<font color=brown> More examples of Bush's successful economic turnaround?<font color=black>
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Tech Can't Sidestep Latest Land Mine
By Aaron Pressman
The Nasdaq Composite proved Wednesday that only so much bad news can be shrugged off. After rallying for five of the past six days, the tech-laden index succumbed to the latest bout of forecast reductions.
Key to the day was a warning by Celestica Tuesday night, because the contract electronics manufacturer serves so many of the bellwethers of the industry, including IBM, LU and Cisco. Without specifying precisely which customers were behind the sudden drop in orders, Celestica prompted a widespread selloff.
Celestica lost 13.5% to $12.60 and close competitors Flextronics (FLEX:Nasdaq - news - research) and Solectron (SLR:NYSE - news - research) lost 6.8% and 3%, respectively.
Along with a warning from Xilinx and a negative report on tech stocks from Goldman Sachs, the Celestica shortfall helped send the Nasdaq down 1% to 1896.52.
The semiconductor rally also came to a loud end on Wednesday. After rallying in the face of bad news from some of the biggest players over the past week, Xilinx's warning, which followed a red flag from LSI Logic (LSI:NYSE - news - research) on Monday night, was too much. Xilinx tumbled 5.3% to $27.50, Intel (INTC:Nasdaq - news - research) lost 1.7% to $20.42 and Texas Instruments (TXN:NYSE - news - research) dropped 2.4% to $21.85. The Philadelphia Stock Exchange's Semiconductor Index ended a four-day, 12% winning streak and lost 3.2% to close at 380.78.
Blue chips fared little better on mixed economic news and a warning of poor results from Coca-Cola (KO:NYSE - news - research), which lost 4% to $41.16. The S&P 500 lost 0.7% to 1120.39 and the Dow Jones Industrial Average fell 0.8% to 10,231.36.
The market got nothing from falling oil prices. OPEC, meeting in Vienna, Austria, raised its daily output target by 1 million barrels a day to 27 million barrels. Oil futures closed down 81 cents to $43.58.
Not So Hot
As mentioned here a week ago, once you exhaust the bargain-hunting among tech-stock bottom-feeders, the fundamentals for the industry don't look so hot. Goldman Sachs said on Wednesday that corporate demand for technology goods might have peaked. That's a recipe for further sliding.
Chief investment officers, those responsible for setting budgets at 100 major companies, predicted spending for the year would increase only 0.4%, a surprisingly low reading and a decline from 2.3% projected by the survey back in June, Goldman said.
"IT managers continue to describe a spending environment characterized by a lack of urgency and very fluid budgets which can curb purchasing plans," the firm's four tech analysts wrote.
As for the pop from the last tax cut President Bush designed (in part) to bolster tech spending, CIOs surveyed were dismissive. Asked if the accelerated depreciation available for purchases made by the end of 2004 was affecting spending, 92% said it had no impact on their plans this year. Another 6% said it was factored in to 2003 budgets and only 2% said it would cause increased spending at all.
Elsewhere, Prudential's Mark Lipacis urged investors to sell into any strength in the sector. Since Intel's midquarter warning, 16 companies have issued lower outlooks by an average of 8%, he wrote. "We believe there is still significant downside," Lipacis warned.
A Macro Puzzle
On the macroeconomic front, investors faced a puzzle in the Commerce Department's business inventories and sales report. Inventories grew by 0.9% in July, slightly more than forecast, while sales increased by only 0.6%. The ratio of inventory to sales crept up to 1.32, the highest since last winter when the economy was about to head into a slow patch.
The question was whether businesses were intentionally building inventories because they are seeing signs of increased demand, or whether the opposite had happened and goods were piling up because demand had suddenly slowed.
With the many warnings that demand was coming in below forecasts, including those in the past 24 hours from Celestica, Xilinx and Coca-Cola, the odds favor a surprise slowdown in demand that would be consistent with lower consumer spending and confidence as well as the flagging labor market.
Continued...........
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