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Unsteady Stock Market Plunges as Bond Yields Soar

Real worries won't come until the long bond hits 6%, but traders are starting to see signs of an asset shift.

"I'm not a technician, but I play one on TV." So went the battle cry on Wall Street today as players of all stripes (except the shorts) watched with chagrin as a collapsing bond market sent the

S&P 500

reeling from key

technical levels. Equity proxies closed at or near intraday lows as the bond market woes sparked a troubling reversal of decent midday gains.

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Transports and utilities sidestepped the downdraft, but the focus today was on what was not (up), instead of what was.

A disappointing two-year note auction contributed to the bond market's malaise, bond traders said. Moreover,

Federal Reserve

Chairman

Alan Greenspan

failed to retreat from the notion that higher interest rates are as likely as lower ones in the short term during his second day of

Humphrey-Hawkins

testimony. Doing the Fed's bidding, perhaps, higher bond market rates are exerting a de facto tightening and (today at least) cooling off the stock market.

The price of the 30-year Treasury bond slid a further 1 6/32 to 96 7/32, its yield rising to 5.51%. That's the highest closing yield since Aug. 19.

The broad-based S&P 500 hit a new intraday high of 1283.84 (which would have eclipsed the

Jan. 29 all-time high of 1279.64 had it held) but faltered after hitting the peak around 1:40 p.m. EST. The index closed down 17.77, or 1.4%, to 1253.41 after tasting 1251.97 at its nadir.

The

Dow Jones Industrial Average

climbed as high as 9600.13, then fell as low as 9391.13 before closing down 144.75, or 1.5%, to 9399.67. Weakness in

American Express

(AXP) - Get Report

and

J.P. Morgan

(JPM) - Get Report

led the Dow's retreat.

Other interest rate-sensitive financial names, such as

Chase

(CMB)

and

BankAmerica

(BAC) - Get Report

, shuddered as the bond market collapsed; the

Philadelphia Stock Exchange/KBW Bank Index

tumbled 3.1% and the

American Stock Exchange Broker/Dealer Index

slid 1.9%.

'You could easily take 'em down another 10% and keep this bull market intact,' a New York-based tech trader said. 'It's not a huge event.'

"My sense is we're getting a reversal here," said Peter Green, chief technical analyst at

Gruntal

, suggesting 1250 and 9300 as likely downside targets for the S&P and the Dow, respectively. "I think we're failing because of several things: The S&P 500 was close to making a new high but clearly breadth couldn't confirm it; the bonds are making a new low; and the oscillators couldn't break out and exceed prior peaks."

Green agreed the Dow enjoyed a breakout in

Monday's big rally, but "to really break out we need 9700," he said. "We did break out, yes, but if the bonds crater it's all hearsay."

In a somewhat prophetic research report published this morning, Green observed that the Dow's failure to sustain a climb to as high as 9611.32

yesterday "suggests a pause here." Furthermore, he wrote the 14-day RSI oscillator "will likely not confirm a new

Dow high in terms of price" and the four-day moving average of the

ARMS Index

"is approaching overbought."

The Nasdaq Comp, meanwhile, fell 36.97, or 1.6%, to 2339.38 after rising as high as 2405.29 intraday. Nasdaq losers were led by

Dell

(DELL) - Get Report

,

Sun Microsystems

(SUNW) - Get Report

and

Cisco

(CSCO) - Get Report

.

The

Nasdaq 100

shed 1.9% while the

Philadelphia Stock Exchange Semiconductor Index

fell fractionally. The SOX was sustained by strength in names such as

Linear Technology

(LLTC)

, up 3.6% and

Micron Technology

(MU) - Get Report

, which gained 2.4% after being upgraded by

Donaldson Lufkin & Jenrette

to buy from market perform.

TheStreet.com Internet Sector

index fell 8.79, or 1.7%, to 505.74, after rising as high as 525.53 early on.

TheStreet.com E-Commerce Index

slid 1.99, or 2%, to 95.72, off its intraday best of 99.79.

On the positive side of the ledger, the

Dow Jones Transportation Average

climbed 27.89, or 0.9%, to 3249.60, although it closed off its intraday best of 3318.76. The index was led by

FDX

(FDX) - Get Report

, which was upgraded by

Schroder

, and

Delta Air Lines

(DAL) - Get Report

, named Focus One stock of the week by

Merrill Lynch

.

Traders Stare Selling in the Eye

"I think it's fair to say as we approach 5.50%

on the long-bond yield it's making for significant competition for assets right now," said Randy Billhardt, co-head of block trading at

PaineWebber

. "But I'm not sure how real it is, or if it's just an emotional selloff."

"If we get toward 6% then we'll see some significant reallocation of assets, but until we confirm the move in that direction I don't think the market is in that much trouble," Billhardt continued.

Trading volume was not terribly high, he noted, about in line with Monday's, when "we were up significantly off basically nothing." Moreover, tech stocks "acted OK" until selling hit late in the day and "for the most part the leadership we've seen, primarily in the techs, is mostly still intact," he said. "I feel the trend is probably still upward, at least in the stocks I'm trading."

