<FONT COLOR=BLUE>MARKET SNAPSHOT--Major averages vault
Chip, hardware stocks on a rampage
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:11 PM ET Oct 13, 2000
NEW YORK (CBS.MW) - The bulls invaded Wall Street with a vengeance Friday in a rally that helped the Nasdaq score its third-largest gain ever and second biggest percentage move. The Dow also closed out the week with a triple-digit advance that lifted most market sectors.
"The market has discounted a lot of bad news. It has managed to rally even in the face of a lousy producer price index, [signaling] that the worse may be over," said Donald Selkin, chief market strategist at Joseph Gunnar.
The market, Selkin added, was finally able to respond positively to good earnings news from companies such as Juniper Networks. "It was a relief to see this kind of price action Friday."
Inside the market, all tech sectors registered impressive gains, lead by chip, computer hardware and networking shares. The Philadelphia Semiconductor Index ($SOX) rallied 9.2 percent. Internet stocks also bounced back, even as ad-related stocks such as DoubleClick took a drubbing.
In the broader market, bank and brokerage stocks recovered nicely following Thursday's bruising sell off, as did retail stocks. Home Depot (HD) recovered, rising 3.2 percent following a near 30-percent drop on Thursday.
Moving lower were paper, chemical and drug stocks. Oil and oil service shares backpedaled as crude prices took a respite following Thursday's rally in the wake of intensified hostilities in the Middle East. November crude futures fell $1.01 to $35.05. And gold shares also declined as gold prices took a breather, falling $4.00 to $274.8.
The Dow Jones Industrials Average ($DJ) rose 157 points, or 1.6 percent, to 10,192.
Upside movers included Hewlett-Packard, Intel, Citigroup, Boeing and J.P. Morgan. Losing steam were shares of DuPont, Exxon Mobil, Philip Morris and International Paper.
Goldman Sachs' influential chief investment strategist Abby Joseph Cohen had some upbeat comments for the market Friday. She said that while stock volatility has intensified, little of fundamental nature specific to the U.S. economy or corporate performance has changed in recent weeks.
Recent stock market weakness, Cohen said in a note to clients, has been catalyzed by several factors, including earnings estimate revisions and mutual fund portfolio adjustments linked to the Oct. 31 end of the tax year. Both of these events, she said, tend to impede share prices during the early autumn.
But stock prices have fallen notably and stock valuation has improved, Cohen observed. She believes the S&P 500 is 15 percent undervalued based on the Oct. 12 closing prices.
"There is little in our usual analytical tool kit to assess whether the declines in stock prices adequately discount the potential economic risks of violence in the Middle East," Cohen said.
"However, if we are correct that the S&P 500 is now about 15 percent undervalued based on expected fundamental performance, a sizable risk premium has already been built into stock prices. This is a fairly large buffer against fundamental disappointments," Cohen concluded.
The Nasdaq Composite ($COMPQ) piled on 241 points, or 7.9 percent, to 3,316 while the Nasdaq 100 Index ($NDX) climbed 272 points, or 9.1 percent, to 3,277.
The Standard & Poor's 500 Index ($SPX) gained 3.3 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks added 3.8 percent.
PaineWebber chief investment strategist Ed Kerschner believes current valuations suggest the most attractive buying opportunities since 1998.
For the longer-term, he believes investors should become accustomed to more normal returns of 7 to 10 percent in the marketplace.
"Unlike the 1990s, 2000 is likely to be the 'decade of normal.' So when increasingly rare periods of extreme undervaluation occur, such as [now], seize the opportunity," Kerschner.
Volume came in at 1.23 billion on the NYSE and at 2.06 billion in the Nasdaq Stock Market. Market breadth improved, with advancers outpacing decliners by 16 to 13 on the NYSE and by 27 to 13 on the Nasdaq.
Separately, Trim Tabs said all equity funds saw outflows of $1.4 billion in the week ended Oct. 11 versus inflows of $2.3 billion in the prior week. Equity funds investing primarily in U.S. stocks witnessed outflows of $1.1 billion versus outflows of $2.5 billion in the previous week.
Inside Friday's data
September retail sales rose 0.9 percent versus the expected 0.6 percent - the largest gain since February. Excluding autos, retail sales were still up a healthy 0.7 percent compared to the expected 0.5 percent rise.
The producer price index climbed 0.9 percent in September versus the expected 0.5 percent increase while the core, which excludes the volatile food and energy components, added 0.3 percent compared to the 0.1 percent increase expected by a survey of economists conducted by CBS.MarketWatch.com. and view Economic Preview, economic calendar and forecasts and historical economic data.
