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Blue chips shine on rainy day
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March 9, 1998: 11:45 a.m. ET
Strength among blue chips outweighs Compaq warning, pushes Dow higher
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NEW YORK (CNNfn) - The Dow industrials headed for a new record at midday Monday as investors focused on strength in the blue-chip sector and seemed to think a sell-off sparked by an earnings warning from computer leader Compaq had gone too far.
Shortly before 11:30 a.m., the Dow Jones industrial average was 37.36 points higher at 8,606.75, aiming at a new record high. The Dow's previous record was scored on March 3 when the blue-chip index closed at 8,584.83
On the New York Stock Exchange, advancing stocks took the lead from declining issues 1,375 to 1,238 as 227 million shares changed hands.
In broader markets, the technology-heavy Nasdaq Composite fell 8.91 to 1,744.58 and the S&P 500 index was up just 1.16 to 1,056.85.
Bonds posted modest gains, but investors appeared unwilling to push the market in either direction ahead of an important retail sales report Thursday. The price of the benchmark 30-year Treasury bond rose 13/32 of a point, lowering the yield to 5.99 percent.
The dollar was mixed, falling against the German mark after the release of a robust German economic report, but rising against the Japanese yen amid overall weakness in Asian currencies after the International Monetary Fund delayed a crucial aid package to Indonesia.
Compaq warning tests investors
Investors' resilience was tested Monday, following Friday's late profit warning by Compaq (CPQ). Shares of the world's largest personal computer maker plunged 2-1/4, or more than 8 percent, to 25-3/8 after the company told investors that lower demand for PCs and sliding prices would bite a chunk off first-quarter earnings. Compaq was the most actively traded stock on the NYSE.
As is usual after such an announcement, Wall Street analysts rushed to lower their earnings estimates for Compaq although some resisted cutting their ratings of the stock. Bear Stearns kept its "buy" rating and Robertson Stephens maintained its "long-term attractive" recommendation while Donaldson Lufkin & Jenrette even upgraded the shares, adding them to its "recommended buy list."
Compaq's warning was the last in a series for the technology sector after tech heavyweights Intel (INTC) and Motorola Inc. (MOT) issued similar gloomy forecasts earlier in the week. Shares of Intel, whose warning sparked a sell-off on Wall Street Thursday, fell 1-1/2 to 76-5/8. But Motorola, whose warning was ignored by investors, saw its stock rise 1/4 to 53-1/4.
Meanwhile, shares of Dell Computer (DELL), one of Compaq's key rivals in the PC business, tumbled 4 to 65-1/4. Dell's shares split 2-for-1 after the market closed Friday. Bear Stearns kept its "buy" rating on the stock despite Compaq's warning, but DLJ lowered its recommendation to "market perform." Dell was the most actively traded stock and the biggest net loser on the Nasdaq.
A blizzard of deals
Monday also brought a deluge of merger-related news, adding to the frantic tone of the market.
Shares of Lockheed Martin (LMT) fell 2-5/16 to 112-7/8 on news that the Justice Department is "fundamentally opposed" to the company's proposed $11.6 billion marriage to Northrop Grumman (NOC). Shares of Northrop Grumman plummeted 14-1/2, or more than 10 percent, to 123-1/8. Following the news, PaineWebber lowered its rating of Lockheed Martin to "neutral" from "attractive." Shares of Northrop Grumman were the leading net loser on the Big Board.
In another deal, Qwest (QWST) and LCI International (LCI) agreed to join operations in a $4.4 billion stock swap that would create the fourth-largest long-distance phone company in the United States. Shares of Qwest fell 3/8 to 36-1/8 and the stock of LCI jumped 3-1/2, or more than 10 percent, to 37-1/2.
Elsewhere, Aliminum Company of America (Alcoa) (AA) said it would buy rival Alumax (AMX) for $3.8 billion, including cash, stock and the assumption of debt. Shares of Alcoa rose 2-1/8 to 73-3/4, and the stock of Alumax soared 10-9/16, or more than 28 percent, to 47-1/4
Finally, airline shares extended Friday's strong gains as world oil prices tumbled. Shares of AMR (AMR), the parent of American Airlines, rose 2-7/8 to 138-1/4 and UAL (UAL), the parent of United Airlines, was up 13/16 to 86-5/16. The Dow transports index rose 35.50 to 3,501.35.
--by staff writer Malina Poshtova Zang
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