MARKET SNAPSHOT
Techs clobbered, Dow also hit
Chip, software issues tumble
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 3:35 PM ET Jul 5, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) - The Nasdaq plunged Wednesday due to bruising losses in chip and software stocks. The weakness in technology also hit the Dow Industrials, though losses were limited by scattered buying interest in some of the index’s cyclical components.
Within the broader market, oil service shares saw hefty declines due to a nosedive in oil prices while airline and transportation stocks took off. Biotech and bank stocks posted handsome gains while drug and paper shares were only marginally higher.
Widespread weakness in computer software and chip stocks pushed the Nasdaq deep into negative territory right from the start of trading following a couple of earnings warnings in the software arena as well as negative analyst comments on semis.
“This is a market that’s totally unforgiving of earnings shortfalls,” said John Waterman, managing director of investments at Rittenhouse Financial.
Still, he believes the chip sell-off on Wednesday was an overreaction. “I think earnings growth in the sector will continue to be healthy for the next 12 months-plus,” Waterman said.
The Dow Jones Industrial Average slipped 74 points, or 0.7 percent, to 10,484 at 3:31 p.m.
Downside movers included IBM, Caterpillar, Exxon Mobil and Intel while gains in shares of 3M, AT&T, Boeing and United Technologies.
Scott Bleier, chief investment strategist at Prime Charter, noted that the gains in cyclical and financial issues may be due to some reshuffling of positions by fund managers at the start of the new quarter. But increased interest in those groups may emerge as investors increasingly believe the Fed is close to ending its tightening cycle and that the rate increases won’t result in a recession.
Caterpillar shares fell 1 to 35 after Goldman Sachs downgraded the stock (CAT: news, msgs) to a “market outperformer” and removed the stock from its recommended for purchase list. The brokerage also lowered its 2000 earnings-per-share estimate to $3.20 from $3.55 and 2001 estimates to $3.65 from $4.20. The Dow-component lost 1 9/16 to 34 7/16.
Shares of 3M lifted 4 1/2 to 88 9/16. The company’s (MMM: news, msgs) Optical Systems Division bought Vancouver-based Dynapro for an undisclosed amount. 3M plans on using this purchase, in conjunction with light management technology developed at 3M, as its entry into the touch panel product marketplace. See Market Pulse.
The Nasdaq Composite fell 119 points, or 3.0 percent, to 3,871 while the Nasdaq 100 Index dropped 138 points, or 3.6 percent, to 3,665.
Sam Stovall, senior investment strategist at Standard & Poor’s, anticipates a positive second quarter on the earnings front -- but he also believes results will be nowhere near the levels investors have become accustomed to.
The chip sector is a group that has done so well, Stovall said, but it’s sitting on lofty valuations and the market is worried about earnings going forward.
Bleier views the drop in the semis as normal and overdue considering the nearly 60 percent run-up the sector has seen this year.
Separately, Abby Joseph Cohen, chief investment strategist at Goldman Sachs, made comments on the earnings prospects of capital goods companies.
While the rate of profit growth may have peaked in the first quarter, Goldman expects many more quarters of moderate profit gains.
Several factors, Cohen said, likely contributed to good, but slower, profit growth in the sector: higher materials costs, limited pricing flexibility and dollar strength. Earnings comparisons, the strategist said, will become less easy, following a full year of profit acceleration among the industrial cyclical companies.
The Standard & Poor's 500 Index trimmed 1.7 percent while the Russell 2000 Index of small-capitalization stocks slumped 1.0 percent.
Volume stood at 816 million on the NYSE and at 1.14 billion on the Nasdaq Stock Market. Breadth was mixed, with advancers matching decliners on the NYSE while losers beat winners by 24 to 16 on the Nasdaq.
Sector movers
Semiconductor stocks took a hit as Salomon Smith Barney downgraded the sector from an “outperform” rating to a “neutral” rating due to what the brokerage believes are “slowly reversing industry fundamentals.” Though a slowdown in the group could take six to nine months, Salomon said it sees “first-mover” evidence of a trend reversal in decelerating industry unit shipments as well as price declines. The sector is likely to see peak capital spending growth rates this year, the brokerage continued.
Salomon lowered its rating on four semis: Texas Instruments (TXN: news, msgs), off 4 to 65, Advanced Micro Devices (AMD: news, msgs), down 7 1/2 to 76 3/4, National Semiconductor (NSM: news, msgs), off 6 5/8 to 51 1/2, and Silicon Storage (SSTI: news, msgs), off 9 7/8 to 89 1/8. The Philadelphia Semiconductor Index ($SOX: news, msgs) tumbled 9.4 percent.
Other losers in the semi arena included Intel, off 3 9/16 to 133 5/16, and Rambus, off 4 11/16 to 105.
The computer software arena also faltered badly due to earnings warnings from Computer Associates and BMC Software. The CBOE Computer Software Index ($CWX: news, msgs) fell 6.2 percent.
