Cisco's words inspire techs , Bush, O'Neill also increase confidence
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 5:15 PM ET Oct. 3, 2001
NEW YORK (CBS.MW) -- A strong belief that the government will do all it can to keep the economy on track, coupled with reassuring comments from tech bellwether Cisco Systems, incited a bull stampede on Wall Street Wednesday. The Nasdaq, propelled by dizzying gains in big-cap tech stocks, enjoyed its loftiest advance in nearly six months on very heavy volume.
The Dow Industrials closed at its highest level since Sept. 10 -- the day before the terrorist attacks -- and is up almost 11 percent from its closing low on Sept. 21. The Nasdaq is also up 11 percent from its 2001 closing low on Sept. 21.
Buyers were silenced early in Wednesday's trading day by profit warnings from the likes of Nortel Networks and Eli Lilly. But negative sentiment began to lift when the NAPM non-manufacturing index registered a surprising increase shortly after the start of trading.
Adding fuel to the rally, President Bush told business leaders in New York that the federal government stands ready to do all it can to boost the economy following the Sept. 11 tragedies. The White House and Congress are close to an agreement to inject $60 billion to $75 billion in additional stimulus into the economy. Read full story.
Technology stocks, already ebullient, gave way to a buying frenzy after Cisco said it's comfortable with its fiscal-first quarter earnings estimates, according to Dow Jones. The stock took off almost 22 percent. The swift and powerful move higher came a day after the Fed cut rates by 50 basis points. See full story.
"There was so much widespread pessimism in the market that positive remarks from a bellwether were enough to get people comfortable. Stocks were becoming very oversold," said David Powers, senior technology strategist at Edward Jones.
"Unfortunately, I think we'll continue to get negative pre-announcements and that this will be the overwhelming trend. Cisco is more the exception to the rule. The demand environment remains very weak," Powers concluded.
The Dow Jones Industrial Average ($INDU: news, chart, profile) advanced 173.19 points, or 1.9 percent, to 9,123.78 after declining as much as 90 points early in the session. Among the Dow's biggest gainers: Intel, Microsoft, Hewlett-Packard, Boeing, Honeywell, Home Depot, Walt Disney and Caterpillar. Topping the list of losers were shares of Merck, Johnson & Johnson, SBC Communications and Coca-Cola.
In sector action, networking, chip, software and hardware issues spearheaded the smashing advance in technology. In the broader market, buyers feasted on airline, brokerage, retail, insurance, utility, transportation and biotech issues while gold, drug and oil stocks receded. Check market stats and latest sector performance.
The Nasdaq Composite ($COMPQ: news, chart, profile) skyrocketed 88.48 points, or 5.9 percent, to 1,580.81 while the Nasdaq 100 Index ($NDX: news, chart, profile) soared 90.04 points, or 7.8 percent, to 1,249.41.
Among the Nasdaq's big-cap techs: Intel surged 8.6 percent, Dell Computer 11 percent, Sun Micro 12.4 percent, Microsoft 6 percent, Oracle 8.4 percent and Applied Materials 10 percent.
The Standard & Poor's 500 Index ($SPX: news, chart, profile) rallied 2.0 percent while the Russell 2000 Index ($RUT: news, chart, profile) of small-capitalization stocks piled on 2.8 percent.
"So far this week sellers have made early efforts to push the market lower but have gained few followers as the selling pressure has dried up relatively quickly. That was most apparent Tuesday after the FOMC announcement. For the near-term, there appears to be more technical support for a further rally than for a decline," commented Richard Dickson, technical strategist at Hilliard Lyons.
But he notes that volume has been steadily decreasing as prices have moved higher, which indicates the rallies have been more a function of a drop in selling pressure than a big rise in buying interest.
Volume was very heavy at 1.65 billion on the NYSE and at 2.70 billion on the Nasdaq Stock Market. Market breadth was very positive, with advancers crushing decliners by 21 to 10 on the NYSE and by 24 to 12 on the Nasdaq.
