Today's Market: Nasdaq Fights Its Way to a Close Above 4000 - TheStreet

(

Updated from 4:13 p.m. EDT

)

The

Nasdaq Composite Index closed above the psychologically important 4000 level for the first time since April 11 but gave back most of its gains in the waning hours of the session, making it look like a day of entrenchment after

yesterday's 129-point surge.

Meanwhile, the

Dow Jones Industrial Average finished near the day's lows, as

Honeywell

(HON) - Get Report

extended earlier losses from its profit warning.

The Nasdaq gained 23.53, or 0.6%, to 4013.36, while the 30-stock Dow dropped 122.68, or 1.2%, to 10,435.16, with Honeywell accounting for 22 points of the decline. The

S&P 500 slipped further into the red, closing down 9.77, or 0.7%, to 1476.23. The

Russell 2000 gained 2.9, or 0.6%, to 525.69.

TheStreet.com Internet Sector

index was up 15.11, or 1.7%, to 924.70.

Investors continued to knock down cyclical stocks, no longer in favor now that the world seems to have rediscovered technology. Honeywell, downgraded by both

Prudential Securities

and

Banc of America Securities

this morning, lost 10.6%. Shares of

General Motors

(GM) - Get Report

dropped 3.7%.

But while the Nasdaq's was mildly successful in building on yesterday's rally, thanks to semiconductor stocks, market mavens will have to wait another day for positive breadth as supportive of the two-day rally.

"It definitely has the feel of a down day, but it's not a blowout or anything like that," said Doug Myers, vice president of equity trading at

ILJ Wachovia

in Atlanta, referring to the Comp. "People are taking a little off the top after yesterday's rally."

Semiconductors soared, with the

Philadelphia Stock Exchange Semiconductor Index

climbed 30, or 2.4%, to 1264.

Micron Technology

(MU) - Get Report

, which will report earnings Thursday, rocketed to an all-time high. The shares were up 8, or 9.8%, to 89 1/2. Dow component

Intel

(INTC) - Get Report

gained 1 13/16, or 1.3%, to 138 5/16.

More Money Chasing Fewer Stocks

Today's nasty action on the Big Board had some folks musing about the not-so-distant past that showed a day-in, day-out retreat from so-called Old Economy stocks and further entrenchment into technology.

"There's more money chasing fewer supposedly safe stocks," said Larry Rice, chief investment strategist at

Josephthal

. "These are the names that, although they had a correction in April, they hadn't corrected the way they should have. We're back close to highs on

Sun

(SUNW) - Get Report

and

Oracle

(ORCL) - Get Report

. Valuations are still quite high."

Speaking of Oracle, the software giant after the close reported fourth-quarter earnings of 31 cents a share, smashing the

First Call/Thomson Financial

estimate of 25 cents.

Breadth seems to confirm Rice's thinking. Losers beat winners on the Nasdaq by a count of 21 to 19, while the decliners controlled the Big Board by a score of 12 to 16.

Not all agree, however. Mike Vogelzang, president and chief investment officer at

Boston Advisors

, a unit of

Advest

, said the technology surge still seems somewhat selective, noting that

America Online's

(AOL)

gain has been quite restrained when compared to its earlier heights. AOL was up 6%. He contrasted today's 2.6% decline in

Cisco

(CSCO) - Get Report

with the 1.3% rise in Intel.

But as perceptions of the

Federal Reserve and the economic outlook have changed, investors have rotated away from cyclical names and into technology stocks, which provide the best opportunity for growth. Semiconductors and energy stocks are expected to show the strongest year-over-year earnings growth, which will help propel those names when earnings season finally arrives.

The market seems convinced the Fed has no more surprises to pull. If it hikes rates at the June 28 meeting, the perception will be that it has no plans to raise rates at the meeting in August. Conversely, if it skips June 28 (as most economists expect) it may raise rates in August. In 1994-1995, each time the Fed raised rates more than a quarter of a percentage point at a meeting, it held steady the following meeting. The Fed raised the

fed funds rate 50 basis points, to 6.5%, at its May 16 meeting.

Pessimism Shows Up in Financials

There's pessimism evident in the financial sector. While the Fed is attempting to engineer, through rate hikes, a soft landing that includes still-strong growth without inflation, it's meant a tightening of lending standards for banks as well as swallowing problem loans approved during the days of easier credit. Regional banks continued to suffer today, as

Wachovia

(WB) - Get Report

, which issued an earnings warning last week, lost 1.5%.

"Obviously, the Nasdaq is responding well to lower interest-rate assumptions, but the banks and financial services aren't responding," said Vogelzang. "We have a tug of war going on between those who are sure we're having a soft landing, and those who think we're going to have a hard landing."

