Wall Street's Raucous Celebration Fades Into Uncertainty

The Net sector is partying on, but the broader market can't get much going after days of gains.

Author:: Eileen Kinsella
Publish date:: Aug 18, 1999 1:29 PM EDT

The party on Wall Street came to an abrupt halt this morning, leaving many traders with a nagging headache. To make matters worse, no one can remember what sparked the celebration in the first place.

A rally sparked by a weaker-than-expected

Producer Price Index

and an in-line

Consumer Price Index

was suddenly being viewed with a healthy dose of skepticism, and stocks tumbled as people tried to recall what all the excitement was about.

The

Dow Jones Industrial Average

dipped more than 97 points at its worst and spent the morning under water, lately down 74 to 11,043. The broader

S&P 500

took its cue and jumped in too, falling 6 to 1338. The

Russell 2000

was wet as well, off 2 to 434.

"This is a payback for several days of very strong markets that were not supposed to be," said Stanley Nabi, chief investment officer at

DLJ Investment Management

. "If

the inflation data had been below expectations, then I would understand the market reaction. I don't know why the stock market has been rising so much."

It's not just a short-term dip that has people worried. Indeed, with the Dow closing up 70 points at 11,117 yesterday, things don't look too shabby, especially considering 11,209.84 is the all-time high. But now that the big hill of inflation anxiety is in the rearview and bellwethers like

Hewlett-Packard

(HWP)

and

Dell

(DELL) - Get Report

have done the earnings dance, investors are unsure of what big -- or even little -- things to look out for next.

The truth of the matter, said Nabi, is that little has changed, especially with regard to interest rates, which will most likely be hiked a notch on Tuesday when the Fed meets again. Aside from those actions Nabi said he is worried about the overall outlook for the market.

"I don't know what fuel is going to be that pushes this market higher," he said. "We are not in a good technical position. The market is near its all-time high, but if you look at new highs and lows, it's terrible."

The only issues that had good reason to party today were Internet stocks, and they were.

Merrill Lynch

Internet analyst Henry Blodget handed some issues an early Christmas present when he said he expected good things to come from the fall and holiday shopping season. Blodget said

eToys

(ETYS)

Lycos

(LCOS)

and

barnesandnoble.com

(BNBN)

were a "sound way to play the fundamental strength and renewed investor enthusiasm we expect to see during the fall and holiday shopping season,"

Reuters

reported.

Also among those mentioned,

America Online

(AOL)

was up 3.9%,

Amazon.com

(AMZN) - Get Report

was up 6.8% and

Yahoo!

(YHOO)

was 6.1%.

Toss in positive earnings from Dell and it looks like there just might be a reason to get down and celebrate. The

Nasdaq Composite Index

was moving higher, up 5 to 2676, while

The Street.com Internet Sector

index was up a strong 18, or 3.3%, to 576.

On the

New York Stock Exchange

, decliners were leading advancers 1,679 to 1,121 on 403 million shares, while on the

Nasdaq Stock Market

, 2,033 decliners were beating 1,560 advancers on 663 million shares. New 52-week lows were outpacing new highs 43 to 40 on the Big Board, while new highs were ahead of new lows 60 to 42 on the Nasdaq.

The benchmark 30-year Treasury was up 2/32 to 101 21/32, its yield at 6.01%. (For more on the fixed-income market, see today's early

Bond Focus.)

Tuesday's Midday Watchlist

By Tara Murphy
Staff Reporter

(

Earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified

As noted above, Merrill's Blodget sent the Internet sector soaring with positive comments on eight industry names. Blodget upped ratings on Yahoo! and Amazon to near-term buy from accumulate. At the midday, Yahoo! was jumping 8, or 6.1%, to 146 7/8, while Amazon shares were leaping 7 1/6, or 6.8%, to 116 3/8.

The analyst also expects eToys, America Online, barnesandnoble.com, Excite@Home, Inktomi and Lycos to be strong fourth-quarter performers with the Holiday season right around the corner. Blodget called the group "among the highest quality of stocks" and said "we like them year-round -- but we like them even more now that they are down 50% from their highs and we are headed into the busiest season of the year."

Excite@Home shares were up 1 7/8 to 41, while eToys leaped 5 9/16, or 13.8% to 45 7/8. AOL jumped 3 5/8 to 101 1/8 and barnesandnoble.com was up 2 7/16, or 14.6%, to 19 3/16. Lycos and Inktomi also reaped the benefits of Blodget's praises. Lycos climbed 3 3/4, or 8.9%, to 45 7/8, while Inktomi jumped 3 1/2 to 119 1/8.

