Wall Street's Vacuum Sucks Stocks, Bonds Higher

Trading desks were depopulated, but there was enough positive sentiment around to boost the markets.
Author:
Publish date:

Even in the quietest moments, stocks can rise. Today's action may not have been so wonderful, beautiful or magical, but it was certainly welcome by those long.

Merger activity, both real and theoretical, plus continued debate about whether the

Federal Reserve

will raise interest rates next weeks helped push stocks higher in a predictably subdued Friday in late August. The positive bias of today's expiration of stock and stock-index options also provided a boost to major averages. Stocks got session-long support from the bond market; the price of the 30-year Treasury bond rose 19/32 to 101 26/32, its yield falling to 5.99%.

Against that backdrop, the

Dow Jones Industrial Average

rose 136.77, or 1.3%, to 11,100.61 -- only the second time the index has closed above 11,100 since July 19. Dow gainers were led by

American Express

(AXP) - Get Report

,

Johnson & Johnson

(JNJ) - Get Report

,

Merck

(MRK) - Get Report

,

Procter & Gamble

(PG) - Get Report

and

Alcoa

(AA) - Get Report

.

Like many commodity-based stocks, Alcoa's rose in the wake of an unsolicited bid -- subsequently sweetened -- by

Phelps Dodge

(PD) - Get Report

for

Asarco

(AR) - Get Report

and

Cyprus Amax Minerals

(CYM)

; the latter two have already announced a merger agreement. The copper consolidation comes, of course, just a day after Alcoa came to terms with

Reynolds Metals

(RLM) - Get Report

and amid speculation of further consolidation in the industry. Phelps Dodge rose 2.2%, Asarco gained 21.7% and Cyprus Amax rose 19.8%. The

Morgan Stanley Cyclical Index

gained 0.9%.

The other Dow gainers also represented broader market trends. The

Philadelphia Stock Exchange/KBW Bank Index

rose 1.5%, the

American Stock Exchange Pharmaceutical Index

gained 3.3%, the

Morgan Stanley Consumer Index

rose 1.6% and the

S&P Chemical Index

gained 0.7%.

Finanicals also got a boost from unsubstantiated rumors about separate mergers involving

Hambrecht & Quist

(HQ)

and

Charles Schwab

(SCH)

and

PaineWebber

(PWJ)

and

Deutsche Bank

. That's in addition to ongoing scuttlebutt that

Merrill Lynch

(MER)

is "in play." (

TheStreet.com

wrote about the long history of takeover speculation and PaineWebber

Wednesday.)

H&Q rose 0.3%, Schwab gained 1.6%, PaineWebber jumped 3.5% and Merrill rose 3.3%; the

American Stock Exchange Broker/Dealer Index

gained 6.8%.

Meanwhile,

AT&T

(T) - Get Report

was a notable Dow loser, falling 2.7%. Ma Bell declined in concert with

Sprint

(FON)

, down 8.3% in the wake of a downgrade by

Lehman Brothers

and earnings estimate cut by

Warburg Dillon Read

. Additionally,

MCI WorldCom

(WCOM)

shed 2.2%.

Weakness in those long-distance carriers and general lassitude among growth stocks restrained gains for other market averages. The

S&P 500

rose 13.02, or 1%, to 1336.61 while the

Nasdaq Composite Index

gained 26.90, or 1%, to 2648.33.

TheStreet.com Internet Sector

index outperformed, however, rising 8.03, or 1.5%, to 557.17 after

Media Metrix

reported strong usage figures for July.

The

Russell 2000

rose 1.61, or 0.4%, to 434.38, reflecting positive market internals.

"It was a good market today -- just a steady, sustainable generic up day," said Doug Myers, vice president of equity trading at

Wachovia Securities

in Atlanta. "There were some gyrations at the end that were options related, but there was just a feeling of 'I'd better get some stocks.'"

Trading until about 3:25 p.m. EDT represented the "natural market" today, Myers said. "That whoopsy-doodle, bullwhip crack

toward the close was options related. It may evaporate Monday. But if we're down a quick 60 points

Monday morning I won't fret, knowing Friday's action had some machinations."