Computer Associates (CA: news, msgs) plunged 22, or 43 percent, to 29 1/8 after warning on Tuesday that it expects its first-quarter results to miss Wall Street estimates. It sees contracts in the range of $1.25 to $1.3 billion compared to the $1.22 billion registered in the first quarter last year due to weak European sales and softness in its mainframe business. The First Call estimate for Computer Associates’ first-quarter earnings-per-share stands at 55 cents. Read full story. Goldman Sachs lowered the company to a “market performer” rating from a “market outperformer.” The company also received downgrades from CS First Boston, Dain Rauscher, J.P. Morgan and Banc of America. See Rating Revisions.
BMC Software (BMCS: news, msgs) warned that its first-quarter earnings are expected to come in at 18 to 21 cents a share with revenues seen at $365 to $375 million. The company made 42 cents a share in the year-ago period. First Call expects earnings per share of 46 cents in the first quarter. Shares tumbled 4 3/8, or around 13 percent, to 26 5/8. See Screamers.
Oracle (ORCL: news, msgs) was another downside mover in the software arena, falling 6 3/4, or about 9 percent, to 73 7/16. The stock was lowered to a market performer” from a “buy” by J.P. Morgan.
Oil service stocks took a dive, with the Philadelphia Oil Service Index ($OSX: news, msgs) up down 6.0 percent while the CBOE Oil Index ($OIX: news, msgs) trimmed 4.5 percent.
Culprit for the selling was a plunge in August crude, which dropped $1.83 to $30.67 following news late Monday that Saudi Arabia will boost its daily output by 500,000 barrels-per-day effective immediately. The increase would come on top of the 708,000 barrel-per-day hike among the cartel’s members that began on July 1. See related story. Meanwhile, the Bridge CRB index lost 4.46 to 219.47.
PaineWebber analyst Chris Stavros sees the Saudi move as more of a threat rather than an indication that the country is ready to take immediate and unilateral action to raise its output.
“In our opinion, the Saudis are clearly trying to talk down the oil price that is backed up by their considerable spare production capacity. However, while we initially see this as a threat, it should not be taken lightly,” Stavros said.
“Even absent any additional increase in Saudi oil production, we see oil prices falling into the mid-$20’s by Labor Day or shortly thereafter. If additional Saudi or OPEC barrels are made available to the market, oil prices could fall even more rapidly and to a greater extent than we anticipate,” PaineWebber concluded.
Specific movers
Datastream Systems (DSTM: news, msgs) announced it expects a second-quarter pro forma net loss of 25 to 30 cents a share. First Call predicts a loss of 9 cents a share for the quarter. Datastream expects total revenues to range between $22.5 and $23.5 million in the quarter. The stock dropped 2 5/8, or about 24 percent, to 8 7/8.
Entrust Technologies (ENTU: news, msgs) tumbled 41 3/16, or 53 percent, to 35 15/16 after the company said it expects second-quarter earnings from operations to come in at about 2 cents a share compared to the First Call estimate of 8 cents a share.
Shares of Dow-component Boeing (BA: news, msgs) climbed 1 1/4 to 42 15/16. The company is close to landing a contract to deliver 30 of its large 777 planes to International Lease Finance Corp. -- a deal that could be worth $5.5 billion. See full story.
Shares of Comverse Technology (CMVT: news, msgs) lost . The company announced a deal to purchase Israel-based, privately held Exalink Ltd. in a $480 million stock swap. Under the agreement, Comverse will issue 5.261 million new shares to Exalink shareholders and will assume Exalink’s outstanding options and warrants. Read the story.
OneSource Information Services (ONES: news, msgs) tacked on 1 5/8, or 22 percent, to 9 after announcing that it expects a narrower-than-expected second-quarter loss. The company sees a second-quarter loss between 3 cents a share and breakeven, well ahead of the First Call estimate of a loss of 16 cents a share.
Treasury focus
Treasury prices climbed across the board, helped by weakness in the equity arena.
The 10-year Treasury note gained 1/8 to yield 5.98 percent while the 30-year bond added 5/32 to yield 5.86 percent, adding to Monday’s gains. See Bond Report.
In economic news, Wednesday will see the release of May leading economic indicators, which edged down by an as-expected 0.1 percent. See full story and view Economic Preview, economic calendar and forecasts and historical economic data.
In the currency market, dollar/yen added 0.9 percent to 107.08 while euro/dollar gained 0.2 percent to 0.9533. See latest currency rates.
On Tuesday, Japan released its quarterly Tankan survey of business conditions, which came in at positive 3 from the previous quarter’s negative 9. It was the first positive reading since September 1997. See full story. But the report also showed that business conditions remained much worse for small companies and non-manufacturers. Japan is expected to put an end to its zero interest-rate policy, with many predicting that a move could come as soon as July 17.
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Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
