Wall Street Gets Brazil's Message: Not All Is Well

The rose-colored scenario brought on by huge liquidity gets a swath of black paint from Latin America.
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The collective sigh of relief heard on Wall Street

yesterday gave way to sighs of despair today as stocks took another drubbing.

More troubling developments in Brazil and earning disappointments from blue-chip companies such as

Eastman Kodak

(EK)

prevented stocks from building on any of the goodwill created by yesterday's action. The opening of the

Senate's

impeachment trial against

President Clinton

may have been of secondary (or tertiary) concern for most market players, but it certainly didn't

help

.

Again, stocks' woes benefited the bond market. The price of the 30-year Treasury bond rose 1 2/32 to 102 29/32, its yield falling to 5.06%.

The

Dow Jones Industrial Average

tumbled as low as 9087.72 before closing down 228.63, or 2.5%, to 9120.93. After opening the first week of 1999 with a 5% rise, culminating in a new record high of 9643.32 last Friday, the Dow has since relinquished the entire move and is down for the year.

The

Nasdaq Composite Index

slid 39.99, or 1.7%, to 2276.82 as weakness in

Intel

(INTC) - Get Report

,

MCI WorldCom

(MCIC)

and a host of Internet names most gravely damaged the index. The

Nasdaq 100

shed 2.2% and the

Philadelphia Stock Exchange Semiconductor Index

lost 2.8%.

As if any excuse were needed, Net stocks were bitten by some negative analyst commentary, most notably by Mary Meeker of

Morgan Stanley Dean Witter

and Alan Braverman of

Deutsche Bank Securities

. Among the hardest hit,

Yahoo!

(YHOO)

shed 6.7% and

Lycos

(LCOS)

lost 12.1%; as a result,

TheStreet.com Internet Sector

index fell 13.66, or 2.7%, to 492.68.

The

S&P 500

lost 22.21, or 1.8%, to 1212.19 and the

Russell 2000

fell 4.76, or 1.1%, to 420.10.

Kodak was the biggest negative influence on the Dow industrials, falling 10.4% after posting fourth-quarter earnings a dime shy of estimates. Notable declines were also suffered by

IBM

(IBM) - Get Report

and

J.P. Morgan

(JPM) - Get Report

, the latter as financial stocks were again sabotaged by worries about emerging markets, namely Brazil.

Brazil's fall 'gets people to recognize one more time the world is not stable and growing and risk-free,' said Salomon Smith Barney's Marshall Acuff

Brazil's central bank banking supervisor Claudio Mauch resigned, citing "personal reasons." The

Bovespa

shed 10% in the wake of the news, announced around 1:30 p.m. EST, prompting a trading halt for the second consecutive day; the bourse reopened and didn't fare much better, closing down 9.9%. In addition to more fleeing rats, Brazil's ship was sunk by speculation the nation may remove all trading bands on its currency, the real.

Optimistic market watchers say the developments in Brazil, while troubling, merely present an excuse for profit-taking after the big run-up last week (not to mention since early October) and do not threaten the bullish trend. Others are far less sanguine.

"I look at this as unfinished business left over from 1998," said Marshall Acuff, portfolio strategist at

Salomon Smith Barney

. "My view since August has been that we're dealing with a number of complex issues that are going to take time to resolve. In the U.S. there's been an impression these things had been swept under the rug and there's no problem. But issues like weak and weakening global growth are ongoing, and Brazil is going to reinforce that. I think the response in the market is very rational, very fundamental and as it should be."

Bottom-line, "no one knows how this Brazil thing is going to play out," Acuff continued. "It is going to impact the rest of Latin America which as a whole is a major trading partner. Again there's the risk of contagion going beyond. It gets people to recognize one more time the world is not stable and growing and risk-free."

As investors "readjust" to that notion, the strategist said it was not surprising multinationals such as

Procter & Gamble

(PG) - Get Report

, which fell 3.2% and

Colgate-Palmolive

(CL) - Get Report

, down 3.1%, stumbled today. "The risk is in the big multinationals, not steel or paper stocks, they've already been thrashed," he said.

Acuff predicts "this will pass" at some point, but sees the Dow "bouncing around" in a range of 7500 to 10,000 this year as investors alternatively focus on and then ignore problems in the global economy.