Tech stock action
Uplifting statements from Cisco's CEO John Chambers at a Goldman Sachs conference incited a bull stampede in the networking sector ($NWX: news, chart, profile), which rallied almost 8 percent. Among Cisco's peers, Juniper Networks piled on 25.9 percent and Tellabs 13 percent. Communications chip stocks were also catapulted sharply higher on the wings of Cisco's remarks, with Applied Micro up 22.3 percent, TranSwitch 23.3 percent, PMC-Sierra 22.1 percent and Vitesse Semi 8.4 percent.
Nortel (NT: news, chart, profile) climbed 4.7 percent, erasing all of the earlier losses that came after the Canadian company issued a third-quarter revenue warning late Tuesday and announced 20,000 job cuts. The fiber optics company projected a net loss of $3.6 billion in the third-quarter and said it expects to break even in the first quarter of 2002 with revenue "well below $4 billion," vs. a previous forecast for a breakeven level at $5 billion. In addition, the company announced that Frank Dunn would replace John Roth as chief executive officer. Merrill Lynch cut its intermediate-term view on Nortel to an "accumulate" but maintained its long-term "neutral" rating. The broker said further headcount reductions and inventory write-downs indicate the continued weak outlook for the company and advised investors who want to remain in the space to focus on names with a stronger balance sheet. See full story. Among Nortel's peers, JDS Uniphase rallied 13.9 percent, Ciena 26.5 percent, Lucent 6.5 percent and Sycamore Networks 3 percent.
Software issues were among the leaders in the tech group for a second straight session. BEA Systems (BEAS: news, chart, profile) tacked on 25 percent after announcing late Tuesday that it named Alfred Chuang, co-founder and company president, as its next chief executive officer. See full story. Among other software issues, Siebel Systems rallied 17 percent.
Priceline (PCLN: news, chart, profile) was a solid performer in the Internet arena, tacking on 9.3 percent after informing investors late Tuesday that it now expects to generate sales closer to $300 million vs. the previously projected $280 million as activity picks up at a faster-than-expected pace. Read full story.
France's telecom maker Alcatel (ALA: news, chart, profile) announced it was cutting 3,000 jobs in its optical fiber and undersea network divisions because of the market downturn. Alcatel said most of the cuts would be completed by the summer of 2002. The stock added 0.2 percent after sliding early in the session.
Openwave Systems (OPWV: news, chart, profile) tumbled 40 percent after warning of a first-quarter shortfall after the close of trading Tuesday. The company now sees a loss of 1 to 4 cents a share vs. the Wall Street expectation for a profit of 9 cents a share. The software concern said the terrorist attacks cost it two critical weeks of sales activity in a quarter that is historically a back-end loaded one. See full story.
Broad sector movers
The safe-haven drug group ($DRG: news, chart, profile) faltered and fell 0.9 percent as Eli Lilly (LLY: news, chart, profile) dropped 4.4 percent. The company told investors early Wednesday that earnings for the fourth quarter and full-year 2002 would fall short of expectations and come in at 59 to 61 cents a share and at $2.70 to $2.80 a share, respectively. Thomson Financial/First Call had pegged earnings-per-share for the two periods at 65 cents and $2.94 a share. The drug maker cited a "severe" erosion in prescriptions for its blockbuster drug Prozac as reason for the shortfall. See full story. Dow stocks Merck and Johnson & Johnson declined 2.2 percent and 2.1 percent, respectively.
