M A R K E T .. S N A P S H O T 3:48 PM
Fresh low for Nasdaq; Dow also slides
No solace from Greenspan
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 3:48 PM ET Feb 28, 2001
NEW YORK (CBS.MW) -- The Nasdaq set another 26-month low Wednesday as tech stocks got slammed in what has become a daily occurrence. And the Dow Industrials registered a loss of over 200 points as investors showed their disappointment to Fed chief Alan Greenspan's remarks, which signaled that an inter-meeting cut isn't likely.
In his testimony before the House Financial Services Committee that was little changed from his Feb. 13 appearance before a Senate panel, Greenspan said consumer confidence requires close scrutiny but noted that the exceptional slowing in the economy in December was less evident in January and February.
"It is interesting that Greenspan notes February when very little data on February is known - just consumer confidence and jobless claims. As a result, he may be pointing to resiliency in Feb. data not yet released, perhaps from an early read on car sales, chain store sales or even the NAPM," observed Mary Dennis, senior economist at Merrill Lynch.
"We think Wednesday's testimony reduces the probability of an inter-meeting move but the Fed still acts aggressively cutting rates in a front-loaded fashion over the next few meetings," Dennis added. She projects a 50-basis-point ease on March 20 and a fed funds rate at 4.5 percent by the first half of the year.
Inside the market, financial, retail and gold issues sold off the most while investors relegated their feeble buying to the drug, biotech and paper sectors. In the tech space, all sectors had to contend with heady losses but the downside was particularly bruising in the chip and Internet segments.
The Dow Jones Industrials Average ($DJ) dropped 123 points, or 1.2 percent, to 10,512. Among the Dow's losers: J.P. Morgan Chase, Honeywell, American Express, Citigroup, United Technologies, General Electric and Home Depot. Among the few upside movers: AT&T, Merck, Johnson & Johnson and Hewlett-Packard.
The Nasdaq Composite ($COMPQ) dropped 52 points, or 2.4 percent, to 2,155 while the Nasdaq 100 Index ($NDX) shed 48 points, or 2.5 percent, to 1,915.
Among the Nasdaq's decliners: Oracle, off 10.4 percent, Applied Materials, off 6.7 percent, Intel, off 2.2 percent, Qualcomm, off 3.3 percent, and JDS Uniphase, down 4.7 percent. Both JDS and Oracle reached fresh 52-week lows in intraday dealings.
The Standard & Poor's 500 Index ($SPX) dropped 1.4 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks lost 1.0 percent.
Volume came in at 1.04 billion on the NYSE and at 1.85 billion on the Nasdaq Stock Market. Market breadth was negative, with losers pouncing on winners by 17 to 13 on the NYSE and by 24 to 12 on the Nasdaq.
Economist call for more cuts
Ian Shepherdson, chief U.S. economist at High Frequency Economics is in that camp and sees the fed funds rate dropping to 4 percent from its current 5 1/2 percent target by the summer.
"Clearly, Greenspan and the members of the FOMC consider the threats heavily weighted toward more slowing. They are prepared to act promptly. But while a move on March 20 looks to be a very good bet, the size is not and additional actions may not be baked in the cake," said Joel Naroff, chief economist at Naroff Economic Advisors, commenting on Greenspan's speech.
"If spending remains solid, then the cut could be only 25 basis points. However, any sudden retrenchment in spending, especially on housing or vehicles, will lead to another series of sharp Fed moves. The consumer will determine Fed action and the numbers to watch are any that have to do with spending, not necessarily confidence," Naroff concluded.
Bridgewater Associates also came out with strong words in its daily commentary.
"Tuesday's economic releases made it evidently clear what the markets have been saying for some time now. We are in a recession. It is not worth quibbling over technical definitions. The question is how severe will it be and how long will it last. We don't just bounce out of recessions. It takes significant Fed action," Bridgewater said.
"It is important to recognize that the global financial crisis of 1998 is not an analog to what is going on [now.] The U.S. economy never really lost much steam in 1998. No economic stat reached levels consistent with recession. The Fed eased 75 basis points and eased the market panic but it did not have to do any heavy lifting to turn the U.S. economy around. This time around, Greenspan is going to have to break a sweat," Bridgewater concluded.
Sector movers
Chip stocks declined sharply for a third straight session, with the Philly Semiconductor Index ($SOX) off 4.9 percent. Altera (ALTR) shed 1 percent but came off its session lows. In its monthly call late Tuesday, the company pushed down revenue expectations for the first quarter to about $294 million vs. $368 million in the fourth quarter due to a more prolonged inventory correction. Altera had said in mid-January that it expected first-quarter revenue to decline only 5 percent sequentially, which would have pegged it at $349.6 million. Among its rivals, Lattice Semiconductor gave up 3.6 percent and Xilinx fell 1.9 percent. Morgan Stanley Dean Witter lowered its price targets on Altera, Xilinx and Lattice Semi.
