M A R K E T .. S N A P S H O T -- Indexes slammed by warnings
Declines particularly deep in tech sector
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:10 PM ET Aug 17, 2001
NEW YORK (CBS.MW) -- The major averages got whacked Friday as the latest batch of profit warnings from companies such as Ford and Dell Computer produced a bear stampede on Wall Street.
But the stock market's woes brought out the bond bulls and yields on 10-year issues fell back to four-month lows as the Nasdaq continued to migrate at levels not seen since mid-April.
"We may see a dismal picture over the next weeks and Nasdaq could challenge its April lows. People that had been banking on an improvement in fundamentals and buying on dips are now starting to get really nervous," said Todd Gold, technical strategist at Gruntal & Co.
In the broad market, cyclical, biotech, airline, retail and financial issues took the biggest lumps and only the defensive gold sector enjoyed a decent gain. All tech groups witnessed deep declines and chip stocks mirrored sharp losses in the hardware sector on concerns over the impact of sluggish PC demand. Check market stats and latest sector performance.
The Dow Jones Industrial Average ($INDU) fell 151 points, or 1.5 percent, to 10,240. Topping the Dow's list of losers were shares of Intel, General Motors, Microsoft, Walt Disney, Citigroup, United Technologies and SBC Communications. Only five Dow stocks ended on the upside: Alcoa, DuPont, Procter & Gamble, McDonald's and Philip Morris.
The Nasdaq Composite ($COMPQ) shaved 63 points, or 3.3 percent, to 1,867 while the Nasdaq 100 Index ($NDX) gave back 65 points, or 4.1 percent, to 1,516.
"We have confirmed breakdowns in the Nasdaq 100 Index and Philly Semiconductor Index, which is a proxy for the tech sector. We are entering oversold territory and may thus get a rally. Next week's Fed meeting may possibly provide a catalyst," Gold said.
But he views any bounce, however violent, as a move within a larger downtrend that'll merely give investors a chance to lighten up on positions.
The Standard & Poor's 500 Index ($SPX) lost 1.7 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks fell 1.3 percent.
One strategist points out that while large-caps stocks are struggling and getting all the attention, many smaller issues have positive patterns.
"Although the major averages are finding the road to be quite difficult, it is primarily the larger caps that are taking the brunt of the pressure. The small and mid-caps by comparison -- while certainly not without risk -- do display more stable technical substructures," noted Investec Ernst & Co.'s Terry Danish.
Danish notes that technical stability and leadership has been coming primarily from small regional financials and consumer staples.
Volume came in at 968 million on the NYSE and at 1.27 billion on the Nasdaq Stock Market. Market breadth was decidedly negative, with decliners trouncing advancers by 19 to 11 on the NYSE and by 24 to 12 on the Nasdaq.
The monthly occurrence of options expiration on individual stocks and stock indexes took place Friday.
On the fund flow front, Trim Tabs estimated that all equity funds got outflows of $2.6 billion during the week ending August 15 compared with outflows of $2.5 billion during the previous week. And equity funds that invest primarily in U.S. stocks had outflows of $2.4 billion vs. outflows of $1.0 billion in the prior week. Meanwhile, bond funds had inflows of $1.0 billion compared with inflows of $900 million the prior week.
Sector and specific stock moves
Dell saw its shares fall 7.6 percent and contributed to the Goldman Sachs Hardware Index's ($GHA) 3.1-percent decline. The PC maker (DELL) posted late Thursday a second-quarter profit of 16 cents a share, in line with the Wall Street consensus estimate. But Dell warned that sales in the third quarter could fall another 5 percent and that earnings could come in up to 2 cents below the current per-share estimate of 17 cents. The PC maker noted that the demand environment remained soft during the just completed quarter and that Asia and Europe have begun to show signs of weakness. Morgan Stanley Dean Witter said it still believes the strategy of gaining market share will enable Dell to keep increasing its market opportunity. MSDW said Dell's fundamentals are the best in the group. But Lehman Brothers' Dan Niles said he remains cautious on the stock in the short-term given the continuing deterioration in the PC market and the stock's high valuation.