"I don't know how you're going to measure the impact in GDP, but it's a continuation of a global crises from Southeast Asia to Latin America," Ed Nicoski, chief market strategist at

Piper Jaffray

in Minneapolis, said of the Brazilian crisis. "It's going to adversely effect the economies in Latin America for some time. We've had a bounce-back in the financial markets in Southeast Asia, but they are basically still in a recession. These are serious events."

While unable to quantify how damaging the developments in Brazil will be, Nicoski is maintaining a very defensive posture, with 25% cash reserves and a preference for long-dated Treasury bonds.

"I think technically the market is in an unhealthy situation from the standpoint of market breadth and new highs and new lows," he said. "We had the Dow and S&P 500 making new highs with less than 10% of groups making new highs -- that's not a healthy situation. We had a pop early in the year from the flow of funds and expectations of the flow of funds, but there's something wrong here."

In

New York Stock Exchange

trading 799.9 million shares were exchanged while declining stocks whipped advancers 2,145 to 880. In

Nasdaq Stock Market

action 1.019 billion shares traded -- the record seventh consecutive session with more than a billion shares exchanged -- while losers led 2,175 to 1,899. New 52-week lows bested new highs 45 to 21 on the Big Board but new highs led 82 to 39 in over-the-counter trading.

Regarding the action today, the selling "seems to be pretty broad-based," Nicoski said. "I've not seen any particular area of weakness other than financials, which are getting hit harder for obvious reasons."

In addition to J.P. Morgan, notable declines were also suffered by financial leaders such as

Merrill Lynch

(MER)

, down 3.2%; the

Philadelphia Stock Exchange/KBW Bank Index

lost 3.6% and the

American Stock Exchange Broker/Dealer Index

shed 3.9%.

Among other indices, the

Dow Jones Transportation Average

fell 89.14, or 2.8%, to 3080.28; the

Dow Jones Utility Average

slid 4.64, or 1.5%, to 303.43; and the

American Stock Exchange Composite Index

dipped 1.23, or 0.2%, to 698.16.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

lost 37.85 to 6594.20 and the

Mexican Stock Exchange IPC Index

jumped 56.17, or 1.7%, to 3356.59.

Thursday'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.

)

As noted above, Dow component Eastman Kodak sank 8 3/16, or 10.4%, to 70 1/2 after reporting fourth-quarter operating earnings of $1.05 a share, a dime short of the 11-analyst consensus but up from the year-ago 75 cents. The company said sales were hurt by a slowdown in office copying and continuing economic turmoil in Russia.

Also as mentioned earlier, Yahoo! dropped 24 9/16, or 6.7%, to 343,

Excite

(XCIT)

dropped 4 1/4, or 6.1%, to 65 1/8 and Lycos dropped 11 11/16, or 12.1%, to 85 3/4 after Deutsche Bank Securities analyst Alan Braverman downgraded the Internet trio to accumulate from buy.

Jefferies

also cut Yahoo! to hold from buy based on valuation. Separately,

IMSI

(IMSI)

brought in 1 7/16, or 12.4%, to 13 after entering an advertising deal with Yahoo!. Yesterday,

Morgan Stanley Dean Witter's

Mary Meeker urged Yahoo! investors to "take some money off the table."

TheStreet.com

examined the so-called Queen of the Internet's concerns in a piece late yesterday.

Waterhouse

, a unit of

Toronto Dominion Bank

(TD) - Get Report

, has stopped trading 11 Internet stocks online, according to a spokeswoman. Toronto Dominion lost 15/16 to 36 1/8. The stocks are the same 10 that Waterhouse previously stopped trading on margin, plus

America Online

(AOL)

. The stocks are

Amazon.com

(AMZN) - Get Report

; Yahoo!; Excite; Lycos;

eBay

(EBAY) - Get Report

;

uBid

(UBID)

;

CMGI

(CMGI)

;

Broadcast.com

(BCST)

;

Data Broadcasting

(DBCC)

; and pending IPO

Marketwatch.com

(MKTW:Nasdaq), a joint venture between Data Broadcasting and

CBS

(CBS) - Get Report

.

Instead of trading through

webBroker

, customers must trade the stocks on the phone, although they are still charged the cheaper webBroker commission. Waterhouse isn't the first firm to implement such a measure. In December, for example,

Charles Schwab

(SCH)

, the biggest online broker, stopped trading a handful of Net stocks online. Firms make such a move to better manage trading by preventing customers from placing duplicate trades and making sure customers are aware of their trading options. Like other online brokers recently, Waterhouse has been struggling with the volatility and volume of the market in recent days and has had to periodically shut down its online trading.

