Street Sweep

Dow Climbs 121.35 to 10,393.07; Nasdaq Falls 48.90 to 3,419.79

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JAN HOPKINS, CNN ANCHOR: You're looking at live pictures from the New York Stock Exchange. We're less than 60 seconds away from the closing bell.

Good afternoon. I'm Jan Hopkins.

TERRY KEENAN, CNN ANCHOR: Hello from me as well. I'm Terry Keenan at CNNfn Headquarters in New York.

HOPKINS: Let's find out how these markets are doing in this last minute of trading.

RHONDA SCHAFFLER, CNN CORRESPONDENT: Dow industrials get set to close with a triple-digit advance even as technology stocks prove no help at all.

JOHN METAXAS, CNN CORRESPONDENT: I'm John Metaxas at the Nasdaq. Once again, a fear of slowing in the semiconductor sector drags all of techdom down: the Nasdaq losing 46 points on the day.

GREG CLARKIN, CNN CORRESPONDENT: And I'm Greg Clarkin. Amazon.com is due out with their earnings report momentarily. We'll tell you how bad the losses are at the online bookseller.

KEENAN: And New York fans get ready to ride the 7 train to Shea for tonight's big game. We'll talk to Governor Pataki about his offer that fans just can't refuse.

HOPKINS: In the news, terrorist threats keep U.S. troops on the highest state of alert. Plus, the latest news on a hostage drama that unfolded at an Arizona school.

It is Tuesday, October 24th. Live from the New York Stock Exchange, this is STREET SWEEP.

Lots of applause at the closing bell, in part because the Dow outperformed the Nasdaq, but also because a member of the exchange community retired after 36 years of service. We want to invite you to join our live chat for questions and comments during our program, cnn.com/chat.

A rally in financial stocks helping boost the blue chips. Rhonda Schaffler has been covering the action from the floor here at the exchange -- Rhonda. SCHAFFLER: That's right, Jan. J.P. Morgan the big Dow winner, up better than $6, and financials as a group powered higher. It enabled the Dow to maintain a pretty decent gain here, not the best levels of the day, but impressive just the same. We also saw strength in some consumer product stocks: Proctor & Gamble another winner for the Dow, as was the winner from yesterday, Honeywell, adding on to its advance. General Electric turned around, too, and moved higher as investors still react to that huge merger announced yesterday.

The Dow was able to advance even though many of the technology stocks were weak. That was set off by a profit warning from National Semiconductor, an actively traded Big Board stock. That lost a third of its value in trading here today.

For a further look at how the tech stocks fared, let's head over to the Nasdaq and John Metaxas -- John.

METAXAS: Hi there, Rhonda. We actually started higher today, but that warning from National Semiconductor and an announcement about the book-to-bill ratio in the semiconductor equipment industry, the fact that the book-to-bill ratio came down in September, that put pressure on the chip stocks, and in turn, that put pressure on the Nasdaq.

We had traded 100 points above this point for the second day in a row, back above 3,500. That proved to be resistance once again today, Nasdaq pulling back in the afternoon to finish with a 48-point loss 3,419.

Volume strengthened a little bit, 1.8 billion shares changing hands, but not the 2 billion we got three times last week.

Semiconductor index, the Philadelphia SOX, the worst-performing sector in the tech sector, down almost 8 percent on the day, but Internet stocks were down about 2 percent, the Goldman Sachs Internet index. In fact, every tech-related sector was lower here: computers, industry, telecom, biotech down. Only finance and banking were up on the day.

Let's send it back to Terry.

KEENAN: OK. Thanks so much, John. Well, Merrill Lynch analyst Steve Milunovich today naming the top 10 technology stocks making Merrill's tech folio, and he joins us now from Merrill Lynch's offices in New York.

Steve, good to have you with us. I noticed that your list of stocks, which includes EMC, Sun, Cisco, Nortel, of the stocks that have shown relative strength in the sell-off that we've seen over the last two months or so, is that one of the reasons that they've made your list?

STEVEN MILUNOVICH, MERRILL LYNCH: Well, that's part of it, Terry. I think you see a couple of themes in our list. One is Internet infrastructure with EMC and Sun and Cisco. And part of the thinking is that the stocks that have held up better may actually come back better if in fact we see a rally. So we're definitely playing a little bit defensively. We've got a service name. We've got some EMS names. So yes, we're looking at names that have been performing reasonably well.

KEENAN: What about continuing talk and some signs, including this latest book-to-bill number, that the economy really is slowing down? How can tech stocks power higher if that is indeed the case?