Regarding today's action, merger activity was a featured topic of conversation but didn't materially impact sentiment, the trader said. Asked whether speculation the Fed will not raise rates next week has permeated deeply into the market's psyche, he replied: "That's what this market is telling you."

Regardless of what the stock market may be saying, fed funds futures traders continue to price in an almost dead-solid-certain rate hike next week. The broader in opinion in the stock and bond markets holds that Tuesday's move will likely be it for a while, however.

In

New York Stock Exchange

trading, 661.3 million shares were exchanged while advancers led declining stocks 1,714 to 1,197. In

Nasdaq Stock Market

action 798.1 million shares traded while gainers led 2,027 to 1,740. New 52-week lows bested new highs 72 to 53 on the Big Board while new highs led 74 to 52 in over-the-counter trading.

Rally With Dash of Confusion

"The stars are in line for a nice rally, whatever the Fed does," said the head trader of one New York shop. "I think we get Tuesday out of the way and you're going to have some positive momentum. You'll see volume pick up either way -- my guess is it's going to be positive because there's so much negative sentiment right now. Maybe I'm wishing, but I think we're set to rally."

The trader, who is in that growing (but still small) camp of folks who think the Fed stands pat next week, said Monday afternoon will be a big tell as to what the market is expecting.

Bank stocks will be a "simple barometer," he said. "If people are legging into banks toward the bell on Monday, you'll have a damned good idea of what's going to happen come Tuesday. If they start buying, it's just going to substantiate what I'm thinking."

The trader, who requested anonymity, did acknowledge his institutional trading accounts are less optimistic.

"Bigger guys we deal with can't figure the market out," he said. "There's so much frustration out there. Generally good investors may be right on something, but when they try to press it, they end up getting killed. If you're not lucky, you're dead. That's why it's been like watching paint dry."

Among other indices, the

Dow Jones Transportation Average

fell 15.57, or 0.5%, to 3150.73; the

Dow Jones Utility Average

rose 4.78, or 1.5%, to 319.64; and the

American Stock Exchange Composite Index

gained 2.72, or 0.4%, to 787.79.

For the week, the Dow industrials added 126.71, or 1.2%; the S&P 500 rose 8.93, or 0.6%; the Comp rose 10.49, or 0.4%; the Russell 2000 rose 0.33, or 0.1%; while the DOT rose 28.76, or 5.4%. Additionally, the Dow transports tumbled 28.34, or 0.9%; the Dow utilities put on 5.25, or 1.7%; and the Amex Composite rose 4.05, or 0.5%.

Elsewhere in North American equities today, the

Toronto Stock Exchange 300

gained 31.12 to 7129.20 and the

Mexican Stock Exchange IPC Index

slid 49.16 to 5099.26.

Friday's Company Report

By Tara Murphy
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.

)

Copper miners Asarco and Cyprus Amax Minerals said Phelps Dodge raised its unsolicited offer to buy both companies to $2.66 billion in stock from $2.56 billion. Before the latest offer, Asarco and Cyprus directors decided to proceed with their own pending merger after considering a number of contingencies that would be associated with Phelps' bid. Shares of Asarco jumped 4, or 21.7%, to 22 7/16 while Cyprus hopped 2 7/8, or 19.8%, to 17 3/8. Phelps Dodge shares climbed 1 5/16 to 59 7/8.

Mergers, acquisitions and joint ventures

Comsat

(CQ)

was off 1/2 to 35 7/8 after shareholders gave their approval for the company to be bought by defense contractor

Lockheed Martin

(LMT) - Get Report

. Comsat said more than 39 million shares cast by proxy favored the deal out of 53 million shares outstanding. Although the value of the merger has decreased to $2.2 billion from $2.7 billion, fewer than 400,000 shares showed opposition to the transaction. Lockheed's June profit warnings, which sent its stock tumbling, are blamed for the cash and stock deal's value decline. Shares of Lockheed were up 7/16 to 37 3/4.

Cooper Cameron

(CAM)

advanced 1 5/8 to 40 7/8 after announcing the sale of its rotating compressor unit to

Rolls Royce

for $180 million.

