C L O S I N G .. M A R K E T .. S N A P S H O T -- Nasdaq plunges below 2,000
Cisco warning, cautious Beige Book takes its toll
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:25 PM ET Aug 8, 2001
NEW YORK (CBS.MW) -- Investors dumped stocks Wednesday, with tech issues hamstrung by a revenue warning from Cisco Systems and the broad market under pressure on the back of a report showing the economy continues to grapple with soft demand.
The Nasdaq ended in the red for a fourth straight session and closed below the 2,000 mark for the first time since July 24. And only one out of the Dow Industrials' 30 components ended with a gain.
The Fed's Beige Book report on economic conditions revealed that U.S. consumers -- the bright spot of the U.S. economy until now -- may be softening their grip. In fact, reports from the central bank's twelve districts pointed to slow or lateral growth in June and July. The Fed also noted that inflation remains under wraps, thanks in part to mild wage increases and moderating energy prices.
Networking stocks bore the brunt of the selling pressure in technology due to Cisco's drop. Software and chip stocks also ended with severe losses. In the broad market, only gold stocks hung on to gains while oil service, utility, natural gas, biotech and brokerage issues led on the downside. Check market stats and latest sector performance.
"The downside risks in this market still outweigh the upside. We are giving it every chance to rally to a lower high - but ultimately we have to value stocks lower than this," commented Tom Peterson, publisher of the newsletter Bulls Eye Research. He added that there's no clear evidence arguing against the scenario of a softer economy and lower stock prices going forward.
The Dow Jones Industrial Average ($INDU) dropped 165.24 points, or 1.6 percent, to 10,293.50. Topping the Dow's list of losers were shares of Intel, AT&T, Alcoa, Citigroup, DuPont, General Electric, 3M, Home Depot and Microsoft. Only Coca-Cola ended with a gain.
One market watcher said more bad news may take the averages through their lows of the year -- but for now, he thinks the trading range remains intact.
"I'm not ready to say we'll break the trading range we've been in. We're bumping at the bottom of it and we're now getting a touch oversold," remarked Steve Massocca, head of trading and president of Pacific Growth Equities.
"Cisco was quite cautious on the future and that was disappointing. Now we need to hear what companies tell us [about] new orders and inventories in the fall."
The Nasdaq Composite ($COMPQ) descended 61.43 points, or 3.0 percent, to 1,966.36 while the Nasdaq 100 Index ($NDX) dropped 70.17 points, or 4.1 percent, to 1,626.20.
The Standard & Poor's 500 Index ($SPX) erased 1.7 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks lost 1.6 percent.
Volume stood at 1.11 billion on the NYSE and at 1.67 billion on the Nasdaq Stock Market. Market breadth was negative, with decliners surpassing advancers by 19 to 12 on the NYSE and by 26 to 12 on the Nasdaq.
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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 $1.6 billion during the month, the first decline in almost four years.
Market pundits that gathered at the New York Society of Security Analysts on Tuesday to discuss their market outlooks also revealed plenty of caution, indicating that it will take lots of time and patience for the market to purge itself of the excesses of the late 1990s.
Cisco's news brings out the bears
Cisco Systems (CSCO) saw its shares fall 6.1 percent and the Amex Networking Index ($NWX) faltered 3.9 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.
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 6.4 percent in recent trading.
CIBC World Markets upped its view on Cisco to a "buy" from a "hold," indicating that the company's results have bottomed.
SG Cowen said Cisco's inventory decline is a positive for some communications outfits such as Intersil (ISIL) and Broadcom (BRCM). Cowen said it appears that Cisco could reach its target inventory levels by the first fiscal quarter. Intersil jumped 5.6 percent while Broadcom lost 3.9 percent after seeing earlier gains.
Merrill Lynch said its original inventory forecast remains the same -- the firm continues to believe that it'll take until the first quarter of 2002 before inventories return to normal levels. And the brokerage said it remains cautious on the communications chip group due to valuations.
Sector and individual stock action
Telecom and wireless telecom stocks took a hit. Merrill Lynch lowered shares of European carriers Deutsche Telecom (DT) and France Telecom (FTE) due to valuation concerns, triggering a selloff in the shares, which fell 8.6 percent and 4.4 percent respectively. Motorola fell 1.5 percent, Nokia 6.5 percent and Ericsson 4.3 percent.
Storage stocks traded lower, with Emulex (EMLX) among the biggest downside movers after posting late 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. Emulex fell 5.8 percent, EMC lost 7.4 percent and Brocade shed 8.1 percent.
Meanwhile, Microsoft (MSFT) dropped 2 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.
Shares of Cooper Industries (CBE) tacked on almost 12 percent after the company rejected a $5.5 billion buyout offer from Danaher (DHR), calling it "inadequate and highly conditional." Danaher lost 1.7 percent.
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Treasury focus
Government bonds staged a breathtaking rally in the afternoon as stocks took their lumps and investors contended with the Beige Book report.
Meanwhile, Treasury investors had more supply to contend with -- this time consisting of $11.0 billion in 10-year notes, which were auctioned in the afternoon. A total of $11.0 billion in 5-year notes were sold on Tuesday.
The 10-year Treasury note rallied 26/32 to yield ($TNX) 5.065 percent while the 30-year government bond flew 1 7/32 to yield ($TYX) 5.515 percent.
In economic news released Wednesday, June wholesale inventories dipped 0.2 percent. On Thursday's agenda are weekly initial claims and the July import and export price indexes. and economic calendar and forecasts.
In the currency segment, dollar/yen gave up 0.1 percent to 123.49 while euro/dollar gained 0.3 percent to 0.8796. |
