<font color=blue>MARKET SNAPSHOT--Nasdaq clobbered as chips slide
Dow flourishes as financials lift on merger news
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:45 PM ET Sep 6, 2000 NewsWatch
Latest headlines
NEW YORK (CBS.MW) - The Nasdaq took a dive Wednesday as sellers dumped chip stocks following an analyst downgrade of Micron Technology. The Dow Industrials remained well-supported by a climb in the financial arena as merger speculation lifted the group, though selling in the techs took the blue-chip barometer well off session highs.
"The Semiconductor Index is breaking down -- the market got a little ahead of itself. The Nasdaq [came into] September in overbought conditions," said Bill Schneider, head of block trading at UBS Warburg. Chip stocks also lost significant ground on Tuesday as Intel was hit by a downgrade.
"The Intel downgrade [Tuesday] disrupted an already nervous market,"said Scott Bleier, chief investment strategist at Prime Charter. In addition, the market had such a good run-up in August and profit-takers were lurking at every corner, he said.
"The market remains locked within a maddening trading range," Bleier remarked. "It gets to the top of its confines and then quickly falls back to the middle of its range. It's frustrating."
Within the broad market, utility, retail and paper shares enjoyed healthy gains while drug and biotech shares continued to stumble. Meanwhile, oil and oil service shares rallied as crude oil futures climbed to levels not seen in 10-years. October crude, in fact, rose $1.07 cents to $34.90 amid continued concerns over tight inventories
The Dow Jones Industrials Average ($DJ: news, msgs) climbed 50.03 points, or 0.4 percent, to 11,310.64 after rising as much as 141 points in intra-day dealings. The blue-chip barometer surpassed the 11,400 level for the first time since April 12 during the session.
J.P. Morgan was among the Dow's upside movers, buttressed by merger speculation. Also leading the pack were shares of Boeing, Honeywell, United Technologies and General Electric. Moving lower were shares of Citigroup, Coca-Cola, Intel and AT&T.
The Nasdaq Composite ($COMPQ: news, msgs) slid 129.84 points, or 3.1 percent, to 4,013.34 -- its lowest close since August 23. The Nasdaq 100 Index ($NDX: news, msgs) subtracted 149.41 points, or 3.7 percent, to 3,837.62.
Big-cap tech stocks led the sell-off, as evidenced by the Nasdaq 100's underperformance of the Nasdaq throughout Wednesday's trading session. Sun Microsystems fell nearly 6 percent, Dell Computer shaved almost 4 percent and Cisco Systems slipped 2.7 percent.
"People are questioning earnings in technology," said Peter Boockvar, referring to the events causing the drops in Intel and Micron Technology. The techs had a nice run in August, rendering them more vulnerable to potential speed bumps, he added.
Market players will scrutinize what companies say about revenue growth and future earnings in the third quarter, Boockvar continued. And as the third-quarter pre-announcement period approaches, he believes the market will likely become more vulnerable.
Even if the Fed is done raising rates for the remainder of the year, oil prices continue to move higher and it's unlikely that Treasury yields can move lower from current levels, as they have already discounted a Fed on hold, Boockvar observed.
The Standard & Poor's 500 Index ($SPX: news, msgs) fell 1.0 percent while the Russell 2000 Index ($RUT: news, msgs) of small-capitalization stocks slipped 0.5 percent.
Volume was heavy at 999 million on the NYSE and at 1.75 billion on the Nasdaq Stock Market. Market breadth was mixed, with winners beating losers by 16 to 13 on the NYSE and decliners outnumbering advancers by 23 to 17 on the Nasdaq.
Sector movers
The announcement of a merger and expectations that the group will see more unions fueled the financial sector's fire Wednesday. The Amex Securities Broker/Dealer Index ($XBD: news, msgs) climbed 2.5 percent while the S&P Bank Index ($BIX: news, msgs) rose 2.1 percent.