John Lonski, chief economist at Moody's Investors Service, believes the strength seen in the September retail sales numbers won't be sustainable.
"How can sales be so strong when companies are complaining about weak sales and declining pricing power?" Lonski questioned.
But if another strong gain shows up in the October figures, Lonski said, the market will begin fretting about the strength of the economy and its potential inflationary impact.
While Lonski doesn't think Friday's numbers will produce any changes in the Fed's current wait-and-see stance on interest rates, he believes it has certainly pushed back the market's perceived timetable for a cut in short-term rates next year.
"The September data flies in the face of reports from the private sector that clearly points to a deeper slowing than the government is reporting. Huge companies that could easily be considered a microcosm for their industries have been reporting a slowing in the pace of consumer spending," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.
"So the question begs: Who do we believe? The government or corporate America? It is usually best to trust the anecdotal evidence and to expect government data to catch up," Crescenzi concluded.
The market didn't sell off on the strong data, Lonski said, since so many forces are currently driving prices. Investors, he added, need to see how the events play out in the Middle East and the results of the presidential election to get a better handle on how the market will perform.
Sector movers
Chip stocks were the star performers Friday as investors went hunting for bargains and responded positively to good news on the earnings front.
PMC-Sierra (PMCS) rose 8.1 percent to $171.56 after reporting a third-quarter profit of 31 cents per share after the close Thursday, beating the First Call estimate of 26 cents a share. And equipment maker Lam Research (LRCX) gained 6 percent to $19.13 after registering earnings-per-share of 48 cents in its first quarter, five cents ahead of the First Call estimate. Among other winners in the group, Intel (INTC) jumped 8.8 percent to $40.38 and Applied Materials added 10 percent to $52.94. But Advanced Micro Devices (AMD) shed 3 percent to $21.81.
In the computer hardware sector, gains were heady and across the board thanks to a solid earnings report from Gateway, which reassured investors after the recent warnings from Apple Computer and Dell Computer. The Goldman Sachs Computer Hardware Index ($GHA) rallied 9.1 percent.
Gateway (GTW) surged 17.4 percent, or $7.60 to $51.23. The company reported after the close Thursday third-quarter earnings of 46 cents a share, matching the First Call estimate. Gateway also said it's comfortable with the fourth-quarter revenue forecasts of percentage growth in the mid-20s, along with the First Call earnings per share estimate of 62 cents. Other big gainers among the PC makers included Dell Computer (DELL), up a whopping 16.7 percent to $27.06, and Apple (AAPL), up 8.4 percent to $21.69.
Merrill Lynch's Internet Architecture Holdrs (IAH) rose a lofty 8.4 percent, bolstered by the gains in shares of Gateway - one of its components - as well as Juniper Networks. Juniper (JNPR) climbed $7.39 to $207 after posting better-than-expected results after the close Thursday. The company registered a profit from operations of 17 cents a share in its third quarter versus the First Call estimate of 9 cents a share. The stock is up 284 percent for the year.
The broad Internet sector participated in the rally even as shares such as DoubleClick, off 36 percent to $11.56, took a drubbing. The company earned a 3-cent profit in the third quarter, matching Wall Street's view, but warned that fourth quarter sales would be flat and that it would lose money in the first quarter of 2001.
Among the Net bellwethers, Yahoo (YHOO), meanwhile, off substantially since revealing its quarterly results late Tuesday, rose a mere $1.25 to $57.88. Amazon (AMZN) added 13 percent to $28.50 and EBay (EBAY) climbed 8 percent to $55.25.
Chemical stocks were among the groups moving lower following a profit warning from Union Carbide. The stock (UK) fell $1.06, or 2.9 percent, to $35.50 after warning late Thursday that rising raw material and energy prices will cause it to miss Wall Street's earnings estimates in the third quarter. The company now expects to earn 20 cents a share in the quarter versus the First Call estimate of 57 cents a share. Other losers in the group included Dow Chemical (DOW), off 81 cents to $23.75, and Dow-component DuPont (DD), off $1.81 to $40.13.
Treasury arena
Treasury prices lost ground, weighed down by the strong economic news and the rebound in the equity market.
The 10-year Treasury note shed 2/32 to yield ($TNX) 5.725 percent while the 30-year bond lost 10/32 to yield ($TYX) 5.835 percent.
In the currency arena, dollar/yen rose 0.1 percent to 107.60 while euro/dollar dropped 1.0 percent to 0.8535.
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