Other regional banks lost ground also.

Summit Bancorp

(SUB) - Get Report

lost 0.5%;

FleetBoston Financial

(FBF)

dropped 2%, and

Wells Fargo

(WFC) - Get Report

closed down 2.8%.

Things weren't looking up for electronic components maker

Thomas & Betts

(TNB)

which announced an earnings warnings. Thomas & Betts lost 26%.

"Honeywell, Thomas & Betts -- there's just no mercy for someone who misses a number," said Vogelzang.

The drug sector, also lifted by the tech-stock cash-out, was shunned today. The

American Stock Exchange Pharmaceutical Index

skidded 1.4%.

Broadcom

(BRCM)

bounced 13% after

Standard & Poor's

said last night that it will add the stock to the S&P 500 index. Broadcom will replace telecommunications firm

GTE

(GTE) - Get Report

, which is merging with

Bell Atlantic

(BEL)

to form

Verizon

.

Major Mergers Make News

A much-anticipated merger between Canada's

Seagram

(VO) - Get Report

, France's

Vivendi

(VVDIY)

and Vivendi's cable unit

Canal Plus

was finalized, which will create the world's second-largest media conglomerate behind

AOL Time Warner

. Seagram dropped 9% today.

Commerce One

(CMRC)

formally announced about an hour ago that it plans to buy

AppNet Systems

(APNT)

in $1.28 billion stock transaction. Commerce One shares fell 16%, while AppNet lost 3.4%.

This week's most important economic release, the April

trade deficit

, was $30.44 billion vs. the

Reuters

consensus estimate of $29.29 billion and narrower than the March deficit of $30.61 billion.

Market Internals

Breadth was negative on both the NYSE and the Nasdaq on decent volume.

New York Stock Exchange: 1,265 advancers, 1,616 decliners, 1.026 billion shares. 72 new 52-week highs, 63 new lows.

Nasdaq Stock Market: 1,901 advancers, 2,082 decliners, 1.664 billion shares. 75 new highs, 82 new lows.

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Most Active Stocks

NYSE Most Actives

Nasdaq Most Actives

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Sector Watch

Elsewhere on the Big Board, oil stocks, which benefited from the spring tech decline, were trading lower today. The

American Stock Exchange Oil & Gas Index

fell 0.7%, with losses from Dow component

ExxonMobil

(XOM) - Get Report

, which closed down 1.2%.

Oil services took the heat from investors. The

Philadelphia Stock Exchange Oil Service Index

dropped 1%, with

Schlumberger

(SLB) - Get Report

and

Halliburton

(HAL) - Get Report

both declining.

The

S&P Chemical Index

was down 1.9%, while the

American Stock Exchange Natural Gas Index

lost 0.7%. Nobody likes tobacco stocks, as the

American Stock Exchange Tobacco Index

lost 3.1%.

The

Philadelphia Stock Exchange Computer Box Maker Index

rose 1%.

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Bonds/Economy

Long-dated Treasuries have reversed their earlier gains and are down, while short-dated securities are also in negative territory. Two upcoming events, both supply-related, are at work.

The

Treasury Department

is slated to announce the details of its next buyback of Treasury securities tomorrow. Like previous buybacks, it will probably target long-maturity instruments, which carry the highest interest rates. Shrinking supply of these instruments as a result of the buybacks has driven their prices up relative to short-term instruments.

Meanwhile, keeping short-dated paper under pressure, the Treasury Department will also announce the details of its next monthly two-year note auction tomorrow. The increasing supply of short-dated paper keeps its price from rising.

The benchmark 10-year Treasury note lately was down 4/32 at 103 15/32, raising its yield to 6.02%.

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International

European markets closed higher on strength in tech and media. The Paris

CAC

gained 36.70, or 0.57%, to 6526.90, while Frankfurt's

Xetra Dax

closed up 28.47, or 0.40%, to 7227.27.

Across the channel, London's

FTSE

rose 49.76, or 0.76%, to 6554.92.

The euro was lately trading down at $0.9554.

Asian markets were mixed overnight.

Large-cap tech plays in Japan were all the rage again on Tuesday, thanks to the near 3.4% bounce in the Nasdaq overnight. A mildly optimistic June economic report also helped sentiment in Tokyo.

The

Nikkei 225

index rose 316.20 points, or 1.9%, to 16,907.55,

In currency trading, the dollar lost ground against the yen and fell to around 105.60 after the country's

Economic Planning Agency

said Japan's economy was one step closer to a self-sustaining recovery. It was recently higher at 105.87 yen.

Hong Kong's

Hang Seng

index lost 180.73 points, or 1.1%, to 16,086.74 as bank and property shares got hit by profit taking.

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