Citigroup (C: news, msgs) announced it's purchasing Associates First Capital Corp. (AFS: news, msgs) in a stock transaction valued at about $31.1 billion. Under the terms of the deal, Associates shareholders will get 0.7334 common shares of Citigroup for each share of Associates. The deal gives Associates shareholders 10 percent of Citigroup and the merger will be accretive to Citigroup's earnings by at least 10 cents a share in the first year of combined operations. See full story. Associates skyrocketed 41 percent, or $11.50 to $39.50 while Citigroup slipped $1.38 to $56.19.
Adding fuel to the merger speculation fire that was heightened by last week's buyout of Donaldson Lufkin & Jenrette (DLJ: news, msgs) by CS First Boston, German weekly Wirtschaftswoche reported that Deutsche Bank AG is in talks to acquire J.P. Morgan. The company declined to comment and Deutsche Bank told FT MarketWatch that it had no comment. See related item. The Dow component (JPM: news, msgs) climbed 6.4 percent to $170.25.
In the meantime, online brokerages are getting a boost from a string of upgrades in the group. Ameritrade (AMTD: news, msgs) rose 12.4 percent to $20.94 while E-Trade (EGRP: news, msgs) put on 9 percent to $19.69.
CS First Boston raised its rating on Ameritrade to a "buy" from a "hold" with a $35 12-month price target and upped E-Trade to a "buy" from a "hold" with a $35 price target. CIBC WorldMarkets, meanwhile, upped Ameritrade to a "buy" from a "hold" with a $25 price target.
In the tech arena, Micron Technology fell 10.2 percent, or $8 to $70.50, dragging the Philadelphia Semiconductor Index ($SOX: news, msgs) down by 4.3 percent. Donaldson, Lufkin & Jenrette lowered its rating on the stock to an "underperform" from a "buy" due to a much earlier-than-expected fall in DRAM spot prices. In a note to clients, Merrill Lynch said it continues to believe that there is inventory in the system that'll place pressure on the DRAM spot market in the near term but also continues to believe that this is not a meaningful indicator as to what earnings will look like for Micron several months out.
Shares of Intel continued their descent, falling $1.50 to $67.75. On Tuesday, Intel (INTC: news, msgs) slipped over 6 percent after U.S. Bancorp Piper Jaffray's Ashok Kumar reduced his rating on the chip kingpin to a "buy" and questioned whether it can engineer a soft landing. Other losers in the chip group Wednesday included Advanced Micro Devices (AMD: news, msgs), off 5.8 percent to $32.75 and Altera (ALTR: news, msgs) fell 5.6 percent to $55.75.
Treasury focus
Treasurys slid, with buyers still sidelined Wednesday as they prepared for a deluge of issuance in the corporate arena expected over the next weeks.
Long-dated issues were the hardest hit by the selling, with the hefty rise in oil prices generating additional nervousness in the marketplace.
The 10-year Treasury note fell 9/32 to yield ($TNX: news, msgs) 5.71 percent and the 30-year bond dropped 18/32 to yield ($TYX: news, msgs) 5.73 percent. See Bond Report.
On the data docket, second-quarter productivity was upwardly revised to show a growth rate of 5.7 percent from the previously reported 5.3 percent increase. And unit labor costs slipped by 0.4 percent in the second quarter compared to the previously reported 0.1 percent decrease. See full story.
The figures provide additional evidence that productivity gains are outstripping wage increases and keeping inflation at bay.
In other economic news, the NAPM services index came in at 60 percent in August from July's 55.5 percent. View Economic Preview, economic calendar and forecasts and historical economic data.
Euro plunges
The euro dove to an all-time low against the dollar, reaching a low of 0.8688 in intra-day trading. The dollar has done lots of muscle-flexing against the euro lately and investors have become less and less concerned that the European Central Bank will intervene to support the fledgling currency.
With equity prices rising in the U.S. and recent merger announcements -- like the DLJ purchase by CS First Boston, increasing money flows out of Europe and into the U.S. -- it's no surprise to see the dollar bid up by traders.
In recent dealings, dollar/yen (C_JPY: news, msgs) inched 0.1 percent higher to 105.87 while euro/dollar (C_EUR: news, msgs) fell 2.2 percent to 0.8704.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
