Tech-Led Rebound Soothes Wall Street's Raw Nerves

Nasdaq's leadership and Net stocks surged back from yesterday's drop, with some saying the correction was too quick and too much.
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Like a 20-something returning home after years of independence, investors at first tentatively and almost begrudgingly returned to the familiar and comfortable today. By day's end, however, they realized the joy of Mom's home cooking, a.k.a. technology stocks.

Traditional tech and Internet bellwethers caromed off

yesterday's drubbing in solid fashion, joined on the upswing by fellow growth mavens such as drug makers and retailers. Meanwhile cyclical stocks struggled, transports tumbled and market internals worsened.

After an initial hesitation, the

Nasdaq Composite Index

responded to yesterday's 138-point hemorrhaging by racing to as high 2408.44 around 2 p.m. EDT. The index then misfired a bit but regained its groove in the final stanza of trading, closing up 64.03, or 2.7%, to 2409.64.

The one-if-by-land, two-if-by-tech index was paced by familiar favorites, notably

Dell

(DELL) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

. The large-cap

Nasdaq 100

rose 3.2%.

Meanwhile,

Microsoft

(MSFT) - Get Report

rose 2.6% ahead of its profit report. After the close, the software behemoth reported third-quarter profits of 35 cents a share, up from 25 cents a year ago and 3 cents ahead of the 21-analyst

First Call

consensus.

Among

New York Stock Exchange

-traded tech bellwethers,

Compaq

(CPQ)

and

Gateway

(GTW)

enjoyed strong gains, while

LSI Logic

(LSI) - Get Report

jumped 9.6% after posting better-than-expected profits. But

Texas Instruments

(TXN) - Get Report

slid 4.8% despite beating Street expectations. The

Morgan Stanley High-Tech 35

gained 2.1% and the

Philadelphia Stock Exchange Semiconductor Index

rose 1.4%.

After early timidity, Internet favorites were less restrained. Paced by

America Online

(AOL)

and

Amazon.com

(AMZN) - Get Report

,

TheStreet.com Internet Sector

index rose 35.14, or 6.3%, to 595.95.

'Traditionally there have been two emotions in the market: fear and greed,' said Ladenburg Thalmann's Tony Dwyer. 'Those emotions are now panic and euphoria. You should buy panic in tech stocks and sell euphoria in cyclicals.'

Elsewhere,

Inktomi

(INKT)

,

DoubleClick

(DCLK)

and

Exodus Communications

(EXDS)

rose more than 20% apiece after

Goldman Sachs

added them to its recommended list. Additionally,

E*Trade

(EGRP)

rose 21.6% after posting a narrower-than-expected second-quarter loss.

On the flip side,

Network Associates

(NETA)

shed 28.3% after

last night's disappointing earnings report.

Back on the blue-chip front, the

S&P 500

overcame an early drop as low as 1288.28 to close up 16.69, or 1.3%, to 1306.17, snapping a five-session losing streak. In addition to the aforementioned tech plays, the index was aided by resurgent drug makers.

Stronger-than-expected earnings from

Johnson & Johnson

(JNJ) - Get Report

and in-line (but optimistic) reports from

Schering-Plough

(SGP)

and

American Home Products

(AHP)

helped reinvigorate the group. The

American Stock Exchange Pharmaceutical Index

rose 3.5%.

The

Dow Jones Industrial Average

struggled throughout but closed up 8.02, or 0.1%, to 10,448.55. The Dow rose from its intraday nadir of 10,333.15 thanks largely to strength in Johnson & Johnson,

General Electric

(GE) - Get Report

and

Wal-Mart

(WMT) - Get Report

.

Chevron

(CHV)

was the biggest drag on the index, falling 4.8% after being downgraded by

Donaldson Lufkin & Jenrette

. Other energy plays also stumbled from recent gains. The

American Stock Exchange Oil & Gas Index

fell 2.7% and the

Philadelphia Stock Exchange Oil Service Index

fell 3.9%. Cyclical stocks struggled overall; the

Morgan Stanley Cyclical Index

fell 2.2%.

The

Russell 2000

rose 2.93, or 0.7%, to 415.34.

"Another wild and woolly day," said Doug Myers, vice president of equity trading at

Interstate/Johnson Lane

in Atlanta. "I'm glad the Dow ended in the plus column and maybe Quasimodo is ringing the bell for the Nasdaq, but the water is still muddy."

The market "is a magician that distracts your attention into one area, then it's doing something else," Myers added. "You're paying attention to cyclicals and watching tech stocks, but while you trying to figure it out, something else happens."

The trader was unable to identify what the "something" is, but he remains on guard. "Hopefully, this kind of riptide of a market is the storm and we'll get some smooth sailing ahead," he said. "But we've still got cross-currents."

In NYSE trading, 984.1 million shares were exchanged while losers led gainers 1,672 to 1,370. In

Nasdaq Stock Market

activity 1.15 billion shares were exchanged -- its 11th-straight billion-plus session -- while gainers led 2,056 to 1,944. New 52-week highs edged new lows 36 to 34 on the Big Board but new lows led 78 to 21 in over-the-counter trading.

Change, the Only Constant

The big question after today's session is whether the action marks an interruption in the rotation into cyclical stocks, or a cessation thereof. As usual, there's no unanimity of opinion on Wall Street.