MILUNOVICH: Well, that is a good question. I think it does put a ceiling perhaps on the stocks. In fact, in our sector work, we are still underweighting semiconductors, semiconductor capital equipment. Our other strategists are looking for a profit slowdown, pointing out that typically when corporate profits slow, they do so for about six quarters. Well, we're only in the second quarter of that.

I think the positive side, though, is that we typically have a rally in technology in the fourth quarter, and sort of the worse it is in October, the better the chance for a bounceback later in the year. But the real issue is, will that be a failing rally? I tend to think it may be.

KEENAN: Hmm. All right, well, we're going to have to end on that provocative note, but thanks for the 10 ideas.

MILUNOVICH: Thanks, Terry.

KEENAN: Steve Milunovich of Merrill Lynch -- Jan.

HOPKINS: Thanks, Terry. Joining us now is our guest host for the hour, Joe Battipaglia of Gruntal. So, Joe, do you agree with him? Do you like some of those stocks?

JOE BATTIPAGLIA, GRUNTAL: I think technology is going to perform very well in the economy coming and the economy next year. The problem here, though, is there's a change of leadership. It's away from the PC-centric companies, some of the semis, and it's into the Internet and the networking companies. And that's a transition we have to make, and it has been ugly in some cases.

The only exception I take to his list is Cisco. On a valuation basis, I question whether or not the company can keep up the momentum in the past in their future results and not disappoint Wall Street. And if you disappoint, you can't get out of the way of that train at that time.

HOPKINS: If the economy slows, these technology stocks will still outperform.

BATTIPAGLIA: Yes, because I think what'll happen is the economy will move down to a 3 percent growth rate. The consumer will be good but not extraordinary robust. Investment spending, however, will stay strong. Why? It's a global opportunity to get market share, to remain competitive. Companies must spend the money.

HOPKINS: Thanks very much, Joe Battipaglia. For a closer look at the stocks that Joe thinks could be active, log on to our Web site at CNNfn.com and click on to the STREET SWEEP "Shakers" section.

Plenty still ahead on STREET SWEEP. We'll talk to Pat Kiernan at Instinet to check after-hours trading. We're waiting for some earnings reports, Compaq and Amazon at the top of our list.

U.S. troops on high alert in Bahrain due to a terrorism threat. Details coming up.

And New York Governor George Pataki and Maryland Governor Parris Glendening join us to talk politics and the election.

(COMMERCIAL BREAK)

KEENAN: It is just two weeks until the presidential election. What issues will help voters decide? We will talk with two governors up next, but first to Lou Waters in Atlanta for a look at some of the day's headlines.

Lou, good afternoon.

LOU WATERS, CNN ANCHOR: Hello, Terry. A hostage incident ends peacefully at an elementary school in the Phoenix suburb of Glendale, Arizona. A former student wearing fatigues and armed with a handgun surrenders to authorities after holding a teacher hostage for more than an hour. The boy's in custody. During that standoff, students in the classroom were released unharmed. A police spokesman talked about how they got the gunman to surrender.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: His purpose was to take some people hostage, and who knows why? But it successfully concluded moments ago. Our police officers talked him out of the classroom, do have him in custody, and nobody's been hurt.

Now as far as any other details, I don't really have them right now.

QUESTION: As far as the students, though, you said nobody's been hurt, all the hostages have been released. Any teachers, anybody like that?

UNIDENTIFIED MALE: Right. Everybody's been released, and they're discussing with them folks what went on right now, because it's easier to find out from them what happened and get the story straight.

QUESTION: You said it was a former student possibly. Is it this age group?

UNIDENTIFIED MALE: Yes, a 13- or 14-year-old male, former or current student. Now, I'll have to double check that. I don't have that information, but...

QUESTION: Did we ever find out what -- what his demands were, what he wanted? UNIDENTIFIED MALE: No, they just kept saying, when they spoke with him, he was very upset. So obviously, something happened to him. He came back with some purpose, and we don't know what that is right now.

(END VIDEO CLIP)

WATERS: So it's all over in Phoenix. The State Department closes the United States embassy in Jakarta, Indonesia. That shutdown follows what the State Department called a credible terrorist threat. No other details on that threat have been disclosed. The embassy in the Indonesian capital will remain closed for the rest of the week.

U.S. officials are downplaying speculation about the possible pre-emptive strike against suspected terrorist targets that many have talked about, this as U.S. forces in Bahrain and Qatar remain on the military's highest state of alert. That alert was ordered after U.S. officials learned of "specific threats," as they're being called, against American citizens and facilities in those Persian Gulf states.

The threat is believed linked to associates of alleged terrorist Osama bin Laden.