Mergers, acquisitions and joint ventures

Excel Switching

(XLSW)

was soaring 7 5/16,or 26.5% to 34 7/8 after

Lucent

(LU)

agreed to acquire it for $1.7 billion in stock. Lucent will issue 0.5580 share for each Excel share, or $37 a share based on Lucent's closing price yesterday. That's a 34% premium to Excel's closing price of 27 9/16. Lucent was off 1 3/4 to 64 3/4.

In other Lucent news, the company has made a tender offer for all of the outstanding shares of

SpecTran

(SPTR)

. Lucent extended the offer's deadline to midnight Aug. 24, from yesterday. Lucent said its $9 per common share offer has earned the company about 47% of SpecTran's outstanding shares. SpecTran was unchanged at 8.

AES

(AES) - Get Report

was up 2 3/16 to 57 3/16 after it announced plans to acquire

Drax Power Station

, Western Europe's largest coal-fired power plant, from Britain's

National Power

for $3 billion.

Adecco

said it has agreed to acquire

Olsten Staffing

(OLS)

in a deal that calls for Olsten to split off its health services unit. Shares of Olsten were up 1/4 to 9 3/4.

Cisco

(CSCO) - Get Report

was off 1/4 to 64 after it announcing plans to invest $50 million in

Akamai

, which produces technology that makes Web sites operate more quickly. Cisco will take a roughly 4% stake in the company.

Food Lion

(FDLNA)

was off 2, or 22.4% to 8 9/16 after it agreed to buy

Hannaford Brothers

(HRD)

in a deal that could be worth as much as $4 billion. Food Lion also set a 1-for-3 reverse stock split and said it would form a holding company to facilitate acquisitions. At the midday, Hannaford Brothers rocketed 8 1/8, or 12.7% to 71 13/16.

Earnings/revenue reports and previews

Applied Materials

(AMAT) - Get Report

was off 4 7/8, or 6.8%, to 66 7/8 despite yesterday's third-quarter earnings report of 61 cents a share, 8 cents ahead of the 29-analyst estimate. Analysts reportedly were disappointed with Applied's order growth.

Advest

cut the stock to buy from strong buy, but

Morgan Stanley Dean Witter

upped its earnings estimates on the company.

Bon-Ton Stores

(BONT)

was unchanged at 5 1/8 after it reported a second-quarter loss of a nickel a share, in line with the three-analyst estimate.

Brookstone

(BKST)

was up 1/16 to 16 5/16 after it posted a break-even second quarter, in line with the two-analyst estimate.

Consolidated Stores

(CNS) - Get Report

was off 11/16 to 17 3/8 after it reported a second-quarter loss of 4 cents a share, in line with the 14-analyst estimate.

Dell hopped 3 3/8, or 8.2%, to 44 1/2 after it reported second-quarter earnings after yesterday's close of 19 cents a share, 2 cents ahead of the 30-analyst estimate.

Lycos reported fourth-quarter earnings last night of a penny a share, slightly better than the 21-analyst expectation that the company would break even.

Saks

(SKS)

was getting slammed 5 1/8, or 22.1%, to 18 after late yesterday warning that its 1999 earnings will fall well short of analysts' expectations. Downgrades flew fast and furious, coming from Merrill,

PaineWebber

Goldman Sachs

ING Barings

and

Banc of America Securities

Staples

(SPLS)

was up 11/16 to 25 13/16 after it reported second-quarter earnings of 11 cents a share, in line with the 18-analyst estimate.

Talbots

(TLB)

was up 7/8 to 31 1/2 after it posted second-quarter earnings of 12 cents a share, in line with the 12-analyst estimate.

Offerings and stock actions

Salomon Smith Barney

cut the price range for

Labranche

, an 11.5 million-share IPO, to $9 to $11 a share from $15 to $17.

MyPoints.com

said it anticipates an initial price of $8 a share, lower than its previous range of $10 to $12. The email and online direct marketer said its upcoming 5 million-share IPO stands to rake in $36.2 million in net proceeds, a decline from last week's estimate of $50.2 million.

NovaMed Eyecare

(NOVA:Nasdaq) had not made its trading debut by midday.

Donaldson Lufkin & Jenrette

priced the 4 million-share IPO at $8 a share last night, below its already lowered pricing range of $9 to $11 a share. The IPO was originally scheduled for 7.1 million shares at an expected $11 to $13.

Stewart Enterprises

(STEI)

was unchanged at 6 3/8 after it said it would initiate a 5%, or 5.6 million-share, repurchasing program. The buyback will only include the funeral and cemetery service provider's Class A common stock and will be transacted in the open market or in private negotiations.