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Worries About Tightening Fade, but So Do Market's Gains

Major equity indices have given up their earlier strength despite a long-bond rally.

Free from the bondage of (sometimes evil)


watch, our heroic major stock averages had regained enough force to travel skyward if not spaceward this morning. But by midday, stock proxies were downright deflated. Looking forward, one wonders if the session's earlier action was just glitzy special effects


any compelling story or characters.

Most analysts have seen recent interest-rate jitters as a perfect backdrop for something of an equity correction during these times of simultaneously high stock valuations and bond yields. However, now that

Greenspan & Co.

have actually

announced a tightening bias, several market watchers say they think the path is clear for new highs.

Al Goldman, chief market strategist at

A.G. Edwards & Sons

in St. Louis, is calling 5.90% the top on the long bond yield and said he sees the

Dow Jones Industrial Average

"going to 12,000 before 2000." The blue-chip index may take a pause here and there, or as the strategist said "go up 2, down 1, and then take a nap," but Goldman doesn't foresee any real correction around the bend. "This market isn't acting at all like it's going to drop 5% to 10%," he said.

Even though many Wall Streeters were expecting the

Federal Open Market Committee

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to adopt a bias toward raising rates, Goldman called yesterday's news "a shock to the system. ... If people were expecting it, the market wouldn't have gone up 60, then down 100. But today cooler heads are prevailing and people are realizing that the Fed just said something that's reality, that the economy is strong. And today the dominant trend is up.

"It's been an eclectic market and we think it will continue to be," he continued. "With good jobs growing and earnings getting better this year and next year, we see the market advance getting broader."

The strategist repeated a statistic that in the last 24 hours has become something of a Wall Street security blanket: Since 1996, after 25 meetings, the FOMC adopted a tightening bias 14 times. During that time, the Fed actually only raised rates once.

Or, as Bill Dudley, director of U.S. economic research at

Goldman Sachs

, put it in a research note yesterday: "Directives biased toward tightening have not been good predictors of actual tightening. ...

The FOMC has adopted a tightening bias at 40 meetings since 1983 prior to this one. Only 13 (33%) of these presaged a rate hike at or before the next meeting, and only 21 (53%) signaled a tightening within six months."

The Dow lately was down 32 to 10,805 after an earlier high of 10,891.81. Most solidly representing drugs, financials and cyclicals,


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General Electric

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International Paper

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Johnson & Johnson

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J.P. Morgan

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were the strongest performers among the gilded 30.

The broader

S&P 500

was down 3 to 1331, and the smallish-cap

Russell 2000

was lifting 2 to 444.

The session's weakest component were transports, with the

Dow Jones Transportation Average

skidding 93, or 2.6%, to 3557.

BT Alex. Brown

issued a note saying that year-over-year monthly revenue trends for the domestic airline industry are "only likely to get worse."

A.G. Edwards' Goldman said: "We've seen some normal profit-taking here for a week. On the surface, I think people are thinking if the economy is too strong and we need to slow it down that will hurt transports. But they're really just due for some profit-taking."

Techland was more of a mixed bag, with the

Nasdaq Composite Index

down 16 to 2543 after an intraday high of 2574.76.


(DELL) - Get Dell Technologies Inc. Class C Report

-- off 9.5% after

failing to beat earnings estimates last night and failing to excite analysts with its profit margins -- was not helping the tech bulls' cause. Internet names were holding ground after recent bloodletting. Internet Sector

index was up 4 to 635.

America Online


was climbing 0.5% following a positive meeting with analysts.

Market internals were strong. On the

New York Stock Exchange

, advancers were leading decliners 1,546 to 1,237 on 430 million shares. Ups had the downs 1,810 to 1,775 on 549 million shares in

Nasdaq Stock Market

activity. New 52-week lows were leading new highs 39 to 24 on the Big Board, but new Nasdaq highs were outpacing new lows 63 to 19.

The 30-year Treasury was up 18/32 to 91 21/32, dropping its yield to 5.84%. (For more on the fixed-income market, see today's early

Bond Focus.)

Thomas McManus, equity portfolio strategist at

Banc of America Securities

, said the long bond's yield has some way to go and is calling for a top of 6% to 6.25%.

"There wasn't too much revealed in yesterday's

Fed announcement," he said. "And the 50 basis points that the Fed eased last year had more to do with international issues. But I think we're in a secular bull market for bonds and there's going to be some countertrends, especially with inflationary pressures rising and bond prices falling."