A quick weather check now. Here's Orelon Sidney.

(WEATHER BREAK)

WATERS: All right. More news any time. I'm Lou Waters in Atlanta. Now back to Jan Hopkins in New York.

HOPKINS: Thanks, Lou.

Only 13 days to the presidential election and both camps are turning up the heat. Vice President Al Gore has targeted the issue of Social Security with his ad slamming the Bush Social Security plan. The Bush camp jabbed back, saying that the Gore plan would create a $40 trillion debt.

Joining me now are two governors from two different parties. In New York, George Pataki a Republican, and in Maryland, Democrat Paris Glendening.

First to Governor Pataki, we'll talk the Subway Series in a moment, but let's talk Social Security first. Are you convinced that Mr. Bush's plan that would allow young people to invest money, Social Security money into the stock market would also allow for the retirees to get those benefits that they've been promised?

GOV. GEORGE PATAKI (R), NEW YORK: Absolutely, Jan. Governor Bush has outlined a very intelligent plan that does provide an option for young investors to choose, if they so desire, to try to get more than the less than 2 percent return, as the federal government's gotten, with the Social Security trust funds.

And at the same time, Governor Bush has looked the American people in the eye and said every current member of the system will not have their benefits cut, and they will be guaranteed. And one of the differences between the two candidates is you can trust Governor Bush. You may not always agree with him, but he's a leader who has kept his word and he will keep his word to the American people, particularly our senior citizens.

And let me just add...

HOPKINS: Governor, let me get Governor Glendening in here. The charge from the Bush to the Gore camp is that the Bush -- or the Gore Social Security plan will add $40 trillion in debt. Your response?

GOV. PARRIS GLENDENING (D), MARYLAND: That makes no sense whatsoever. In fact, the Bush approach is one that endangers everything. If you think about the fact that he's proposing a $1.6 trillion tax cut, which will put the entire economy back into a position of instability and growing deficits, and then when look what he's really proposing is that they would take some of the money that goes into the trust fund and use this for private investments.

It's great if you happen to have the right investments, but if you come along and you're all of a sudden the person who's made the wrong mistakes or some other problems, what's going the happen in terms of your Social Security?

More importantly, though, is Social Security is meant to make sure that we have a sound retirement for every person. There are a number of people, a large number of people who simply will not be able to take advantage of that. It makes no sense to jeopardize that.

I think Vice President Gore is exactly right. Let's safeguard Social Security.

HOPKINS: Let's bring in Governor Pataki.

PATAKI: Parris, Parris, please.

HOPKINS: Governor Pataki, wait a minute. Let me ask a question.

PATAKI: All right.

HOPKINS: How much of this race is really going to be decided on personality?

PATAKI: Well, Jan, I think it should be decided on who's going to best lead the country. And you just heard Governor Glendening talking about how Al Gore is going to protect Social Security. They said that eight years ago and did nothing. They said it four years ago and did nothing. Now they're asking for a third chance and trying to frighten the American people while good Democrats like Senator Daniel Patrick Moynihan have said that allowing young people the option of investing is clearly the right thing to do...

HOPKINS: Governor Glendening.

PATAKI: ... and Governor Bush has a record of keeping his promises. HOPKINS: Governor Glendening, how much of the election is going to depend on the economy?

GLENDENING: It's about the economy, it's about what makes the economy go, education and things of this type. I will tell you, we are in a period of unprecedented prosperity. If you start doing a $1.6 trillion tax cut, you're going to send us back into periods of massive deficit. Those deficits drew the capital right out of the market.

I remember, I was in office when we in fact had growing unemployment. We had huge deficits. We had lack of capital. Right now, we're in fact the exact opposite. We're in a great period of prosperity.

HOPKINS: Let's bring Governor Pataki back in and talk about the Subway Series. The subway is going to be free in New York tonight. That helps all fans, and anybody that's not even going to the game, right?

PATAKI: Well, Jan, it's the first Subway Series in 44 years, and everybody gets a free ride home from the Shea Stadium stop. You don't have to have a ticket. If you're there, you get a free ride home. We want people to see our new subways, our better subway system. We don't just have the two best baseball teams in America; we have the best mass transit system, and it's getting even better, too.

HOPKINS: And you're a Yankees fan, right?

PATAKI: I'm a Yankee fan. I hope it goes seven games, but I want the Yankees to win it.

HOPKINS: Thanks. Governor Pataki and Governor Glendening, thanks for joining us.

Still ahead on STREETSWEEP, a round-up of today's market movers and a check on trading after-hours.

