Blue-chip stocks sprinted to a record high Wednesday, while tech shares were huffing and puffing trying to keep pace after Merrill Lynch warned that Hewlett-Packard and Compaq Computer may come up short in the earnings department.
Internet stocks, meanwhile, basked in the limelight as a heavyweight alliance, a sky-high IPO, and pending results from Yahoo captured traders' attention.
The Dow Jones Industrial Average rose 121.82 points to close at 10085.31, and the Wired Index was 1.83 higher at 674.28. The Nasdaq Composite Index shed 18.80 to 2544.37, and the S&P 500 was up 9 points at 1326.89.
Much of the Dow's strength stemmed from component Alcoa (AA), advancing US$2.94 to $44 after topping estimates with a first-quarter income of 60 cents a share. The world's largest aluminum producer had been expected to come through with 54 cents.
Investors took the glowing result as a sign that blue-chip stocks may fare pretty well in the upcoming earnings season. No one's yet ready to say as much for tech shares, which explains that gaping chasm between the Dow and Nasdaq.
For its part, Seagram (VO) gained $3.56 to $58.50 as its Universal Music Group teamed with Bertelsmann's BMG Entertainment to promote and sell music online. Not only are the two companies hoping to pose a more credible challenge to the likes of CDNow and Amazon.com, but are looking to protect their copyrights by coming up with industry standards for downloading tunes via the Web.
"The jury's still out on that," said Scott Appleby, an analyst with ABN AMRO. Indeed, the free-and-easy nature of the Internet will make it tough if not impossible for recording companies to eliminate online piracy. Playboy, after all, has been struggling in vain to keep tabs on its, um, product. As more Net users become comfortable with technology like MP3, which allows music to be transmitted between PCs, recording companies will find their task all the more difficult.
That said, Appleby believes a partnership involving a couple of powerhouses like Universal and BMG could go a long way in setting -- and enforcing -- industry standards for online music. "If they can do it," he said, "this is a call to short all music store stocks."
Day traders were hearing sweet music themselves, but it was the sound of Rhythms NetConnections (RTHM) more than tripling on its first day of trading to $69.13. The high-speed access provider debuted with nearly 9.4 million shares initially priced at $21 apiece. Rhythms posted a loss of more than $36 million last year.
Like that would stop anyone from throwing money at the company. It didn't stop Qwest Communications International (QWST), which announced a $15 million investment in Rhythms. The move will allow Qwest to offer warp-speed digital subscriber lines in 31 major US markets. Qwest climbed $5.25 to a record $87.44.
All eyes were on Yahoo (YHOO) as the closing bell rang. The company was expected to report quarterly profit of 8 cents a share, although most analysts believed the number would be higher, perhaps as much as 12 cents. Such anticipation kept a lid on Yahoo's gains, and the portal's stock was down $6.44 at $208.44.
Proving that it pays to have friends in high places, or at least with deep pockets, Internet software maker Spyglass (SPYG) surged 54 percent to $13.63 after landing a three-year, $20 million contract from Microsoft (MSFT). Spyglass will license its connectivity technology and provide services for Windows CE gadgets, which Redmond hopes will become a booming part of its business.
Infospace.com (INSP), a provider of online phone directories, climbed 24 percent to $111.50 after announcing a two-for-one stock split. The company's shares are up almost eightfold since it went public last December.
At Home (ATHM) has inked an accord with Japan's Jupiter Telecommunications to bring its cable-based service to the Land of Raw Fish. Many Japanese prefer satellite to cable, so it may be an uphill battle to lure them to the pleasures of reading email on one's TV. Still, At Home rose $3.69 to $165.81 in the news.
Internet service provider FlashNet Communications (FLAS) advanced $2.75 to $43.50 as it cut a deal with Lycos to allow subscribers to create custom Web pages utilizing the portal's search engine. Lycos (LCOS), soon-to-be parent of Wired News, was $10.69 lower at $98.13.
Why's that, you ask? Perhaps it has something to do with speculation that USA Networks is going to up the ante in its bid to merge the portal with its electronic-retailing assets. Rumors of such a move sent Lycos' shares soaring 20 percent on Tuesday. Now that traders have had a chance to think about it some more, and to recall USA's repeated insistence that it isn't about to change the terms of the deal, they're pocketing their cash and making a hasty retreat.
More on all the rumor fun in a moment.
Merrill Lynch may not be sure about the company's earnings prospects, but Hewlett-Packard (HWP) tried to turn things around by announcing price cuts for some of its PCs. It didn't work. HP lost 25 cents to $69.75, while Compaq (CPQ) was down 69 cents at $30.19.
Software maker Network Associates (NETA) dropped 27 percent to $16 after warning that its first-quarter income will only be around 31 cents a share. Investors, who had been anticipating 48 cents, were not amused.
Lastly, the rumor patrol. Traders were buzzing about America Online (AOL) after the San Jose Mercury News dusted off a nugget about the world's biggest online service making a bid for CBS (CBS). Neither company opted to comment on the speculation, which has been making the rounds for months, along with rumors that AOL is shopping for all sorts of other companies.
So why is such talk getting people all worked up again?
"Rumors on Wall Street are there for a reason," ABN AMRO's Appleby replied. "Because they're true."
Ah. That explains it. Nevertheless, AOL fell $10.50 to $157, and CBS was down 6 cents at $43.63.