--

Amy Olmstead

Mergers, acquisitions and joint ventures

Coca-Cola

(KO) - Get Report

lost 1 11/16 to 63 1/2 after two of its largest Japanese bottlers,

Kita Kyushu Coca-Cola Bottling

and

Sanyo Coca-Cola Bottling

, are merging to form a new company called

Coca-Cola West Japan

.

Gucci

(GUC)

added 2 to 72 even after

LVMH Moet Hennessy Louis Vuitton

(LVMHY)

denied it ever discussed a joint takeover bid for the company with the

Armani Group

. On Jan. 12, LVMH acquired a 9.5% stake in Gucci from

Prada

, boosting LVMH's stake to about 15%. LVMH closed unchanged at 46 1/4.

Manugisitics

(MANU) - Get Report

shot up 4 1/16, or 32.3%, to 16 5/8 on reheated takeover rumors. This time, the rumored acquiring company is German software giant

SAP

(SAP) - Get Report

. SAP slid 13/16 to 32.

Nextlink Communications

(NXLK)

, a communications services company, grew 5 1/16, or 16.3%, to 36 1/16 after agreeing to buy privately held

WNP Communications

for $695 million in cash and stock.

PaineWebber

pushed the stock up to buy from attractive.

Santa Fe

(SFR)

sliced off 9/16, or 8.6%, to 6 after

late yesterday agreeing to buy

Snyder Oil

(SNY) - Get Report

for $448 million in stock. Snyder Oil shed 1 11/16, or 12.6%, to 11 3/4.

Earnings/revenue reports and previews

Adtran

(ADTN) - Get Report

fell 1/8 to 20 1/2 after posting fourth-quarter earnings of 23 cents a share, in line with the 12-analyst estimate but down from the year-ago 32 cents.

Advanced Micro Devices

(AMD) - Get Report

tanked 5 1/4, or 18.9%, to 22 1/2 after last night posting fourth-quarter earnings of 15 cents a share, falling 4 cents below the 23-analyst estimate but reversing the year-ago loss of 9 cents. The chip maker said shipments of its

K-6

product were up 5.5 million units from the third quarter.

BT Alex. Brown

cut the stock to market perform from buy and

NationsBanc Montgomery Securities

slashed it to hold from buy. Piper Jaffray reiterated its neutral.

Affiliated Managers

(AMG) - Get Report

lifted 2 5/8, or 9.8%, to 29 5/16 after saying its sees fourth-quarter earnings coming in 35% to 40% higher than the eight-analyst outlook for 29 cents a share. The company, which earned 7 cents in the year-ago period, attributed performance fees at affiliates.

Apple

(AAPL) - Get Report

crumbled down 5 1/16, or 10.9%, to 41 3/8 after last night reporting first-quarter earnings of 78 cents a share, 8 cents higher than the 18-analyst outlook and above the year-ago 33 cents. The company said it sold 519,000

iMacs

in the quarter and that while it sees a year-on-year gain in the second quarter, it expects a drop from the first quarter. Salomon Smith Barney downgraded Apple to neutral from buy, while

Donaldson Lufkin & Jenrette

upgraded it to buy from market perform.

Exel

(XL)

slipped 2 13/16 to 63 3/16 after announcing fourth-earnings of $1.15 a share, topping the 12-analyst outlook by 2 cents and moving ahead of the year-ago $1.09.

Federal Express

(FDX) - Get Report

gave up 5 5/16, or 6.4%, to 78 1/4 after saying it expects U.S. express-package volume to continue to grow at a slower pace than the past two fiscal years.

Finova

(FNV) - Get Report

added 3/8 to 55 3/8 after recording fourth-quarter earnings of 79 cents a share, beating the 16-analyst estimate by 2 cents and topping the year-ago 66 cents.

First Union

(FTU)

declined 1 7/16 to 61 after reporting fourth-quarter earnings of $1 a share, 1 cent higher than the 26-analyst view and up from the year-earlier 77 cents.

Funco

(FNCO)

skidded 1 3/4, or 11.1%, to 14 1/4 after late yesterday posting third-quarter earnings of 87 cents a share, 2 cents below the four-analyst call but above the year-ago 63 cents.