Plus, putting the lid on baseball plans. We'll talk the business of the World Series and the demand for the Subway Series hats.

(COMMERCIAL BREAK)

HOPKINS: Now for a closer look at some of the Big Board movers today and also our after-the-bell coverage, let's rejoin Rhonda Schaffler here on the floor of the New York Stock Exchange.

Rhonda, lots to choose from today.

SCHAFFLER: That's right, Jan, and we saw one particular group perform quite well here, and that was financials. J.P Morgan in particular, the best performer on the Dow, up about 5 percent. J.P. Morgan, of course, being acquired by Chase Manhattan. So we saw a pretty sharp rotation into that sector.

Hewlett-Packard, a different story here. That stock was weak. All the techs really were weak, reeling from the National Semiconductor profit warning. After the bell, Hewlett-Packard said it would buy Bluestone Software: that news coming out just a couple of moments ago.

Pfizer, another stock that was in focus today. All the pharmaceutical stocks did well yesterday. Today was more of a mixed bag. Even as Pfizer reported profits that were up 30 percent, some speculation that sales of its cholesterol drug weren't as strong as some analysts would have liked.

Now for a look at the movers on the Nasdaq, let's again turn to John.

METAXAS: All right, thank you, Rhonda. Semiconductor stocks moving here as well. As we told you, near 8-point decline for the semiconductor index on that lowering book-to-bill ratio in the semiconductor equipment industry in addition to the National Semiconductor warning.

Chip equipment stocks got hit hard. Applied Materials down 7 1/2 percent, or $4 on the day. Another wrinkle to the chip woes, however: Last night in its conference call, Lucent said that it had a big inventory overhang in optical networking chips. And this is thought to impact the optical networking chip stocks in particular. Vitesse Semiconductor down 9 percent on the day, one stock in that sector, a loss of $6.75. So some big losses there.

Finally, the most active stock at the Nasdaq today, MarchFirst, not a company that everybody has heard of. The provider of Internet consulting services, disappointing Wall Street with its results, earning a penny a share when the Street had expected 20 cents a share. That's quite a shortfall. The stock selling off almost 60 percent on the day.

Let's find out now what's going on after-hours. For that, we go to Pat at the Instinet.

KIERNAN: And John, we've just got numbers in from Amazon.com, 8 cents better than expected, and that stock is trading very actively here now on that news. Last trade at $30 1/2 a share on Amazon.

LSI Logic reported after the bell, and Northern Telecom reported after the bell as well. Northern Telecom is halted right now after reporting earnings a penny better than expected. We're waiting for that one to reopen, likely within the hour here. And LSI Logic up half-a-dollar to $29 a share after reporting third-quarter earnings of 6 cents a share.

To Terry now.

KEENAN: OK, thanks so much, Pat. And we'll continue to crunch those Amazon numbers and bring you the revenue numbers when we get them.

Yankee fans and Mets fans at the World Series games probably have at one thing in common, and that is a hat with the letters "N.Y." on it. And when baseball caps are in demand like they are during this World Series, our next guest's company is a valuable player. New Era Caps holds the exclusive rights to making caps for Major League Baseball.

Joining me now from Shea Stadium, the site of tonight's World Series game, is John de Waal. He's the marketing director for New Era Caps. And John, we understand your hats are selling so fast that your folks are working around-the-clock to keep up with demand?

JOHN DE WAAL, MARKING DIRECTOR, NEW ERA CAPS: Yes, we've got a lot of people working on this. There's about 1,500 people back in Buffalo -- actually probably more like 1,200 people in Buffalo, and another 300 down in Alabama that are making the caps like crazy. And then we got a whole bunch more people putting the patches on. So, yes, we have got people working around-the-clock every day so -- for the last week or so.

KEENAN: What is your best-selling hat this series?

DE WAAL: These two caps are by far the ones. They're the ones getting a lot of exposure, because they are worn during the game. So every player playing the game is wearing a cap, whether they're a Met or Yankee, obviously. And they've got the side patch on there. And this is the big seller so far.

KEENAN: And, you know, we've seen these Subway Series caps as well. On the subway, I've seen them. How much demand are for those hats?

DE WAAL: The Subway Series caps? They are real -- a lot of demand. This is not exactly the Subway Series. But we're doing a couple of different versions of the competing team kind of cap. And this is one of the versions we have, with the World Series logo on it. These caps in general are just going like crazy, whether it be at retail stores or on our Internet site or wherever else, it's just -- people are just gathering these things up as fast as they can get them.

KEENAN: Now, I understand, even when there isn't a World Series, it's the Yankees caps that are your best sellers, right?