As for stocks, McManus is bullish on small- and mid-cap cyclicals -- names, he said, that actually record better earnings in an environment where the Fed is thinking about raising rates. "The rally in large-cap cyclicals signaled a shift in the market cycle was underway. But why chase large-cap cyclicals, which got overpriced, when there are thousands of companies whose earnings streams are positively correlated with the pace of the economy?"


Promus Hotel

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as an example, McManus added, "These are stocks that priced lower in the latter half of 1998 and now have a very attractive valuation."

Wednesday's Midday Movers

By Thomas Lepri
Staff Reporter

The Phantom Menace

is gouging throngs of giddied, geeky cineastes for $9.50 a pop in Manhattan today. But investors worried about slimming boxmaker profit margins are menacing shares of Dell in a much more palpable way. The PC maker was down 4 3/16, or 9.5%, to 39 13/16 on another

mixed bag of earnings, Dell last night posting first-quarter earnings in line with the 31-analyst

First Call

outlook for 16 cents a share and a nickel over the year-ago period.

Web healthcare service provider



was surging 17 1/2, or 31.5%, to 73 after it confirmed that it plans to buy privately held rival


. The deal will be a $5.5 billion stock transaction, according to

The Wall Street Journal Interactive Edition

, which cited people familiar with the matter. The new company's backers may include


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(INTC) - Get Intel Corporation Report

, wrote the



In other news:

American Airlines



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was getting walloped after the

Air Transport Association

released figures last night showing revenue per airline seat falling by 3% in April, a drop as much as 1.5% steeper than analysts expected. AMR was lately down 3 16/16, or 4.5%, to 68 1/8.

Computer market

Creative Computers


was up 8, or 26.5%, to 38 1/4 after it set plans last night to spin off all of its 7.3 million shares in online auction site



to Creative Computers shareholders. uBid was lately up 2 1/4 to 48 15/16.

M&A arbitrage was sending managed dental care firm

First Commonwealth


up 4 7/8, or 26.2%, to 23 9/16 on news that it is being acquired by mutual dental insurer

Guardian Life Insurance

for $25 a share in cash.

Telecommunications cable company



had rocketed up 4 5/8, or 14.9%, to 35 3/4 on new that it is being bought by diversified manufacturer

Tyco International


for $3.27 billion in cash, stock and assumed debt. Tyco, lately up 1 7/8 to 91 1/4, plans to integrate Raychem's business with its electronics business.

Earnings/revenue movers

AMC Entertainment


posted a wider-than-expected fourth-quarter loss, lately sending the stock down 13/16 to 17 3/4. Last night the motion picture exhibitor posted a loss of 82 cents a share, including a 13-cent charge for impairment of long-lived assets. The 12-analyst estimate called for an operating loss of 62 cents vs. the year-ago loss of 25 cents.

Semiconductor equipment firm

Applied Materials

(AMAT) - Get Applied Materials Inc. Report

was up 1 3/4 to 64 15/16 after last night posting second-quarter earnings of 36 cents a share, topping the 25-analyst view of 27 cents but falling below the year-ago 37 cents.


covered the report in

a story last night.

Analog Devices

(ADI) - Get Analog Devices Inc. Report

was up 1 1/8 to 40 7/8 after it posted fiscal second-quarter earnings of 25 cents a share, excluding a charge, beating the 17-analyst forecast of 23 cents and up from the same number last year.

Closeout retailer

Consolidated Stores

(CNS) - Get Cohen & Steers Inc Report

was up 1 3/4 to 37 9/16 after it posted a first-quarter loss of 3 cents a share, narrower than the 15-analyst forecast of a loss of 4 cents but reversing the year-ago earnings of a penny. Meanwhile, Consolidated plans to merge its

Web site with closely held online toy seller


Hospital bed and casket maker

Hillenbrand Industries


was down 4, or 8.4%, to 43 9/16 after it yesterday warned that its second-quarter earnings would fall short of the expected 71 cents a share. The company said it expects to earn at least 59 cents a share for the quarter.

Lernout & Hauspie Speech Products


was up 2 13/16, or 7.5%, to 40 1/8 after it reported first-quarter earnings of 12 cents a share, beating the five-analyst forecast by 2 cents and matching last year's figure.



was up 6 1/4, or 5.5%, to 119 1/8 after it last night announced a 2-for-1 stock split and a narrower-than-expected loss for its third quarter. The Web portal recorded a quarter loss of 2 cents a share before goodwill amortization, a penny narrower than the 19-analyst forecast and narrower than the year-ago loss of 11 cents.



was up 3/8 to 32 5/16 after it reported first-quarter earnings of 62 cents a share, in line with the 13-analyst forecast and up from the year-ago 45 cents.