MasTec

(MTZ) - Get Report

flew 2 7/16, or 9.2%, to 28 7/8 after saying earlier this week it expects fourth-quarter results to meet estimates of 35 cents a share.

National City

(NCC)

lowered 1 9/16 to 71 1/2 after announcing fourth-quarter earnings of $1.06 a share, above both the 21-analyst estimate of $1.04 and the year-ago 93 cents.

Network Equipment

(NWK)

tumbled 13/16, or 8.2%, to 9 1/8 after last night reporting a third-quarter loss of 4 cents a share, below the two-analyst prediction of a profit of 4 cents and the year-ago profit of 11 cents.

Phoenix

(PHXX)

plunged 5 1/2, or 37.3%, to an annual low of 9 1/2 after late yesterday saying it will post fourth-quarter earnings of 8 cents to 10 cents a share, below the two-analyst expectation of 20 cents and the year-ago 15 cents.

Rational Software

(RATL)

picked up 4 1/8, or 15.6%, to an annual high of 30 9/16 after late yesterday reporting third-quarter earnings of 19 cents a share, 2 cents higher than the nine-analyst view and above the year-ago 11 cents.

Standard Commercial

(STW)

shed 13/16, or 9.2%, to 8 1/16 after last night lowering its 1999 earnings estimate to 60 cents to 90 cents a share. The three-analyst view called for $1.69. The company, which earned $2.05 last year, blamed "extremely difficult" trading conditions in the wool business.

Unisys

(UIS) - Get Report

took in 15/16 to 34 3/8 after reporting fourth-quarter earnings of 42 cents a share, beating the 11-analyst estimate of 40 cents and the year-ago 25 cents.

Wachovia

(WB) - Get Report

shrank 1 15/16 to 87 1/2 after reporting fourth-quarter earnings of $1.19 a share, in line with the 20-analyst forecast and up from the year-ago $1.02.

Whole Foods Market

(WFMI)

stumbled 11 1/8, or 24.4%, to 34 1/2 after late yesterday saying it expects first-quarter earnings of 45 cents to 50 cents a share -- below the 10-analyst outlook of 58 cents. In the year-ago period, the company made 48 cents. Whole Foods cited higher-than-expected direct store costs and higher general and administrative costs at the regional and national levels. Morgan Stanley Dean Witter cut the stock to neutral from outperform, BT Alex. Brown lowered it to buy from strong buy, and

Hanifen Imhoff

downgraded it to accumulate from buy.

Offerings and stock actions

Dayton Hudson

(DH)

gave up 5/16 to 53 3/4 after setting a $1 billion stock buyback program.

Analyst actions

Advanced Fibre Communications

(AFCI)

surged 1 15/16, or 16.9%, to 13 1/2 after NationsBanc Montgomery upgraded it to buy from hold, saying the company is an attractive acquisition target. The firm set a 12-month price target of 17 a share.

Aflac

(AFL) - Get Report

jumped 2 9/16, or 6.3%, to 43 9/16 after Donaldson Lufkin & Jenrette upgraded the stock to buy from market perform.

Excel Industries

(EXC) - Get Report

brought in 1 3/4, or 9.5%, to 20 1/8 after

Bear Stearns

upped it to buy from attractive.

Potash

(POT)

dropped 4 7/16, or 6.5%, to 63 9/16 after

Credit Suisse First Boston

dropped it to buy from strong buy. The Canadian company said talks to buy a majority stake in an Israeli firm that controls a big fertilizer company ended with no deal.

Sunglass Hut

(RAYS)

spiked up 1 3/4, or 23.7%, to 9 1/8 after Morgan Stanley Dean Witter raised it to strong buy from neutral.

Miscellany

Cytel

(CYTL)

exploded up 5 11/16, or 271.4%, to an all-time high of 7 3/8 after a subsidiary said initial data suggested an epitope-based vaccine it's developing could help control HIV.

Immunex

(IMNX)

hopped 8, or 6.3%, to an all-time high of 135 13/16 after yesterday saying that 10,000 to 15,000 people were taking its arthritis treatment,

Enbrel

, at the end of December.

Nordstrom

(NOBE)

took in 3/8 to 34 11/16 after saying it made the first of two direct-sales catalogs fully available online. The first is

Nordstrom, The Catalog

, the second is

Nordstrom 2nd Nature

, which will be completely online by Feb. 15. Nordstrom launched its Web site in October.

As originally published, this story contained an error. Please see Corrections and Clarifications

.