In

New York Stock Exchange

trading, 771.4 million shares traded while declining stocks led advancers 1,767 to 1,203. In

Nasdaq Stock Market

activity, 937.4 million shares were exchanged while losers led 2,378 to 1,624. New 52-week lows led new highs 79 to 51 on the Big Board and by 74 to 65 in over-the-counter trading.

"They crushed the techs in the last hour, but that's not terribly insightful," said one New York-based technology trader. "I think what's really been the force behind this market is competition for investment dollars. People have been buying stocks and S&P futures because they don't see any other way. As yields start to lift their ugly heads people are starting" to shift money out of stocks and into bonds.

The trader, who requested anonymity, said investors "sold what they could," which meant "they sold the leaders."

While expressing disappointment about the action today "you could easily take 'em down another 10% and keep this bull market intact," he said. "It's not a huge event."

Among other indices, the

Russell 2000

lost 3.75, or 0.9%, to 395.26;

Dow Jones Utility Average

rose 1.17, or 0.4%, to 297.44; and the

American Stock Exchange Composite Index

fell 5.13, or 0.7%, to 695.79.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

tumbled 115.31, or 1.8%, to 6339.43 while the

Mexican Stock Exchange IPC Index

rose 37.45, or 0.9%, to 4269.12.

Wednesday'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.

)

Ciena

(CIEN) - Get Report

sparked up 2 1/2, or 10.2%, to 27 1/4 after

BancBoston Robertson Stephens

upped the stock to buy from long-term attractive, citing a stabilization in gross margins and the pricing environment, before the company's presentation at the firm's technology conference. (

TheStreet.com

has been providing

coverage of the conference throughout the week.) Then shortly before the closing bell,

Sprint

announced it will continue to use Ciena's equipment through 1999 and that it won't seek another vendor. Sprint lost 5/8 to 86 1/2.

Mergers, acquisitions and joint ventures

Amazon.com

(AMZN) - Get Report

sloughed off 4 3/16 to 110 15/16 after saying it acquired a 46% stake in online pharmacy retailer

Drugstore.com

for an undisclosed amount.

Atlas Air

(CGO) - Get Report

brought in 7/8 to 29 7/16 after revising terms of a service contract signed with

FDX

(FDX) - Get Report

just last November. Terms were not disclosed by Atlas Air executives, who said the change would not have an "adverse financial impact" on their firm. FDX flew 3 9/16 to an all-time high of 93 7/16 after Schroder upped its recommendation to outperform significantly from perform in line. Elsewhere in today's airline action, Delta took in 3 1/6, or 5.3%, to 61 after Merrill Lynch named the carrier its focus one stock of the week and set an 80 price target.

Brio Technology

tumbled 6 3/16, or 26.1%, to 17 5/8 a day after agreeing to buy privately held

Sqribe Technologies

in a deal valued at $270 million.

Credit Suisse First Boston

cut its recommendation to buy from strong buy.

Capital Re

(KRE) - Get Report

hopped 2, or 13.5%, to 16 13/16 after

ACE

(ACL)

agreed to invest about $75 million in the insurer. Earlier, Capital Re reported fourth-quarter earnings of 69 cents a share (excluding one-time items and its loss reserve), a dime better than the nine-analyst consensus and up from 52 cents a year ago. ACE fell 1/2 to 28 1/4.

CSFB Bancorp

(CFSB)

vaulted 5, or 24%, to 26 after agreeing to be acquired by

Old Kent Financial

(OK)

in a stock swap valued at $242 million. Old Kent dropped 1 3/4 to 43 11/16.

Industrial Scientific

(ISCX)

shot up 6 1/2, or 31.7%, to an annual high of 27 1/2 after agreeing to be acquire for $28.50 a share by

ISC Acquisition

, a newly formed corporation wholly owned by Industrial Scientific's majority shareholders. Following the transaction, Industrial Scientific shares will no longer be publicly traded.

Prodigy

(PRGY)

swelled 3 5/16, or 10.3%, to 35 5/8 after

IBM

(IBM) - Get Report

said it acquired a 7.2% stake in the company. IBM lowered 3 3/16 to 173 3/4.

Telescan

(TSCN)

skidded 3 3/16, or 19.1%, to 13 7/8 after canceling previously announced plans to spin off its non-financial-services operations. The spinoff plans were scuttled because of consistent improvement in its operations and value in the Internet industry, the company said.

United Asset Management

(UAM)

hopped 13/16 to 22 7/16 after saying it hired

Goldman Sachs

to help it look into selling its

Pilgrim Baxter

unit.

Earnings/revenue reports and previews

American Greetings

(AM) - Get Report

stumbled 11 3/16, or 31.9%, to an annual low of 23 7/8 after forecasting its fiscal 2000 revenue would fall by $100 million from 1999 results.

Aftermarket Technology

(ATAC)

slid 1 27/32, or 27.8%, to 4 3/4 after warning

last night it sees a 1998 loss of 40 cents a share, including charges, and operating earnings of 50 cents a share, excluding charges. The three-analyst outlook called for earnings of 81 cents for the year vs. 1997's $1.19.

