 25 1/4, or 22%, to an all-time high of 140 3/16 on news of its addition to the S&P 500. CUC International and

HFS

(HFS)

, both S&P 500 members, are merging to form

Cendant

, which also will be on the index.

Another merger set off a string of S&P index moves.

JP Foodservice

(JPF)

, which is acquiring

Rykoff-Sexton

(RYK)

, gained 1 3/16 to 32 7/8 on the news of its pending addition to the

S&P MidCap 400

. JP is replacing

Omnicom

(OMC) - Get Report

, which rose 3 13/16 to an all-time high of 77 1/16 on news of its ascension to the S&P 500. Omnicom is replacing

Fleming

(FLM) - Get Report

in the S&P 500, and Fleming dropped 1 9/16, or 10.3%, to a 52-week low of 13 11/16 on the news of its demotion to the

S&P SmallCap 600

(where it will replace Rykoff-Sexton). And separately from all of that,

Culligan Water Technologies

(CUL)

improved 2 1/8 to 48 13/16 on its coming addition to the S&P MidCap 400. Culligan will replace

Rohr

(RHR)

, which is merging with S&P 500 component

BFGoodrich

(GR)

.

Fair Isaac

(FIC)

plunged 8 5/16, or 20.6%, to 32 after late

yesterday forecasting a big first-quarter shortfall. Prudential downgraded the stock to hold from buy and

Jefferies

cut it to accumulate from buy.

Wisconsin Central

(WCLX)

was crushed 5 7/16, or 20.2%, to a 52-week low of 21 3/8 after warning that it expects its fourth-quarter results to approximate the year-ago 34 cents per share. The nine-analyst expectation called for 44 cents. The company cited a November derailment and higher-than-expected labor costs.

Centocor

(CNTO)

cratered 7 11/16, or 19.7%, to 31 1/2 after late

yesterday warning that it expects to miss fourth-quarter and full-year estimates. Both

UBS Securities

and

Hambrecht & Quist

lowered the stock to hold from buy.

International Network Services

(INSS)

surged 3 5/8, or 19.3%, to 22 7/16 after

Morgan Stanley Dean Witter

upped it to strong buy from buy and set a 12-month price target of 30.

NextLevel Systems

(NLV)

zoomed up 2 11/16, or 17.9%, to 17 11/16 after forecasting 1998 operating earnings of 65 cents to 75 cents per share. The 15-analyst estimate calls for 49 cents in 1998 and 44 cents in 1997. The company also said it expects to take after-tax restructuring charges of 42 cents to 64 cents per share in the fourth quarter of 1997 and the first quarter of 1998.

Pharmacyclics

(PCYC)

gained 2 7/8, or 13.7%, to 24 1/4 after inking a deal granting privately held

Alcon Pharmaceuticals

marketing rights to Pharmacyclics' Lutetium Texaphyrin photosensitizer.

Sulzer Medica

(SM) - Get Report

. The company told

Reuters

it might make other acquisitions. Spine-Tech, which

Dain Bosworth

downgraded to neutral from buy, ticked down 1/16 to 51 3/8.

RFS Hotel Investors

(RFS)

lifted 2 1/16, or 10.9%, to an all-time high of 21 1/16 after saying it hired Salomon Smith Barney to explore strategic alternatives.

Pharmaceutical Product Development

(PPDI)

slid 1 5/8, or 10.8%, to an all-time low of 13 1/2 after late

yesterday warning of a fourth-quarter shortfall.

Wyman-Gordon

(WYMN)

skidded 1 15/16, or 10.5%, to 16 1/2 after reporting second-quarter earnings of 36 cents per share, in line with the five-analyst view and up from the year-ago 25 cents.

Jabil Circuit

(JBIL)

jumped 3 3/8, or 8.9%, to 41 1/2 after late

yesterday reporting first-quarter earnings that beat estimates.

Harte-Hanks Communications

(HHS) - Get Report

increased 2 9/16 to 35 5/8 after late

yesterday expanding its stock buyback plan.

Snyder Communications

(SNC)

ascended 2 to 35 after it signed a $200 million contract to provide

GTE

(GTE) - Get Report

with marketing services. GTE was up 1/2 to 50 3/4.

AT&T

(T) - Get Report

gained 1 to 57 7/8 on reports that

Citicorp

(CCI) - Get Report

is interested in buying AT&T's

Universal Card

credit-card operations. Citicorp was up 2 to 131 1/2.

Bank of New York

(BK) - Get Report

gained 2 1/16 to an all-time high of 57 11/16 after reportedly forecasting 27% growth in securities-processing revenue in 1998. The news emerged from an analyst meeting. Bank of New York also declined to comment on rumors that it would seek to acquire

Mellon Bank

(MEL)

, which edged down 5/32 to 60 15/16.

Caterpillar

(CAT) - Get Report

chugged up 1 7/8 to 50 11/16 after reporting progress in its talks with the

United Auto Workers

.

Northwest Airlines

(NWAC)

rose 3 3/8 to 47 1/8 on reports that it met Tuesday with its pilots' union to try to revive an alliance that would allow Northwest to take control of

Continental Airlines

(CAIB)

. Continental advanced 1 3/16 to 48 7/8.

Georgia-Pacific

(GP)

climbed 3 to 63 after Morgan Stanley Dean Witter restarted coverage at strong buy with a 12-month price target of 85, citing the company's shedding of its timber unit. Morgan Stanley started that unit,

Timber Co.

(TGP) - Get Report

, at strong buy with a price target of 30. It declined 3/16 to 24 15/16. Salomon Smith Barney initiated coverage of Timber Co. at accumulate.

T. Rowe Price

(TROW) - Get Report

, the large mutual-fund complex in Baltimore (for you frequent

CNBC

viewers), dropped 3 to 63 1/8 after increasing its quarterly dividend to 17 cents per share from 13 cents.

Polaroid

(PRD)

added 1 3/16 to 44 3/16 after late

yesterday announcing a restructuring plan.

Great Atlantic & Pacific

(GAP)

tacked on 5/8 to 28 13/16 despite late

yesterday reporting third-quarter earnings that missed already-guided-downward estimates.

MacDermid

(MACD)

rose 2 1/2 to 74 after backing the two-analyst third-quarter estimate of 89 cents per share versus the year-ago 63 cents.