MARKET SNAPSHOT
Nasdaq closes below 4,000
Internet, chip stocks take a drubbing
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:09 PM ET Jul 24, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) - The Nasdaq registered triple-digit losses due to heavy selling in the Internet and computer hardware sectors while earlier buying interest in chip stocks faded. The index closed below the 4,000 mark for the first time since July 11.
The Dow Industrials also fell, though losses were mild compared to the Nasdaq's thanks to healthy gains in drug stocks.
In the tech sector, computer hardware stocks took a drubbing due to some cautious comments from analysts on Dell Computer. Internet stocks also tumbled, dragged down by a plunge in Priceline shares. Among the gainers in the broad market were drug, brokerage, transportation and gold shares while retail, oil service, paper and biotech stocks slipped.
"Tech stocks are [still] priced for perfection. There's no room for disappointment," said Alan Skrainka, chief market strategist at Edward Jones. The group, he added, needs to price in more realistic expectations on the earnings front.
Skrainka sees defensive areas of the market, such as drug and some consumer stocks, outperforming as the tech sector witnesses some choppiness and investors seek a safe haven.
"I'm not surprised to see this trendless and somewhat volatile price action," said Hugh Johnson, chief investment officer at First Albany.
"You can't make the case for a boom the economy and you can't make the case for a bust. The market is reflecting an economy that's slowing to a flatter growth rate," Johnson said. "My advice is to not make any big bets."
The Dow Jones Industrial Average slipped 48 points, or 0.5 percent, to 10,684.
Moving lower were shares of Hewlett-Packard, American Express, Wal-Mart and Eastman Kodak. Upside movers included Merck, which checked in with better-than-expected earnings, as well as Johnson & Johnson, Boeing, 3M and J.P. Morgan.
Honeywell (HON: news, msgs) added 13/16 to 35 9/16 after the company announced its aerospace unit secured a number of contracts with a combined value of nearly $2.3 billion.
DuPont (DD: news, msgs), off 11/16 to 43 1/16, reached a fresh 52-week low of 42 7/8 in intra-day dealings.
The Nasdaq Composite tumbled 113 points, or 2.8 percent, to 3,981 in its second straight session of heavy losses. The Nasdaq 100 Index shed 117 points, or 3.0 percent, to 3,791.
"This could be the start of the summer slowdown," remarked Scott Bleier, chief investment strategist at Prime Charter, of the market action on Monday. "We're not in a trending market, we're in a trading range market."
"This is the season when people tend to [dwell] on the bad news and the money going into funds slows," noted Robin Griffiths, chief technical strategist at HSBC Securities.
Long-term trends remain favorable, according to Griffiths. He expects a nice run in the market to begin in late August or early September.
"We have to get through a dull patch over the next six weeks, during which, however, we'll hold on to a mild upward bias," he concluded.
The Standard & Poor's 500 Index erased 1.1 percent while the Russell 2000 Index of small-capitalization stocks lost 1.6 percent.
In the meantime, volume was relatively light, standing at 874 million on the NYSE and at 1.44 million on the Nasdaq Stock Market. Market breadth was shabby indeed, with decliners beating advancers by 17 to 11 on the NYSE and by 27 to 14 on the Nasdaq.
Separately, Trim Tabs said equity funds had redemptions of $1.1 billion in the three days ending July 20 for a monthly rate of negative $8.4 billion. While aggressive growth funds saw an inflow, tech funds had their largest outflow for any period during the past six weeks. Trim Tabs said it's becoming cautiously bearish due to slowing inflows as well as pressure from a relatively large backlog of new offerings.
Stock market liquidity remained positive, Trim Tabs said, chiefly because of two big cash takeovers of U.S. public companies, including Deutsche Telekom's offer for VoiceStream. Also contributing to the enhanced liquidity was a pickup in announced stock buybacks, the most since the end of May, Trim Tabs said.
In strategy news, Donaldson Lufkin & Jenrette's Tom Galvin remains overweighted in technology, health care and communication services stocks. Despite continued worries about valuation, Galvin believes tech companies will continue to offer superior new-business prospects and returns on capital compared to other sectors that now face a moderating economy.
Meanwhile, PaineWebber's Edward Kerschner sees 10 to 15 percent gains in the S&P 500 over the next 12 to 18 months.
"While modestly attractively-valued on a price-to-earnings basis, stocks remain modestly overvalued relative to bonds and cash," Kerschner said.
Earnings watch
Another parade of earnings releases will make its way through Wall Street this week. First Call notes that 135 Standard & Poor's companies will reveal their quarterly results this week while another eight Dow companies will report. So far, over half of the S&P 500 and Dow companies have reported, First Call added.
"This earnings reporting season is turning out to be a difficult one for stocks. Good news is often met with profit taking and there also seems to be an unusually high amount of late disappointments that are causing those stocks to get crushed," said Robert Dickey, chief technical analyst at Dain Rauscher Wessels.
And those companies reacting positively reported numbers that were generally well ahead of expectations, Dickey said.
While Dickey expects choppy action to continue this week, he said the market carries an upward bias and believes the trend is up for the next several weeks, albeit with a death of momentum and participation.
Sector movers
The computer hardware sector was under the gun, with the Goldman Sachs Computer Hardware Index ($GHA: news, msgs) down 4.5 percent. One of the biggest downside movers were shares of Dell Computer (DELL: news, msgs), which fell 4 7/8, or 9 percent, to 47 1/2. Apple was also hard hit, shaving 5 1/4, or 9.8 percent, to 48 5/16.