Those in the "cyclical now, cyclical tomorrow" camp tout the expected upturn in worldwide economic growth. But Tony Dwyer, chief market strategist at

Ladenburg Thalmann

, retorts that it's "hard to fathom" why investors would sell technology stocks if the world economy were improving.

"I think the rotation has been overplayed," Dwyer said. "While it is deserved because there is some pickup in the world economy,

cyclicals shouldn't have moved up as quick as they did. I would buy cyclicals on a pullback and buy technology stocks here."

Dywer, you'll recall, recently

warned about overvaluation in big-cap tech stocks. Now, "I think tech has come down too far, too fast, and cyclicals up too far, too fast," he said. "You're seeing a reversal today. People are taking profits in aluminum, paper and steel stocks and taking advance of opportunities in tech stocks.

"I'm becoming more bullish in the Nasdaq," he continued. "You can retest the lows of yesterday, but I think we're in the process of making a solid bottom. Traditionally there have been two emotions in the market: fear and greed. Those emotions are now panic and euphoria. You should buy panic in tech stocks and sell euphoria in cyclicals; that's what we're seeing in today's market."

Among other indices, the

Dow Jones Transportation Average

fell 72.79, or 2%, to 3493.92; the

Dow Jones Utility Average

gained 5.10, or 1.7%, to 303.52; and the

American Stock Exchange Composite Index

rose 1.87, or 0.3%, to 736.98.

The price of the 30-year Treasury bond rose 2/32 to 96 4/32, its yield falling to 5.52%.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

rose 17.59 to 6925.28 and the

Mexican Stock Exchange IPC Index

plunged 126.53, or 2.3%, to 5337.64.

Tuesday's Company Report

By Heather Moore
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.

)

With earnings reports, previews and warnings dominating individual company news, some stocks -- but certainly not most stocks -- were able to sneak out of this increasingly complex rotational market and respond simply: Good earnings make a stock go up; bad earnings make a stock go down.

Unfortunately for Network Associates, it fell into the latter category and continued yesterday's after-hours retreat, falling 4 5/16, or 28.3%, to an annual low of 11 1/16. Last night, the company posted first-quarter earnings of 30 cents a share, a penny shy of the 11-analyst First Call forecast but ahead of the year-ago 28 cents. Blaming longer sales cycles and Y2K concerns, Network said it expects to report lower revenue in the second quarter.

Mergers, acquisitions and joint ventures

Big Flower Holdings

(BGF)

blossomed up 4 1/8, or 14.8%, to 32 after saying it will explore strategic alternatives.

Johns Manville

(JM)

sliced off 3 3/8, or 19.7%, to 13 3/4 after announcing it hadn't received any acceptable offers for a sale or merger and saying that it was considering a secondary public offering by the Manville Personal Injury Settlement Trust and a buyback of stock by Johns Manville. The company also posted first-quarter earnings of 23 cents a share, topping the two-analyst estimate by 2 cents and moving ahead of the year-ago 16 cents.

Tenneco

(TEN) - Get Report

lowered 11/16 to 30 1/2 on news it's selling its folding-carton business to

Caraustar Industries

(CSAR)

. The unit includes five converting plants and five sales-and-technical-support centers, and represents more than $100 million in annual sales, Tenneco said. Caraustar closed unchanged at 23 1/8.

Earnings/revenue reports and previews

Meredith

(MDP) - Get Report

spiked up 2 5/16, or 7.6%, to 32 15/16 after recording third-quarter earnings of 41 cents a share, a penny above the seven-analyst prediction and ahead of the year-ago 37 cents. The company also announced a deal to provide AOL with content and related links from the Web sites of

Better Homes and Gardens

,

Ladies' Home Journal

,

Family Money

and

Crayola Kids

.

Sprint

(FON)

tacked on 3 to 100 7/16 after setting a 2-for-1 stock split and reporting first-quarter earnings of 93 cents a share, beating the 16-analyst estimate by 3 cents and moving up from the year-ago 80 cents.

In other earnings news:

Offerings and stock actions

Andrx

(ADRX)

lost 6 1/4, or 8.7%, to 66 -- following an intraday high of 73 13/16 -- after its 94%-owned

Cybear

filed to offer 3 million shares.

Citigroup

(C) - Get Report

added 2 3/16 to 72 13/16 after setting a 3-for-2 stock split.

Morgan Stanley Dean Witter

raised its 12-month price target for the stock to 87 from 79 a share and

Lehman Brothers

lifted it to buy from outperform.

Proxicom

(PXCM)

soared 6 7/16, or 49.5%, to 19 1/2 after

BT Alex. Brown

priced its IPO at $13 a share. The company is an Internet, intranet and extranet site builder.

Analyst actions

CNF Transportation

(CNF) - Get Report

dropped 3 7/8, or 9.3%, to 38 after Morgan Stanley Dean Witter downgraded it to outperform from strong buy.

DoubleClick shot up 25 3/16, or 24.5%, to 128 3/16 after Goldman Sachs added the stock to its recommended list after rating it a market outperform.

Northwest Airlines

(NWAC)

flew up 7/16 to 31 after

Merrill Lynch

upgraded the stock to near-term accumulate from neutral.

USX-U.S. Steel Group

(X) - Get Report

lowered 11/16 to 28 5/8 even after Merrill Lynch named it the firm's Focus One stock of the week.