Wall Street's Story Stays the Same: Rotation, Rotation, Rotation

The move away from high-P/E growth stocks into beaten-down cyclicals continues, with some concerned that it augurs a correction.
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If, at midday, you were to walk onto one of Wall Street's trading floors and look at the screen on some broker's desk, chances are it would be awash in red. And, as has often been the case recently, that wouldn't give you a very good idea of what's going on in the market.

Again, we are seeing evidence of rotation in the market, of investors buying cyclicals and value stocks and small- and midcaps while shying from the top-tier names that for so long were the only game in town.

A look at the major indices bears this out. A month ago, it was

Nasdaq Composite Index

trumps

S&P 500

trumps

Dow Jones Industrial Average

. For April, it has been the opposite, and that trend continues today. Lately, the cyclical-heavy Dow was up 32 to 10,877, while the S&P was down 6 to 1345 and the Nasdaq was down 42 to 2508. Meanwhile, those Uber-growth stocks, the Internets, were getting clocked by heavy, postresults selling in

Amazon

(AMZN) - Get Report

.

TheStreet.com Internet Sector

index was down 24, or 3.7%, to 633. The

Russell 2000

was off 3 to 431.

"Again, we're seeing all the stocks with the high P/Es getting smushed," said Dan Mathisson, head stock trader at

D.E. Shaw Securities

. "It's a continuation of the rotation we've seen over the last few weeks. The things that shot up the most are coming down and the things that were beaten down are coming back."

Now, one of the rules when you see rotation like this is there's supposed to be more than just a little selling. There's supposed to be a correction. A lot of old market pros --

Morgan Stanley Dean Witter's

Byron Wien is one of them -- think that this time will be no different. When a leadership group -- in this case a leadership group that has been propelling the indices -- falls out of favor and investors put their money elsewhere, there's going to be a little pain.

Yet others disagree. Speaking before the

Economic Strategy Institute

conference in Washington

yesterday,

Goldman Sachs

market strategist Abby Joseph Cohen said as much. Cohen said she believed that the market's broadening will continue, that many of the forlorn stocks will improve. But she also said she believed the

S&P 500

can support its current price-to-earnings ratio, maybe even a bit more.

The struggle on Wall Street today is trying to figure out which camp, Wien's or Cohen's, is right.

"Can the market perform a Houdini here and manage to perform a rotation into an entirely new group without a correction," asked Dick Dickson, technical analyst at

Scott & Stringfellow

in Richmond, Va. "It seems to be happening right now." Dickson points out that while they have been bruised a bit, "people haven't really been beat up in these tech stocks."

People were getting beaten up in Amazon, however, which lately was down 25, or 12.9%, to 168 5/8 after its results last night. A change of pace, to see an Internet stock trade down in response to better-than-expected losses and a forecast of more losses to come. "Is this just a dip, or does the fact that it comes out with earnings that on the surface look good and then gets hit -- is that indicative of anything?" asked Mathisson.

Breadth on the

New York Stock Exchange

was slightly positive, with advancers beating decliners 1,502 to 1,323 on 531 million shares. Four letter issues weren't faring as well: in

Nasdaq Stock Market

action, decliners were outpacing advancers 1,939 to 1,717 with 579 million shares passing hands. New 52-week highs were leading new lows 62 to 17 on the Big Board and 52 to 22 on the Nasdaq.

The 30-year Treasury bond was up 26/32 to 95 30/32, dropping the yield to 5.53%, on the back of the weaker-than-expected

Employment Cost Index

. (For more on the fixed-income market, see today's early

Bond Focus.)

Thursday's Midday Movers

By Heather Moore
Staff Reporter

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America Online

(AOL)

before it, Amazon.com was losing steam after posting better-than-expected first-quarter results, lately down 25, or 12.9%, to 168 5/8.

Late yesterday, the Internet retailer reported a quarter loss of 23 cents a share, 6 cents narrower than the 21-analyst view but deeper than the year-ago loss of 7 cents. Revenue soared to $294 million from $87 million a year earlier. Today,

Credit Suisse First Boston

reiterated its buy rating on Amazon.com, but

BT Alex. Brown

lowered the stock to buy from strong buy. As

TheStreet.com

reported in a

piece last night, concerns continue to mount about Amazon's aggressive spending and distant profitability.

In other news:

CMP Media

(CMPX)

was up 4 11/16, or 13.9%, to 38 7/16 on news Britain's

United News & Media

(UNEWY)

is buying the company for $920 million in cash. United News & Media was up 5/8 to 23 3/4.

Covance

(CVD)

was down 7 1/4, or 26.4%, to 20 1/4 after agreeing to buy

Parexel International

(PRXL)

in a stock deal valued at $800 million. Under terms of the deal, Parexel shareholders will receive 1.184 Covance shares for each Parexel share. The new company will be called

Covance Parexel

. Parexel was up 2 15/16, or 15.2%, to 22 3/16.

Morgan Stanley Dean Witter

cut Covance to neutral from outperform.

Earnings/revenue movers

Actel

(ACTL)

was down 6 1/4, or 32.8%, to 12 7/8 after last night missing first-quarter earnings estimates by a penny with a profit of 19 cents a share.

IHOP

(IHOP)

was up 4 3/8, or 10%, to 48 1/2 after setting a 2-for-1 stock split and posting first-quarter earnings of 65 cents a share, blasting the single-analyst forecast for 53 cents. The company earned 47 cents in the year-ago period.

Tenneco

(TEN) - Get Report

was up 1/16 to 28 5/16 after reporting first-quarter earnings of 27 cents a share, 2 cents ahead of the two-analyst estimate but down from the year-ago 44 cents. The company also said it will spin off its specialty-packaging business to shareholders.