DE WAAL: Yes, the Yankees are our perennial top-seller, no question. They have been around a long time, got a huge history. But to be honest with you, the Mets, with this particular series, have been selling real briskly. And it is a pretty good race between the two of them.

KEENAN: You don't want to take sides. Thanks, John. Well, you come out a winner either way, I guess. John de Waal, joining us from Shea Stadium.

DE WAAL: Yes, we're doing well.

KEENAN: OK, now for a look at what "MONEYLINE" is preparing for tonight's program, we bring in Stuart Varney -- and Stuart, what you got? STUART VARNEY, CNN ANCHOR: We have a very interesting young man for us tonight, yes. This man is very young -- younger than me that is -- but he runs a mutual fund: Aaron Harris. And he has brought his investors a 65 percent return this year. And remember, this is a difficult year. We'll find out what he is buying. I can tell you now, he is not buying Amazon -- doesn't like the company, even after today's better-than-expected profits.

We're also going to talk to William Steere, chairman and chief executive of Pfizer. They reported two cents better-than-expected earnings today. Of course, we are going to ask him about sales of Viagra. Also, a report on AT&T, a potential four-way split for that company. This amounts to a reinvention of AT&T -- in fact, the undoing of Ma Bell all over again. That is on "MONEYLINE" tonight at 6:30 Eastern -- Terry.

KEENAN: OK, and if you make sense of that break-up, we will all be watching.

VARNEY: Yes, we will do our best.

KEENAN: Complicated story. Thanks, Stuart. See you then.

OK, coming up next: We are going to hear from our guest host and financial editor, Myron Kandel. And if you have a question for us, be sure to post them in our chatroom. Cnn.com/chat is the address.

(COMMERCIAL BREAK)

KEENAN: It's the number we've been waiting for all day. Online retail giant, Amazon.com, is out with its quarterly results. And Greg Clarkin joins us now with the latest.

And Greg, most of the numbers look a little better than expectations.

GREG CLARKIN, CNN CORRESPONDENT: They do, Terry.

This is a real interesting report. Analysts throughout the day that we had spoken said that they were not expecting any big upside or downside surprises from Amazon. They were waiting from the conference call to get a sense as to where the company was going in the fourth quarter. Well, lo and behold, the numbers, they look a little bit better than most people had expected.

Let's get right to the earnings per share -- or lack thereof, really. The company was expected to lose 33 cents a share. They lost 25 cents a share. So the loss was less than expected. On the revenue range, analysts were looking from anywhere from $590 million up to about $605 million. It came in better than the high-end of expectations: $638 million in revenue for the quarter from Amazon, again exceeding expectations.

And then their customer base grew by pretty much right in line with expectations. A couple of million was expected to be added to the customer base. And it was actually up 2.8 million to a total of 25 million customers for Amazon. And then, finally, the per-customer revenue rose to $130, up from $108 for the year-ago period. So just on first blush, the numbers look to be better than expected.

Jan, let's send it to you at the NYSE.

HOPKINS: Thanks, Greg.

Let's turn to our guest host, Joe Battipaglia and see if he thinks that these numbers are good enough to buy the stock.

BATTIPAGLIA: I don't think so, Jan.

Basically, this is a company scrapping to make profit on huge revenue. If I wanted that, I would go to Home Depot or Wal-Mart, where they are making profit on big revenue.

HOPKINS: Anything else? Compaq, we're expecting earnings. Do you expect good ones or not?

BATTIPAGLIA: We're moving away -- we're moving away from a PC- centric environment. They can't get away from the history fast enough. I would not own the stock either.

HOPKINS: Joe Battipaglia -- Terry, back to you.

KEENAN: And I'm here, as always, with Myron Kandel.

Myron, let's talk old economy, because the Dow had a great day.

MYRON KANDEL, CNNFN FINANCIAL EDITOR: Yes, you know, Terry, the Dow is up is 7.5 percent from its low last Wednesday morning. The Nasdaq is up 13 percent, but obviously lost a little ground today. It was the financial stocks that carried the Dow today. Three of them, J.P. Morgan, American Express and Citigroup accounted for half the Dow's gain today.

KEENAN: And Merck on a new high as well. OK, thanks, Myron.

That is going to do it for this half-hour of STREET SWEEP. "SHOWBIZ TODAY" is up next on CNN, with highlights from "Book of Shadows," the follow-up to "Blair Witch Project."

HOPKINS: STREET SWEEP continues on CNNfn with the story behind Amazon's earnings numbers. Also, we're waiting for Compaq. We'll see you on FN.

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