<FONT COLOR=BLUE>MARKET SNAPSHOT--Dow, Nasdaq fumble
Chips, cyclicals under the gun
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 1:17 PM ET Nov 16, 2000
NEW YORK (CBS.MW) - A sell off in chip stocks following cautious analyst comments pressured the Nasdaq Thursday while the Dow Industrials turned lower after a brief stint in the plus column due to declines in its cyclical components.
"The market remains very nervous. While the economic numbers are sending out mixed signals -- showing pockets of strength and pockets of weakness - the performance in the stock market suggests otherwise. It's pricing in an economic slowdown," said Peter Cardillo, chief strategist at Westfalia Securities.
Once the air on the election front clears, Cardillo said a relief rally could emerge. But he said it'll be one that's very selective in nature.
Inside the broad market, retail, utility and brokerage stocks were the only sectors in the plus column. Investors snubbed all tech sectors as well as drug, oil service, paper and biotech shares.
The October consumer price index -- perhaps the week's most important piece of economic data - was shrugged off by the market. The CPI rose by an as-expected 0.2 percent both overall and at the core. The latter excludes the often-volatile food and energy components. .
The Dow Jones Industrials Average ($DJ) fell 25 points, or 0.2 percent, to 10,680. Under the gun were shares of DuPont, International Paper and Alcoa.
The Nasdaq Composite ($COMPQ) shed 55 points, or 1.8 percent, to 3,110 while the Nasdaq 100 Index declined 74 points, or 2.4 percent, to 3,002.
On Wednesday, the Federal Reserve's decision to hold on to a tightening bias sapped enthusiasm from the market and undercut most of the major average's early gains. Observers point to the stock market's repeated inability to build on to gains after violent rallies, like the one witnessed on Tuesday.
Robert Dickey, chief technical strategist at Dain Rauscher Wessels, said a clearer up trend will not be apparent until the Dow Industrials and Nasdaq break out above the 11,000 and 3,500 levels, respectively.
"Until then, the concerns will continue to be intense," Dickey concluded.
The Standard & Poor's 500 Index ($SPX) erased 0.6 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks gave up 0.7 percent.
Volume came in at 548 million on the NYSE and at 864 million on the Nasdaq Stock Market. Market breadth was negative, with decliners besting advancers by 15 to 12 on the NYSE and by 22 to 13 on the Nasdaq.
Chip focus
Chip stocks took a hit Thursday after putting on quite a show over the past three trading sessions. The Philly Semiconductor Index ($SOX) lost 2.8 percent.
In the chip equipment arena, Applied Materials advanced 69 cents to $43.44. The company (AMAT) reported after the close Wednesday fourth-quarter earnings-per-share of 77 cents, topping the First Call estimate by a penny. Investors zeroed in on AMAT's guidance for the first quarter. Sales are expected to be in the range of $2.9 to $2.95 billion versus the fourth quarter's $2.9 billion. And earnings-per-share in the first quarter are expected to come in between 75 and 78 cents, just shy of the First Call estimate of 80 cents a share. While Lehman Brothers called the company's results strong and said it thinks the shares offer exceptional value, Morgan Stanley Dean Witter said it believes AMAT shares have downside risk.
Meanwhile, Merrill Lynch's Joe Osha lowered its rating on communications chips due to inventory concerns and belief that the group lacks a near-term catalyst. Merrill said its believes there is a high probability the inventory buildup will correct over the next two quarters.
"While many of the stocks in this group are already down 50 percent over the past several weeks, we believe that inventory concerns, coupled with telecom service provider capital spending concerns, will weigh on the group for the next one to two quarters," Osha said in a note to clients. Further, he notes that the group still sports the highest valuation in the chip business -- even after the recent decline.
Merrill lowered its intermediate-term ratings on Applied Micro Circuits (AMCC), Broadcom (BRCM), Vitesse Semi (VTSS), PMC-Sierra (PMCS) and TranSwitch (TXCC) to an "accumulate" from a "buy." Among those stocks, PMC fell 10 percent, Broadcom 9.8 percent and Applied Micro 9.8 percent.
But bellwether Intel escaped the selling in the chip group, edging up 75 cents to $42.25. In a research note, Merrill said the company (INTC) faces a substantial challenge in managing the transition from PC-led growth to communications and information appliance growth. "To Intel's credit, however, the strategy for managing the transition has been clearly thought out."
Among the other winners, semiconductor assembly equipment Kulicke & Soffa Industries (KLIC) climbed 5 percent to $11.75 after posting better-than-expected results.
Sector movers
While Internet issues struggled overall, with the Goldman Sachs Internet Index ($GIN) off 0.4 percent, there were a few notable exceptions. Amazon (AMZN) managed a 75-cent gain to $30.25. Bear Stearns said initial holiday season data points to the potential of higher-than-expected revenue growth in the fourth quarter for the e-tailer. "Current user data growth trends and customer spending patterns lead us to believe that Amazon will have a robust fourth quarter," the brokerage said in a note to clients. Also moving higher in the Net space were shares of EBay, up $1.81 to $47 while CNet, off 16 percent, and CMGI, off 5 percent, struggled with the greatest losses.
Cyclical issues were under the gun, with paper stocks bearing the brunt of the selling pressure. The Philadelphia Forest Paper Products Index ($FPP) fell 2.7 percent with Dow-component International Paper (IP) shaving 5.7 percent to $33.94. Bear Stearns lowered its fourth quarter and full-year 2000 estimate on IP due to continued sluggish demand in paper, paperboard, and wood products as well as the large amount of downtime/production curtailments being taken at IP. But Bear said the company remains attractively valued and kept its buy rating on the stock.
Treasury action
Bond prices extended Wednesday's gains, with equity weakness generating a buying opportunity.
The 10-year Treasury note was up 1/8 to yield ($TNX) 5.69 percent while the 30-year government bond added 6/32 to yield ($TYX) 5.755 percent.
In other economic news released Thursday, weekly jobless claims fell 20,000 to 326,000. View Economic Preview, economic calendar and forecasts and historical economic data.
In the currency arena, the greenback edged up 0.2 percent to 109.03 against the yen while euro/dollar was off 0.3 percent at 0.8540. The young currency barely budged following the widely expected decision from the European Central Bank to leave short-term rates unchanged at Thursday's policy-setting meeting. |