Disney

(DIS) - Get Report

increased 1/2 to 29 7/8 after

The New York Times

reported it would sell its

Fairchild Publications

division, which publishes

Women's Wear Daily

and

W

, for $650 million to

Conde Nast Publications

, the publisher of such magazines as

Vogue

,

Vanity Fair

,

Mademoiselle

and

The New Yorker

.

Motivepower Industries

(MPO)

slipped 1 1/16, or 7.9%, to 12 1/4 after it said its shareholders will still vote Monday on the possible merger with

Westinghouse Air Brake

(WAB) - Get Report

, despite Westinghouse postponing the deal. Westinghouse said earlier that it had pushed back its own stockholders' meeting, scheduled for the same day. Motivepower, which claims to have overwhelming shareholder support for the possible merger, proposed that both companies push back shareholder meetings by 48 hours, giving Westinghouse investors more time to consider information relating to the deal. Shares of Westinghouse hopped 1 15/16, or 10.6%, to 20 1/16.

NBC

, a unit of

General Electric

(GE) - Get Report

, is speaking with

Paxson Communications

(PAX)

about taking a 32% stake in the company,

The Wall Street Journal

reported, citing people familiar with the discussions. Shares of GE advanced 1 13/16 to 112 13/16, while Paxson slid 1 3/16, or 7.3%, to 15 1/16.

Bank of Tokyo-Mitsubishi

(MBK)

increased 1, or 6.3% to 16 13/16 on the heels of word that

Industrial Bank of Japan

,

Dai-Ichi Kangyo Bank

and

Fuji Bank

confirmed plans to form a giant holding company.

German utilities

Veba

(VEB)

jumped 3 1/8 to 66 1/4 after it said it was in talks with

Viag

to merge in a transaction that could be valued at about $15 billion, the

Journal

reported, citing people familiar with the situation.

Earnings/revenue reports and previews

Dillard's

(DDS) - Get Report

plunged 5 3/4, or 19.5%, to 23 3/4 after it posted second-quarter earnings yesterday of 34 cents a share, down from both the 12-analyst estimate of 48 cents and the year-ago 45 cents.

Morgan Stanley Dean Witter

downgraded Dillard's to neutral from outperform, while

Banc of America Securities

cut its rating to underperform from a buy.

Dun & Bradstreet

(DNB)

fell 5 3/16 to 25 1/2 after it warned yesterday that it doesn't expect to meet analysts' earnings estimates of 40 cents to 41 cents a share for the third quarter and $1.73 to $1.75 a share for full-year 1999. The company now expects full-year earnings to be $1.62 to $1.65.

Merrill Lynch

lowered its rating on the stock to near-term accumulate from buy.

Offerings and stock actions

Agile Software

(AGIL)

soared 18 7/8, or 89.9%, to 39 7/8 in its trading debut. Morgan Stanley Dean Witter priced the 3 million-share IPO above-range at $21 a share. The estimated range for the IPO had been raised to $18 to $20 from $15 to $17. Agile, based in San Jose, Calif., is a content-management software company.

Billing Concepts

(BILL) - Get Report

was down 9.8% to 6 1/16 after it said it will not split its billing division and software unit into two separate public companies. On April 22, the company announced plans to spin off its systems and software unit, while maintaining the clearinghouse group under its own name. The billing clearing house and information service provider said it based its decision on market volatility, along with possible "postspinoff trading" prices of the separate companies.

LookSmart

(LOOK)

was looking good, leaping 5 3/16, or 43.2%, to 17 5/16 on its first day of trading.

Goldman Sachs

priced the 7.7 million-share IPO mid-range at $12 a share. The deal was reduced to 9 million shares from 12 million and then finally to 7.7 million. LookSmart is an Internet directory company based in San Francisco.

New York Times

(NYT) - Get Report

was off 1/16 to 37 7/16 after it said it was pondering an IPO for its Internet unit,

Times Co. Digital

, although a final decision on an IPO hasn't been made yet, the

Journal

reported. Chairman Arthur O. Sulzberger Jr., in a staff memo, also said the company is considering allowing all employees and not just those who work for the Net division to buy stock at the IPO price, the

Journal

article said. New York Times is a minority shareholder in

TheStreet.com Inc.

(TSCM)

, the publisher of this Web site.