BEA Systems

jumped 1 1/4, or 7.8%, to 17 1/4 after posting fourth-quarter earnings of 5 cents a share, a penny better than the nine-analyst consensus and up from a penny a share a year ago.

Lehman Brothers

,

BT Alex. Brown

and

Goldman Sachs

separately upped recommendations on the stock.

Budget Group

(BD)

declined 2 11/16, or 19.6%, to 11, matching an annual low, after posting a fourth-quarter loss of $1.28 a share (before charges), far in excess of the 9-cent shortfall of a year ago and wider than the 90-cent loss expected in the seven-analyst consensus.

Labor Ready

(LRW)

picked up 1 1/8 to 25 1/4 after posting fourth-quarter earnings of 27 cents a share, better than the four-analyst outlook of 22 cents and up from the year-ago 9 cents.

Nvidia

(NVDA) - Get Report

rose 1 5/8, or 7.4%, to an all-time high of 23 3/4 after posting fourth-quarter earnings of 27 cents a share, 3 cents better than the three-analyst estimate and up from 6 cents a year ago.

Tropical Sportswear

(TSIC)

plunged 9 7/8, or 31.1%, to 22 1/16 after warning it might miss internal targets for sales and earnings due to continuing retail softness.

Twinlab

(TWLB)

plummeted 2 15/32, or 26.2%, to an all-time low of 7 despite reporting fourth-quarter earnings of 26 cents a share, down from 29 cents a year ago but 3 cents ahead of the four-analyst estimate. However, the company restated downward results for the first three quarters of 1998 and said its first-quarter 1999 profits will be down "significantly" from year ago results. Restated first-quarter 1998 earnings totaled 27 cents a share while the estimate for first quarter 1999 is currently 29 cents.

Vlasic Foods

(VL)

gave up 2 7/8, or 16.6%, to 14 7/16 despite posting second-quarter earnings of 24 cents a share (excluding one-time items), exceeding the eight-analyst estimate of 20 cents, but down from the year-ago 26 cents. The company said it will begin to explore strategic alternatives involving its

Swift-Armour

Argentine beef business. Vlasic said it is comfortable with Wall Street's operating earnings estimates for fiscal 1999, adjusted for Argentina.

In other earnings news:

Analyst actions

Advanced Fibre Communications

(AFCI)

sloughed off 1 9/16, or 16.3%, to 8 1/8 after

NationsBanc Montgomery Securities

lowered its first-quarter earnings projection to 3 cents from 6 cents a share because slower orders from Mexico, Venezuela and China are keeping the company's international business below targets.

Biomatrix

(BXM)

climbed 8 15/16, or 16%, to 64 3/4 after BancBoston Robertson Stephens upped its 1999 earnings estimate to $1.70 from $1.49 a share and its 2000 figure to $3.15 from $3.

Inco

(N)

rose 1/2 to 11 11/16 after Goldman Sachs upped its rating on the nickel mining firm to market perform from underperform.

Nine West

(NIN)

kicked up 1 3/16, or 6.1%, to 20 3/4 after Montgomery raised its rating to buy from hold.

Pameco

(PCN) - Get Report

fell 5/16 to an all-time low of 6 15/16 after Montgomery cut its recommendation to hold from buy.

Miscellany

Boeing

(BA) - Get Report

lost 1 3/4 to 35 5/8 after

The Wall Street Journal

said a quarter of the $13 billion the aerospace giant is investing in its product lines will produce no meaningful returns.

Gateway

(GTW)

shed 3 3/8 to 79 1/8 after announcing at an analysts meeting that it will provide one year of Internet access with the purchase of Gateway consumer desktop, portable and convergence systems purchased for more than $1,000. The company also formed a strategic alliance with NECX Office and Personal Technology Center, the e-commerce subsidiary of privately held

NECX

.

Infoseek

(SEEK)

slipped 1/2 to 71 on word it launched

GO Shop

, which it says is a comprehensive one-stop online shopping service. GO Shop can be found via the GO Network portal site. Infoseek launched the GO Network in January, in partnership with

Disney

(DIS) - Get Report

. Meanwhile,

Bluefly

(BFLY)

soared 2 1/2, or 24.4%, to 12 13/16 after saying it has signed a pact under which GO Network will "prominently" feature Bluefly's selection of clothing and fashion accessories.

Charles Schwab

(SCH)

tumbled 3 13/16, or 5.2%, to 69 following news that customers couldn't trade through the discount brokerage's Web site for an hour this morning.

TheStreet.com

looked at the online brokers' troubles in a

story this afternoon.

Rexall Sundown

(RXSD)

grew 1 5/16, or 9.5%, to 15 3/16 after last night announcing its president, Damon DeSantis, will also assume the position of chief executive.

Zonagen

(ZONA)

skidded 2 1/8, or 7.4%, to 26 3/4 following a

TSC

piece that questioned the future of the company's impotence drug

Vasomax

.