Communications chip stocks continued to get clocked. Broadcom fell 8.5 percent, TranSwitch dropped 8.6 percent, Applied Micro Circuits tumbled 9.7 percent, Vitesse Semi gave up 9 percent, and PMC-Sierra lost 9.6 percent. MSDW told clients that while the selloff in semis is expected to continue, the group is approaching prices at which longer-term investors will step up to the plate. The brokerage expects a weak quarter for Broadcom (BRCM) but also thinks most of the bad news is priced in.
In other news, Chartered Semi (CHRT) fell over 6 percent after telling investors late Tuesday that it won't meet Wall Street's earnings expectations in the first quarter due to worsening economic conditions. The company now expects a first-quarter loss of 22 to 24 cents a share vs. previous expectations for a profit of 4 to 6 cents. The stock was downgraded by Bear Stearns to a "neutral" from "attractive" due to its poor earnings outlook.
Net issues had to contend with a 12 percent drop in Amazon (AMZN) to levels not seen since June 1998. Traders caught wind of speculation in London trading rooms that raised the issue of bankruptcy. But an Amazon spokesperson vehemently denied the reports. The Goldman Sachs Internet Index ($GIN) lost 4.3 percent in recent trading.
Fiber-optic stocks got no relief Wednesday, with the group's leader, JDS Uniphase (JDSU), shedding another 4 percent. Avanex (AVNX), off 16.4 percent, warned investors that third-quarter earnings-per-share would come in at 2 to 3 cents vs. current expectations for a profit of 6 cents a share. Merrill said in a research note that Avanex is now the fourth major component company to reduce projections for the quarter, JDS, Corning and Agere being the others. "Overall, our view is that 2001 could end up being a flat year for the industry," the brokerage said.
Telecom issues edged lower. A loser in the group was WorldCom following rating agency Standard & Poor's downgrade of the company's (WCOM) long-term debt rating Tuesday. S&P said the downgrade reflects WorldCom's heightened risk profile, based on expectations that competitive challenges and pricing pressures will increase in the voice and data markets, S&P said. The stock fell 5.1 percent.
In the wireless space, Ericsson gained 3 percent. Dataquest said Wednesday that Ericsson (ERICY) trounced Lucent Technologies (LU) as the largest global manufacturer of telecom equipment. Nortel Networks took the No. 2 post, followed by Nokia (NOK) and Lucent. Lucent fell from the top post primarily because of its spin-off of Avaya. Motorola (MOT) saw its shares slip 1 percent and was downgraded by US Bancorp Piper Jaffray to a "neutral" from a "buy."
In the broad market, financial issues were among the hardest hit, led by the brokerage group in the wake of a slew of cautious comments from Wall Street analysts. The Amex Securities Broker/Dealer Index ($XBD) tumbled 5 percent while the S&P Bank Index ($BIX) gave up 2.1 percent. Merrill's Judah Kraushaar lowered his first-quarter earnings estimates on Goldman Sachs (GS), Lehman Brothers (LEH),and Morgan Stanley Dean Witter (MWD). "The industry is facing three near-term challenges: retail investors appear frozen as trading activity has plummeted; private equity results may force more mark-to-market losses; and equity underwriting and completed M&A volumes have been weak," Kraushaar told clients. Salomon Smith Barney trimmed first-quarter and 2001 estimates on Morgan Stanley. Morgan Stanley and Goldman fell 5.2 percent while Lehman lost 4.8 percent.
Biotech issues turned mixed after gaining decent ground earlier in the session and Merrill Lynch's Biotech Holdrs (BBH) edged down 0.3 percent in recent trading. Trading higher: Celera Genomics, up 4.6 percent, Human Genome Sciences, up 3.4 percent, and Millennium Pharma, up 3.4 percent. But Amgen (AMGN) lost 0.7 percent even after getting an upgrade to a "strong buy" from "accumulate" from Prudential Securities. The firm cited improving fundamentals and valuation.
Treasury focus
Treasury prices gained ground as stock prices slipped further in afternoon action.
The 10-year Treasury note was up 1/8 to yield ($TNX) 4.935 percent while the 30-year government bond lost 6/32 to yield ($TYX) 5.365 percent.
In economic news, fourth-quarter gross domestic product was downwardly revised to 1.1 percent from the previously reported 1.4 percent gain.
And the February Chicago Purchasing Managers Index rose to 43.2 percent in February from the previous reading of 40.2 percent. The rise in the Chicago index could foreshadow a slight improvement in the National Association of Purchasing Management Index due out on Thursday. View Economic Preview, economic calendar and forecasts and historical economic data.
In the currency arena, dollar/yen rallied 1.3 percent to 117.44 while euro/dollar edged up 0.4 percent to 0.9215. Prompting the upward move in the dollar was the Bank of Japan's decision to lower the discount rate by 10 basis points to 0.25 percent. And the target for overnight call money is down to 0.15 percent from 0.25 percent. The BOJ last trimmed the official discount rate just 19 days ago.
And a larger-than-expected 3.9 percent drop in January industrial production in Japan gave the yen bears yet another reason to sell. |