Paper stocks came off their lows and ended mixed after initially responding negatively to a slew of downgrades in the group from UBS Warburg. The following companies were cut from a "strong buy" to a "buy" and saw 2001 and 2001 earnings-per-share estimates lowered in tandem: Boise Cascade (BCC: news, chart, profile), Georgia- Pacific (GP: news, chart, profile), Weyerhaeuser (WY: news, chart, profile), Temple Inland (TIN: news, chart, profile), Westvaco (W: news, chart, profile), Kimberly Clark (KMB: news, chart, profile) and Caraustar (CSAR: news, chart, profile). Additionally, Potlatch (PCH: news, chart, profile) was lowered to a "hold" from a "buy" rating while Crown Pacific (CRO: news, chart, profile) was cut to a "hold" from a "strong buy" rating. UBS said the tragic events of Sept. 11 would push out the potential recovery of the paper industry. Caraustar fell 1.6 percent and Crown Pacific 2.9 percent while Temple added 1.8 percent and Weyerhaeuser 0.9 percent.
Financials ended higher, with brokers reaping the best bids. Merrill Lynch analyst Judah Kraushaar noted that he's surprised how little Wall Street's third-quarter consensus estimates for the money center banks and asset managers have fallen considering that the upcoming reporting season looks dismal.
Still, Merrill points out a paradox: "We see some of the least expensive valuations in years among the market sensitive financial companies. Value buyers, with patience, could reap good investment returns over the coming year. We believe such a scenario can play out by early 2002." The analyst said the four most undervalued stocks in his universe are currently Citigroup (C: news, chart, profile), Mellon Financial (MEL: news, chart, profile), Bank of New York (BK: news, chart, profile) and J.P. Morgan (JPM: news, chart, profile). Among the mentioned stocks, J.P. Morgan shed 0.9 percent while Mellon rose 3 percent, Citi added 2.9 percent and Bank of New York 2.9 percent.
Airline issues swelled for a fourth consecutive session and the sector's main index (XX:$XAL: news, chart, profile) has risen over 19 percent during that period. The major carries slashed fares and many added security crossbars on the doors of pilots' cabins. Continental climbed 11.1 percent while Delta rose 8.4 percent and Alaska Air 8.7 percent. See full story.
Retail stocks were also big upside movers, with the Dow's two retail stocks, Wal-Mart and Home Depot, posting solid gains. And Williams-Sonoma (WSM: news, chart, profile) rallied nearly 22 percent after telling investors it'll meet its third-quarter earnings target despite the Sept. 11 terrorist attacks and reaffirming its 2001 financial targets. Finally, Tiffany (TIF: news, chart, profile) climbed 13.6 percent even after warning that it expects to miss Wall Street's third-quarter expectations.
Treasury focus
Treasury issues ended higher but surrendered the lion's share of early gains as stocks took off in afternoon action.
In the government bond arena, the 10-year Treasury note was up 9/32 to yield ($TNX: news, chart, profile) 4.47 percent while the 30-year government bond rallied 13/32 to yield ($TYX: news, chart, profile) 5.30 percent. See Bond Report.
In economic news, the NAPM non-manufacturing index for September came in at 50.2 percent, up from the previous month's 45.5 percent and much higher than the expected 43.3 percent. All of its key sub-indexes, including new orders, employment and prices paid, gained traction.
Thursday will see the release of weekly initial claims, seen coming in at 468,000, and August factory orders, seen declining 0.3 percent. Check economic calendar and forecasts.
In the currency arena, the dollar added 0.1 percent to 120.55 yen while the euro inched down 0.5 percent to 91.36 cents.
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Services sector growing, NAPM says
Mortgage refinancing soars to 2nd highest level ever
By Rex Nutting, CBS.MarketWatch.com
Last Update: 12:01 PM ET Oct. 3, 2001
TEMPE, Ariz. (CBS.MW) -- The non-factory side of the U.S. economy was growing very slowly in September, a private group said Wednesday.
The National Association of Purchasing Management said its nonmanufacturing index rose to 50.2 percent in September from 45.5 percent in August. Readings above 50 indicate expansion of activity.
Most economists believe the economy contracted sharply in September, despite the rosy NAPM index. Air travel, tourism, retail sales and auto sales all plunged after the Sept. 11 terror attacks.
Economists expected the index to fall to 43.3 percent in September. See Economic Calendar.