UBS Warburg said Dell growth slowed to 22.3 percent from 30.6 percent, below its estimate of a 30 percent growth rate. The Warburg analyst suggests that there's a high probability the company will fall short on the revenue line, and possibly the earnings line. And SG Cowen named Dell its "bottom line action idea of the week" and said it has confidence Dell will deliver strong bottom-line performance in the near term. See Market Pulse item.
And chip stocks took it on the chin after a short-lived attempt to attract buyers earlier in the session. The Philadelphia Semiconductor index ($SOX: news, msgs) fell 1.0 percent Monday and has declined over the past five trading sessions, losing a total of 15.5 percent. Among the losers were shares of Rambus down 4 3/4 to 85, and LSI Logic, down 2 3/8 to 45 3/16. Texas Instruments (TXN: news, msgs) shed only 1/8 to 63 3/8. The company is set to report second-quarter earnings after the close Monday, with First Call estimating a profit of 30 cents a share.
In earnings news, Priceline.com (PCLN: news, msgs) said it lost a penny a share in its second quarter, beating the First Call estimate of a loss of 3 cents a share. The company lost 10 cents a share in the year-ago period. See full story. But the stock fell 7 3/16 or 17.8 percent, to 32 7/8. The sell-off in Priceline shares put a damper on the Internet sector, dragging Merrill's Internet Holdrs (HHH: news, msgs) down 3.8 percent.
The fiber-optics sector lost ground after climbing earlier in the session on reports that Canada's Nortel Networks (NT: news, msgs) is in talks to engineer a $100 billion union with Corning (GLW: news, msgs). The Wall Street Journal reports that the deal would call for Nortel to sell its optical-parts unit to Corning in a stock swap resulting in Nortel owning 50 percent of Corning. Read the full story. Nortel slipped 1/16 to 81 3/16 while Corning's shares fell 33 13/16 to 249 7/16.
Merrill Lynch's Broadband Holdrs (BDH: news, msgs), of which Corning and Nortel are components, fell 1.9 percent. Heading north in the group, however, were shares of Ciena, up 5 1/8, or 3.3 percent, to 161, and Tellabs, up 1 7/8 to 64 7/8.
Dow-component Merck (MRK: news, msgs) posted second-quarter earnings of 73 cents a share, beating the First Call estimate of 69 cents a share. The company made 61 cents in the year-ago period. The stock tacked on 5 to 68 3/4 while the Amex Pharmaceutical Index ($DRG: news, msgs), of which Merck is a component, put on 3.5 percent. See story. Dow-component Johnson & Johnson added 6 3/8, or 10 percent, to 70 1/8.
Merck also said it's reasonable to expect full year 2000 results to come in above Wall Street's current estimates, which Merck said stand at $2.76 to $2.81. The company also said the earnings growth rate for the first two quarters might be somewhat stronger than the remaining two quarters.
Shares of financial companies were mixed while brokerage stocks gained some minor ground Monday. American Express checked in during the trading session with a second-quarter profit of 54 cents a share, beating the First Call estimate by a penny. The Dow-component (AXP: news, msgs) made 47 cents in the year-ago period. Shares slipped 1 7/8, or 3.2 percent, to 57 3/8. See story.
The biggest winner in the brokerage sector was Bear Stearns (BSC: news, msgs), which climbed 10.4 percent, or 4 13/16 to 51 1/8. Salomon Smith Barney issued a report on Bear Stearns, saying the company acknowledged it would consider acquisition offers.
Salomon spoke with Bear Stearns' CEO, who made it clear that an acquisition is not out of the question but that a buyers would have to be willing to pay at least 4 times book value, or nearly $120 per share. The Amex Securities Broker/Dealer Index ($XBD: news, msgs) added 0.7 percent.
In merger news, Deutsche Telekom (DT: news, msgs) has agreed to buy VoiceStream Wireless (VSTR: news, msgs) in a cash and stock deal valued at $50.7 billion. Deutsche Telekom is paying a 30 percent premium to purchase VoiceStream. Read the story. VoiceStream lost 18 1/4 to 131 1/2 while Deutsche Telekom fell 5 11/16 to 45 13/16.
The Nasdaq Telecommunications Index ($IXTC: news, msgs), of which VoiceStream is a component, slipped 2.4 percent on Monday. See telecom sector story.
Retail stocks slipped, with the Standard & Poor's Retail Index ($RLX: news, msgs) off 2.2 percent. Weighing on the group was an earnings warning from catalog retailer Land's End. The company (LE: news, msgs) said that, based on current trends, sales for the second quarter will be flat and that earnings will be about half of the 14 cents per share posted last year. First Call had expected earnings-per-share of 17 cents in the second quarter. The stock tumbled 23 percent, or 9 3/16 to 30 15/16. See full story.
Treasury focus
Bond prices remained negative in anemic dealings. The 10-year Treasury note shed 6/32 to yield 6.025 while the 30-year bond lost 6/32 to yield 5.805 percent. See Bond Report.
Key economic reports set for release this week include: the second-quarter employment cost index -- which is a broad measure of wages and benefits -- as well as the advance reading of second-quarter gross domestic product.
Further, July consumer confidence and June durable good orders will be out to give investors a view of the economy's performance. No economic news is set for release on Monday. View Economic Preview, economic calendar and forecasts and historical economic data.
And Alan Greenspan will bring his thoughts on the U.S. economy before the House Banking Committee on Tuesday. It will be a repeat of the Fed Chief's speech before the Senate Banking Committee last Thursday.
In the currency market, the dollar edged up 0.1 percent to 108.82 yen following an impressive rally on Friday that saw the pair climb to levels not witnessed since early June. Euro/dollar slipped 0.5 percent to 0.9320. See latest currency rates.
In the commodity market, September crude lost 31 cents to $28.25 while the Bridge CRB index fell 2.92 to 219.24.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