Hewlett-Packard, which gained some traction early in the session, slipped 0.5 percent. The Dow company (HWP) posted after the closing bell Thursday fiscal third-quarter earnings of 11 cents a share vs. the 4 cents that had been projected by Thomson Financial/First Call. Chief executive Carly Fiorina said she doesn't expect to see any improvements in the market before 2002 but said H-P continued to pare back inventory levels, which are down to 11.7 percent of revenue compared with 11.9 percent in the year-ago period. Among other PC stocks, IBM lost 1 percent, Gateway 2.1 percent, Apple Computer 1.8 percent while Compaq Computer edged up 0.6 percent.
The ripple effects from Dell's warning were sorely felt in the chip sector. The group ($SOX) -- which was among the few upside movers on Thursday, allowing the Nasdaq to make a late-day push into the plus column -- got slammed across the board Friday. Intel was among the hardest hit, taking a 6.6-percent tumble, while Texas Instruments dropped 5.6 percent and Advanced Micro Devices fell 3.8 percent. And chipmaker Maxim Integrated Products (MXIM) plunged 6 percent after warning that its fiscal first-quarter revenue would be below the fourth quarter's.
Software issues ($GSO) lost ground right from the onset of trading but extended declines on news that a federal appeals court rejected Microsoft's (MSFT) request to delay sending its case back to a new judge to formulate a remedy for its antitrust violations. The news, a procedural setback for the software colossus, sent its shares down 2.8 percent. Agile Software (AGIL) slid 7.8 percent. The stock was lowered to a "neutral" rating from "outperform" by Morgan Stanley after reporting its results late Thursday, with the broker indicating that underlying order growth isn't showing signs of acceleration.
Two stocks that were badly bruised on Thursday following profit warnings -- storage outfit Brocade Communications and fiber-optic company Ciena -- extended declines, falling 2.6 percent and 2.5 percent, respectively. Among the optical stocks, JDS Uniphase plunged 4 percent to a fresh 52-week low while Cisco Systems backpedaled 4.8 percent.
Scientific-Atlanta (SFA) saw its shares tumble 21.2 percent after telling investors late Thursday that its fiscal first quarter and 2002 results could be adversely affected by a drop in deployment rates being witnessed by multiple system cable operators The set-top box maker said the current uncertain environment renders it difficult to forecast future results and thus withdrew any "previous guidance given" for the first quarter and fiscal year 2002. Rival Motorola fell 3.6 percent.
Gap contributed to declines in the retail sector ($RLX) with its 10.3-percent tumble. Late Thursday, the company (GPS) posted earnings-per-share of 12 cents, topping the consensus estimate by a penny. But Gap said third-quarter earnings would not only be below expectations but under last year's 21 cents-a-share profit. First Call had pegged third-quarter EPS at 26 cents. CS First Boston cut its rating on Gap to a "hold" from a "buy" while Merrill Lynch lowered the retailer to an "intermediate-term neutral" from an "intermediate-term accumulate." Prudential Securities and US Bancorp Pieper Jaffray also downgraded the stock.
Automakers fumbled on news that Ford (F) was taking a charge totaling $900 million in the third and fourth quarters and was shaving 4,000 to 5,000 jobs to contain costs. Ford also warned that 2001 EPS would come in at around 70 cents a share vs. the $1.20 a share that had been expected by First Call. In the meantime, rating agency Fitch placed the ratings of Ford Motor Co. and Ford Motor Credit Company on "rating watch negative" based on the company's weakened balance sheet and operating profile. Ford declined 8.2 percent while Dow stock General Motors fell 4.9 percent.
Biotech issues fumbled as investors processed downgrades in the group from SG Cowen & Co., including one of Millennium Pharmaceuticals (MLNM) to a "buy" from a "strong buy." Millennium fell 6.3 percent.
Treasury focus
Government bond issues rallied heartily across the board, deriving their strength from weakness in stocks.
The 10-year Treasury note was up a lofty 22/32 to yield ($TNX) 4.855 percent while the 30-year government bond climbed 21/32 to yield ($TYX) 5.43 percent.
On the economic front, the June trade deficit came in at $29.41 billion, close to the $29.5 billion deficit that had been expected and up from May's $28.47 billion deficit. .
And the Michigan Consumer Sentiment Index came in at 93.5 in August vs. July's 92.4 reading. See and economic calendar and forecasts. |
