MARKET SNAPSHOT
Techs struggle as blue chips flourish
Durable goods up 10% in June
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 10:33 AM ET Jul 27, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) - Tech stocks struggled Thursday under the weight of an earning warning from Nokia. Another round of heavy selling in the chip sector also contributed to the Nasdaq's triple-digit losses.
But the Dow Industrials checked in with modest gains, though it came well off its session highs. Buyers moved out of technology and into drug, oil service, retail and consumer stocks.
Aside from earnings worries, a 10 percent jump in durable goods orders for June compared to expectations for a flat reading was also unsettling for the market. Given, excluding transportation, durables were up only 0.8 percent, but in a nervous market, a 10 percent leap in the headline figure will always turn heads. See full story.
The Dow Jones Industrial Average added 61 points, or 0.6 percent, to 10,575 at 10:29 a.m. after climbing as much as 127 points in intra-day dealings.
In a note to clients, Goldman Sachs' influential chief strategist Abby Joseph Cohen said recent economic data confirm the view that U.S. economic growth is slowing, which will prolong the current expansion.
"We believe that profit growth will continue at a more moderate, but acceptable, pace. The U.S .equity markets are expected to generate good, but not abnormally strong, returns in the coming months and to do so with more normal volatility," Cohen said.
She sees profit gains of 8 to 10 percent in coming quarters and the composition of profits may also shift favorably toward higher margin markets. Goldman forecasts S&P 500 operating earnings-per-share of $56.00 in 2000, though Cohen said this may prove to be too cautious.
Since April, the Goldman strategist said the individual share price performance has been mainly driven by fundamental factors, such as earnings momentum and relative valuation -- rather than prior share price momentum.
On Wednesday, Cohen rolled forward her 12-month price target for the S&P 500 to 1,650 for summer 2001. The price target for year-end 2000 remained unchanged at 1,575.
The Nasdaq Composite dropped 110 points, or 2.8 percent, to 3,877 while the Nasdaq 100 Index erased 94 points, or 2.5 percent, to 3,724.
The Standard & Poor's 500 Index lost 0.2 percent while the Russell 2000 Index of small-capitalization stocks lost 1.5 percent.
Separately, volume stood at 289 million on the NYSE and at 415 million on the Nasdaq Stock Market. Losers beat winners by 18 to 10 on the Nasdaq while advancers outpaced decliners by 11 to 9 on the NYSE.
Specific movers
Amazon (AMZN: news, msgs) slipped 4 5/16, or 12 percent, to 31 3/4. The company reported a second-quarter loss of 33 cents a share after the close Wednesday versus the First Call estimate of a loss of 35 cents a share. Sales jumped 84 percent to $578 million over the same period last year.
On Thursday, Merrill Lynch lowered the company to a "near-term accumulate" from a "near-term buy." And CS First Boston lowered its revenue estimates on the company, calling its results "mixed" while Dain Rauscher cut its price target on the stock to $50 from $80. On Wednesday, Amazon dropped following a downgrade form Lehman Brothers. See Rating Revisions.
Meanwhile, Nokia (NOK: news, msgs) tumbled 12 3/8, or 22 percent, to 43 7/16 after warning that third-quarter earnings will be lower than second-quarter results.
Nokia said that due to the timing of new product introductions as well as seasonality, its third-quarter earnings are projected to be lower than in the second quarter of this year. In the fourth quarter, the company said it expects earnings-per-share to exceed the level achieved in the second quarter of 2000. That said, the company delivered strong second-quarter results, with a 55 percent increase in net sales and a 60 percent rise in operating profit. Read the story.
Just last week, Ericsson (ERICY: news, msgs) sparked a sell off in the telecom sector after warning that third-quarter profits would be hit by problems in its phone handset business, even as it saw its first-half profits rise by 337 percent. Ericsson shed 15/16 to 19 7/16.
In other earnings news, WorldCom (WCOM: news, msgs) checked in with a profit from operations of 46 cents a share, matching the First Call estimate. The company made 30 cents in the year-ago quarter. WorldCom, which saw its planned merger with Sprint (FON: news, msgs) blocked by regulators, said it's mulling spinning off or creating a tracking stock for its consumer long-distance business. Read the full story. Shares shed 2 7/8 to 41 7/8.
JDS Uniphase shares (JDSU: news, msgs) fell 3/4 to 135 3/16. The company posted a fourth-quarter profit of 14 cents a share after the close Wednesday, two pennies ahead of the First Call estimate. See full story. Sales saw a 73 percent jump from the same period last year.
Inside the economic numbers
The rise in durable goods was the largest since a near 13-percent surge sin July of 1991. The jump was due to a record 43 percent jump in transportation orders.
In the meantime, the second-quarter employment cost index rose 1.0 percent, less than the 1.2 percent increase according to a survey of economists conducted by CBS MarketWatch.com. See full story.
Revealing tightness in the labor market was a 40,000 drop in weekly initial claims to 272,000. View Economic Preview, economic calendar and forecasts and historical economic data.
"On balance, Thursday's reports tell us to not be premature in declaring an end to the current tightening cycle," said John Lonski, chief economist at Moody's Investors Service.
The jump in durables, Lonski said, reminds us that the U.S. economy is not an island and that it stands to benefit from strong global growth -- which tends to offset any slowdown in domestic spending.
And while within expectations, the ECI is climbing more rapidly than in the past and labor costs are putting more pressure on profit margins, the economist added.
Treasury focus
Treasury prices recovered after slipping on the heels of the morning's spate of economic news. The Nasdaq's slide is likely to give the government market some near-term support.
Separately, the Treasury announced it'll buy up to $1 billion in 30-year bonds Thursday -- a size that's lower than the $1.5 billion in reclaimed last week and half of the $2 billion bought back a month ago.
The 10-year Treasury note was up 5/32 to yield 6.00 while the 30-year bond added 11/32 to yield 5.78 percent. See Bond Report.
In the currency arena, dollar/yen shed 0.1 percent to 108.99 while euro/dollar fell 0.6 percent to 0.9380. See latest currency rates.
In the commodity market, September crude gained 36 cents to $28.17 while the Bridge CRB index edged up 0.26 to 218.67.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
