Stocks recover in face of Cisco woes
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 11:17 AM ET Aug. 8, 2001
<<NEW YORK (CBS.MW) -- Both the Dow Industrials and Nasdaq recovered Wednesday after some initial pressure following a revenue warning from Cisco Systems.
Chip stocks were among the best performers in the tech group following three straight days of heavy losses. Internet and hardware stocks also gained traction while software and networking issues remained in the red. In the broad market, retail, oil, oil service, airline, biotech, paper and gold stocks migrated in the plus column while utility, natural gas and brokerage issues dipped into negative terrain.
"Technically the market is in relatively good shape. The declines on Friday and Monday represented a 50 percent retracement of the rally that began in late July with that retracement coming on light volume. The point is the pullback over the last few days appeared to be a normal technical correction of the rally from the late July lows," said Hilliard Lyons' Richard Dickson.
The technical strategist said short-term sentiment provides another positive in that the equity put/call ratio hit moderately oversold levels into the decline, indicating that option speculators had full faith that the market had further to go on the downside -- which, from a contrarian point of view, is a positive.
The Dow Jones Industrial Average ($INDU: news, chart, profile) edged up 7 points, or 0.1 percent, to 10,465.
The Nasdaq Composite ($COMPQ: news, chart, profile) ascended 7 points, or 0.4 percent, to 2,035 while the Nasdaq 100 Index ($NDX: news, chart, profile) rose 8 points, or 0.6 percent, to 1,706.
The Standard & Poor's 500 Index ($SPX: news, chart, profile) inched up 0.1 percent while the Russell 2000 Index ($RUT: news, chart, profile) of small-capitalization stocks added 0.3 percent.
Volume stood at 341 million on the NYSE and at 550 million on the Nasdaq Stock Market. Market breadth was mixed, with advancers outpacing decliners by 15 to 12 on the NYSE while losers took out winners by 16 to 15 on the Nasdaq.
Analysts still too optimistic?
Connecticut-based research firm Bridgewater Associates said ugly earnings results have not put a damper on forward-looking analyst estimates since the current pain is being viewed as setting the stage for a future rebound.
"The hope is that the rapid response of Corporate America to the changing economic landscape can arrest declining profit growth and give the stimulation provided by the Fed time to sink in," analyst Jeff Gardner wrote in a research report.
But this view looks too optimistic, the analyst claims.
In fact, the picture of the stock market is one in which corporations are focused on cost cutting in order to defend and support profit growth. And this is occurring as revenue is falling rapidly, Bridgewater notes.
Revenue growth is driven by investment and consumption. Bridgewater points out that it's unlikely corporations will jump start investment spending until the profit picture actually improves.
As for consumer spending, Bridgewater notes that falling interest rates work their magic on the consumer by encouraging borrowing. But Tuesday's consumer credit figures revealed that just the opposite took place in June: borrowing dropped $1.6 billion during the month, the first decline in almost four years.
Market pundits that gathered at the New York Society of Security Analysts on Tuesday to discuss their market outlooks also revealed plenty of caution, indicating that it will take lots of time and patience for the market to purge itself of the excesses of the late 1990s. Read the story.
Individual stock action
Cisco Systems (CSCO: news, chart, profile) saw its shares fall 2.5 percent and the Amex Networking Index ($NWX: news, chart, profile) faltered 1.0 percent. The company posted a profit from operations of 2 cents a share late Tuesday, in line with Wall Street analysts' expectations. But the networking colossus said revenue during the fiscal first quarter could be the same as -- or as much as 5 percent lower -- than the just-ended quarter. See full story.
Though Cisco said there were some signs of stabilization in select areas in the U.S., the company noted that European, Japanese and Asia/Pacific markets could decline more in the coming quarters. CEO John Chambers said the ability to predict business in the short term was improving but noted that the long-term outlook was still challenging.
"No one knows when capital spending will bottom out and turn up," Chambers said during a conference call. "While we would like to say the bottom has been reached, we are not there yet." Among other networkers, Juniper slumped 4.1 percent in recent trading.
SG Cowen said Cisco's inventory decline is a positive for some communications outfits such as Intersil (ISIL: news, chart, profile) and Broadcom (BRCM: news, chart, profile). Cowen said it appears that Cisco could reach its target inventory levels by the first fiscal quarter. Intersil jumped 8.9 percent while Broadcom gained 1.3 percent.
Many telecom and wireless telecom stocks took a hit. Merrill Lynch lowered shares of European carriers Deutsche Telecom (DT: news, chart, profile) and France Telecom (FTE: news, chart, profile) due to valuation concerns, triggering a selloff in the shares, which fell 6.8 percent and 3.2 percent respectively. Motorola added 1.7 percent, Nokia fell 3.7 percent and Ericsson slumped 3.2 percent.
Storage stocks traded mixed, though Emulex descended 3.9 percent after the storage outfit (EMLX: news, chart, profile) posted after the close Tuesday a fiscal fourth quarter profit from operations of 11 cents a share, a penny ahead of the Thomson Financial/First Call estimate. But the company warned that it would fall short of fiscal 2002 revenue and profit targets. EMC lost 2.2 percent and QLogic rose 1.2 percent.
Meanwhile, Microsoft (MSFT: news, chart, profile) gained 0.8 percent. The software kingpin asked the Supreme Court Tuesday to review findings that it abused its monopoly power, maintaining that bias on the part of the original judge tainted the entire case against the company. Read the full story.
Treasury focus
Government bonds gained some traction ahead of the second leg of the refunding auctions, consisting of $11.0 billion in 10-year notes.
The 10-year Treasury note was up 1/32 to yield ($TNX: news, chart, profile) 5.17 percent while the 30-year government bond added 2/32 to yield ($TYX: news, chart, profile) 5.60 percent. See Bond Report.
In economic news released Wednesday, June wholesale inventories dipped 0.2 percent. Still ahead is the Fed's Beige Book report on economic conditions. Read Economic Preview and economic calendar and forecasts.
In the currency segment, dollar/yen gave up 0.4 percent to 123.05 while euro/dollar edged down 0.1 percent to 0.8757.>>
Julie Rannazzisi is markets editor for CBS.MarketWatch.com in New York. |