Separately, the company reported that July's advertising volume at its flagship newspaper,

The New York Times

, increased by 2.2% from the same month a year before, while its

Boston Globe's

advertising inches rose 1.8%.

Analyst actions

Bank United

(BNKU) - Get Report

skidded 1 1/8 to 36 3/8 after Warburg Dillon Read downgraded the stock to buy from strong buy.

Carey International

(CARY)

climbed 1, or 5%, to 21 after

Donaldson Lufkin & Jenrette

initiated coverage of the stock with a buy rating.

Clarke/Bardes

(CLKB)

was up 5/8 to 16 3/4 after Banc of America initiated coverage with a strong buy rating and a $25 price target.

Concord Communications

(CCRD)

was up 5/8 to 39 5/8 after Goldman Sachs initiated coverage with a market outperform rating.

DLJdirect

(DIR)

increased a 1/4 to 19 after Goldman Sachs started coverage with a market perform rating.

Equifax

(EFX) - Get Report

fell 4 7/8, or 14.8%, to 28 1/16 after Morgan Stanley cut its rating to outperform from strong buy.

DLJ started coverage of

Genentech

(DNA)

with an initial market perform rating. Shares of Genentech slipped 1 1/4 to 153 3/4.

MedImmune

(MEDI)

advanced 15/16 to 104 after Lehman Brothers analyst Eric Ende started coverage with an initial buy rating and a 12-month price target of 169.

Micromuse

(MUSE)

jumped 2 1/8 to 56 1/2 after Goldman Sachs began coverage of the stock with a recommended list rating.

Optical Coating Laboratory

(OCLI)

declined 1 7/8 to 59 1/2 despite beating third-quarter estimates. Banc of America maintained a buy rating on the stock, upped its 1999 estimate to $1.49 from $1.43 and raised its 2000 estimate to $1.94 from $1.75.

Park Place Entertainment

(PPE)

was off 5/16 to 11 1/16 after

Deutsche Banc Alex. Brown

cut its rating to a buy from a strong buy.

PepsiCo

(PEP) - Get Report

increased 3/16 to 35 9/16 after Banc of America upgraded the stock to strong buy from buy.

Province Healthcare

(PRHC)

was up 3/8 to 17 1/2 after DLJ analyst John Hindelong initiated coverage with a market perform rating.

Lehman Brothers downgraded

Sprint

(FON)

to outperform from buy. Shares of Sprint plunged 4 1/16, or 8.3%, to 45.

Tandy

(TAN) - Get Report

leaped 4, or 8.4%, to 51 1/8 after Goldman Sachs initiated coverage with a market outperform rating. Yesterday, Merrill Lynch retail analyst Peter Caruso named the

Radio Shack

parent the firm's Focus One stock of the week.

Western Resources

(WR)

increased 3/16 to 23 7/16 after

PaineWebber

initiated coverage with an attractive rating.

Miscellany

American Home Products

(AHP)

hopped 1 5/16 to 46 15/16 after a California judge refused to give class action status to former "fen-phen" diet drug users who are suing for medical monitoring costs. This is only a small victory for American Home Products, which has faced a slew of lawsuits involving the controversial diet drug. Courts in six other states, including New Jersey, have given class-action status to former users seeking compensation for medical monitoring. Two plaintiffs filed the lawsuit in California on behalf of all residents who used Pondimin and Redux for one month or more. American Home products recalled the drugs in 1997 after U.S. regulators said some users had developed heart valve damage and other medical problems.

TheStreet.com

took a look at AHP's drug pipeline in a

Tuesday story.

The Chicago Stock Exchange

announced its plans to extend trading hours beginning Oct. 1, making it the first U.S. exchange to set definitive plans to offer individual investors post-trading hours service. The CHX board of governors said yes to a plan to trade all

S&P 100

and

Nasdaq 100

stocks as well as 50 to 100 of the most active issues not included in the S&P 100 and the Nasdaq 100. The close of trading will be extended to 6:30 p.m. EDT from 4:30 p.m. EDT.

US Airways Group

(U)

gate and ticket agents unanimously voted for union representation by the

Communications Workers of America

The

National Mediation Board

said that two-thirds of the eligible voters supported representation, surpassing the majority needed.