Wall Street whipped investors around Friday like a run-amok thrill ride. The unusually volatile session tested the endurance -- and stomachs -- of more than a few market players.
The Dow Jones Industrial Average ultimately rose 31.17 points to close at 10493.89, finding strength in better-than-expected earnings from Eastman Kodak (EK) and Caterpillar (CAT). The blue-chip index ended the week with its fifth-straight record high.
Tech stocks, meanwhile, returned to the doghouse after briefly coming back to life on Thursday. A warning from Sun Microsystems that the computer market faces tougher times ahead sent a chill through the entire sector, and scared off those few traders who had been brave enough to start picking through the debris in search of bargains.
The Wired Index fell 10.40 to 648.97, and the Nasdaq Composite Index was 39.34 lower at 2482.43. The S&P 500 slid 4.09 to 1318.77.
"We're seeing movements in a single day that, in older, prehistoric times -- five years ago -- would have taken weeks or months," said Bill Meehan, chief market analyst with Cantor Fitzgerald. "I feel a lot more comfortable with having cash than with excessive exposure to the equity market."
A "very substantial" decline in US stocks is around the corner, he believes, "which could have the potential to disrupt the global economy."
As for tech shares, Meehan doesn't hold much hope there either. "With computer prices falling," he said, "I'm starting to wonder if the same number of PCs will be made in the United States as TVs."
While Meehan's take is a good deal gloomier than most market watchers', it seemed to be supported, at least in part, by Sun Microsystems (SUNW), which dropped US$5.44 to $55 even as the company topped estimates with a quarterly profit of 71 cents a share. Present earnings notwithstanding, the situation down the road isn't very encouraging.
Investors focused on CEO Scott McNealy comparing the months ahead to "heartbreak hill" as Y2K worries take a greater toll on computer sales. Sun's Chief Financial Officer, Mike Lehman, echoed this sentiment when he said he was approaching future quarters "a bit more conservatively" than analysts. With Intel having said pretty much the same thing earlier this week, traders feel that the message has come across loud and clear: no growth in tech.
It could be, of course, that leading hardware makers are simply laying the groundwork for pleasant surprises in the next earnings season (it wouldn't be the first time). But most investors are playing it safe and shifting their money to "cyclical" sectors such as energy and heavy industry, which are seen as finally coming into their own after years in the shadow of their more glamorous tech and Internet cousins.
Not that Net shares have totally lost their luster. Amazon.com (AMZN) climbed 14 percent to $190 as Donaldson, Lufkin & Jenrette upgraded the company's stock to "top pick" from "buy," and raised its 12-month price target to $280. Analyst Jamie Kiggen was especially entranced with Amazon's new auction service, which he thinks could generate more than $20 million in revenue this year, and as much as $65 million next year.
Inktomi (INKT) slipped 69 cents to $118.50 after posting a smaller-than-expected quarterly loss of 9 cents a share. Excite (XCIT) declined $7.56 to $139.38 as it revealed a pro forma setback of 4 cents a share.
Looking to head off the rumor mill, Lycos (LCOS) slipped $2.31 to $92.25 after saying that its own quarterly loss won't be any worse than anticipated, and that revenue should more than double in the period. Lycos, soon-to-be parent of Wired News, wants to put out any smoldering brushfires as it pushes ahead with its merger with USA Networks. Disenchanted shareholders are looking for any excuse to scotch the deal, which places a minimal premium on Lycos' market value.
"This week we had Infoseek come up short and Excite hit in line with expectations," said Michael Wallace, an analyst with Warburg Dillon Read. "Lycos wants people to know there's nothing wrong with the sector."
He added that most observers still think the deal with USA Networks will go through, but that the terms of the tie-up likely will be renegotiated to be more attractive to rebellious Lycos shareholders.
For its part, America Online (AOL) eased $1.63 to $142.25 despite news that it will introduce a new breed of Internet terminal that's more telephone than PC. The device, aimed at the same sort of technologically challenged user targeted by WebTV, would allow Net access and e-mail using a small screen and keyboard. It'll probably be popular, too.
Microsoft just can't catch a break. Only a few days after receiving a tepid response to its stab at dominating the online music game, Redmond now faces a new challenge from International Business Machines and Sony, which are teaming up to develop their own pirate-proof, digital music standard. Considering Sony's clout in the recording industry, the new alliance should stand a pretty good chance of winning approval from other industry heavyweights.
The downtrend in tech stocks, however, kept the announcement from pushing share prices higher. IBM (IBM) fell $7 to $170.75, and Sony (SNE) was down $1.13 at $99.69. Microsoft (MSFT) shed $2.63 to $86.25.
Lastly, Hitachi (HIT) is following up on its earlier decision to slash 6,500 jobs by laying down the law for all remaining employees: They have to dress more casually. The company believes that if everyone wears khakis and polo shirts, it will foster a greater sense of individuality.
The new dress code will be enforced as of next Wednesday. Hitachi's shares rose 38 cents to $73.