"The reliability of this survey has long been open to question, and it may be that the full effects of Sept. 11 will appear over the coming months," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
In a separate report, the Mortgage Bankers Association said its weekly mortgage application index rose 20.5 percent last week to 771.1 from 640.0. Refinancings rose to 3,459.8 from 2,713.9. Both indexes are at their second-highest level since the index began in 1990, exceeded only in October 1998.
Average 30-year mortgage rates fell to 6.52 percent from 6.63 percent, the third lowest rate since 1990.
Refinancing activity represented 66.7 percent of total applications, up from 63.1 percent. Adjustable-rate mortgages fell to 10.3 percent of applications from 10.9 percent.
"A key transmission of the Fed's rate cuts is now in motion," said Tony Crescenzi, market analyst at Miller Tabak. Crescenzi said $750 billion in mortgages could be refinanced this year, close to 1998's record.
"The jump in the refi index will help to liquefy consumer balance sheets and ultimately aid the economy," Crescenzi said.
NAPM
NAPM said most firms couldn't yet assess the impact the attacks would have on their business. The group didn't say how many of its surveys were completed before the attacks.
Eight sectors reported higher activity in September while nine said activity was flat or falling. Entertainment, utilities and mining rose. Transportation, insurance and agriculture fell. Twenty six percent of firms said activity was better in September vs. 18 percent in August.
The transportation sector, naturally, reported the largest declines in business activity, new orders and employment. On the other hand, some sectors such as defense and energy, "anticipate a positive effect," said Ralph Kauffman, head of the NAPM survey committee.
The new orders index rose to 49.8 percent in September from 45.9 percent in August. Employment rose to 46.7 percent from 45.9 percent in August. Both indexes show a deceleration in the declines.
Export orders rose to 53.5 percent from 47.5 percent while imports inched higher to 55.0 percent from 53.8 percent.
"We look for this move higher to be short-lived as next month should see some of the patriotic zeal come out of this survey," said Drew Matus, economist at Lehman Brothers. "However, going forward, it seems that the economy was beginning to turn" and the economy should begin to grow in the next few months.
"It is too soon to say that the economy is in the tank," said Joel Naroff, president of Naroff Economic Advisers.
In a separate report, the Chicago Federal Reserve Bank said its national index fell to negative 1.37 in August from negative 0.25 in July as industrial production and employment fell. The three-month average was negative 1.05, the 14th month in a row that the index has been negative, signaling below trend growth.
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Openwave Systems (OPWV: news, chart, profile) plunged 40 percent after the wireless phone software company warned that it expects to a report a first-quarter pro forma loss of 1 to 4 cents a share on revenue of $115 million to $120 million. Analysts surveyed by Thomson Financial/First Call expected earnings of 9 cents a share on revenue of $151.1 million. According to a statement, the terrorist attacks on Sept. 11 "cost us two critical weeks of sales activity in a quarter which historically is back-end loaded." Actual results will be announced on Oct. 29 for the quarter ended on Sept. 30. Also, at that time, management will announce "any changes it will be making to the company's operations to ensure its long-term profitability." See full story.
Optimal Robotics (OPMR: news, chart, profile) sank more than 18 percent in early action. After the closing bell Tuesday, the Montreal self-checkout system technology firm warned that third-quarter results would miss Wall Street expectations. Earnings are forecast at 27 to 28 cents a share for the latest three months on revenue of $33.5 million to $34 million. Analysts polled by Thomson Financial/First Call were looking for a profit of 32 cents a share, on average. For the fourth quarter, earnings are projected at breakeven to 1 cent a share on revenue of $14 million to $15 million. Optimal noted that the fourth quarter is typically its weakest quarter. The company also scaled back its outlook for 2002, forecasting a profit of $1.00 to $1.05 a share on revenue of $125 million to $135 million. Optimal cited economic uncertainty, and the slowdown in capital spending in most businesses for the lowered expectations. |
