Cisco's results light a fire under stocks
By Julie Rannazzisi
CBS MarketWatch
Wednesday May 8, 3:56 pm Eastern Time
NEW YORK (CBS.MW) -- Ebullient investors gobbled up stocks with a hunger not seen in some time Wednesday following better-than-expected results from tech titan Cisco Systems. Earnings reaffirmations from General Electric and Eastman Kodak added to the bubbly tone, pushing the Dow up almost 300 points.
The market's eye-popping advance was met with skepticism by strategists accustomed to seeing "one-day wonders" in the market that fail to attract buyers in subsequent sessions.
Stephen Carl, head of U.S. equity trading at The Williams Capital Group, labeled Wednesday's action "an aberration."
"The market's been depressed for so long, particularly in the tech sector. People were looking for an excuse to buy, and Cisco's earnings report provided it."
Predictably, networking and fiber-optic issues grabbed the most aggressive buyers, though chip and hardware stocks followed closely behind.
The broad market was also giddy, boosted by the brokerage, retail, biotech and more cyclical sectors. As customary during broad market rallies, interest in the defensive gold sector waned, sending he group modestly lower.
The Dow Jones Industrial Average (CBOT: ^DJI - news) swelled 306 points, or 3.1 percent, to 10,142, fueled by Intel, General Electric, IBM, Microsoft and Hewlett-Packard. Coca-Cola, McDonald's, Philip Morris and Procter & Gamble were among the few decliners.
"It's a Cisco market," remarked Peter Cardillo, chief investment strategist with Global Partners Securities, adding that the company's results raised hopes that information technology spending would soon improve.
"But a one-day rally can't change the mood on Wall Street. For now it's a short-covering rally. We need another couple of days of rallies on strong volume to say the market has tuned a corner," Cardillo said.
The key, he said, will be follow-through.
The Nasdaq Composite (NasdaqSC: ^IXIC - news) ran up 117 points, or 7.5 percent, to 1,691 and the Nasdaq 100 Index (NasdaqSC: ^NDX - news) zoomed 117 points higher, or 10.1 percent, to 1,276.
In the broad market, the Standard & Poor's 500 Index (CBOE: ^SPX - news) climbed 3.2 percent while the Russell 2000 Index (CBOE: ^RUT - news) of small-capitalization stocks sprinted 1.2 percent.
Volume stood at 1.39 billion on the NYSE and at 2.07 billion on the Nasdaq Stock Market. Market breadth was resoundingly positive, with advancers trouncing decliners by 20 to 12 on the NYSE and by 24 to 11 on the Nasdaq.
On Tuesday, markets failed to find inspiration from the Fed, which did the expected by leaving short-rates unchanged at a 40-year low of 1.75 percent and maintaining a neutral policy directive.
The central bank's preoccupation with the slump in business spending has led economists to push out the date of an expected first tightening. Most now believe the central bank will wait till the August 13 FOMC meting before pulling the rate hike trigger.
Central banks across the globe have already begun to embark on a tightening path.
Australia's central bank was the latest to nudge up short rates, moving them 25 basis points higher. On Tuesday, the Bank of Korea hiked rates while April saw tightenings from Canada and Sweden.
Win Thin, president of Mandalay Advisors, notes that the market is pricing in 75 basis points of tightening by the European Central Bank by year end. As for the Bank of Japan, Thin believes that spotty domestic consumption and ongoing deflationary pressures in Japan will prevent any tinkering with rates this year.
Thin also believes emerging market central banks will hold off on any tightening in 2002, regardless of what the Fed does in 2002.
Cisco lights up tech sector
Cisco shares (NasdaqNM: CSCO - news) zoomed 20 percent higher after the company reported late Tuesday a profit from operations of 11 cents a share, surpassing the Wall Street consensus estimate of 9 cents. The third quarter is typically the slowest of the year for Cisco.
Looking to the fourth quarter, Cisco projected revenue to come in flat to slightly higher but did not offer bottom-line projections. CEO John Chambers acknowledged, however, that he was more comfortable entering the current quarter vs. the previous quarter.
Cisco's meaty advance infused the rest of the networking group with a solid bid: Tellabs rallied 10.3 percent and Juniper networks climbed 11.7 percent while the Amex Networking Index (AMEX: ^NWX - news) ascended 11 percent.
Commenting on Cisco's results, UBS Warburg said it found the tone of management's comments improved from last quarter and believes the worst is behind the company, which prompted a reaffirmation of its "buy" rating on the stock.
Merrill Lynch raised its operating earnings-per-share on Cisco for 2002 and 2003 to reflect the "higher profitability that Cisco is achieving." The brokerage conceded that profit margin growth continued to "surprise significantly" to the upside and added that Cisco's balance sheet remains "stellar." Merrill advised investors to "use any market weakness" in Cisco to their advantage.
In the storage sector, QLogic (NasdaqNM: QLGC - news) flew over 21 percent after checking in late Tuesday with better-than-projected fiscal fourth-quarter profit. Legg Mason followed up with an upgrade of the stock to a "buy" rating. Among the companies' peers, EMC jumped 7.3 percent, Emulex ascended 22.6 percent and Brocade Communications 24 percent.
In the fiber-optic space, Corning (NYSE: GLW - news) jumped almost 6 percent even after Moody's Investors Service sliced its credit ratings on the company to a notch above "junk" due to growing concerns that the recovery in the company's telecom operations will be delayed well into 2003. Among Corning's peers, Ciena flew 18 percent and Nortel 9.6 percent.
Hardware issues were propped up by some sunny analyst comments. IBM (NYSE: IBM - news) sprinted 7.9 percent after SG Cowen said it remains optimistic regarding Big Blue's 2002 and 2003 earnings-per-share outlook. And Dell Computer (NasdaqNM: DELL - news) ran up 15 percent after Merrill Lynch said it believes shares are now at an "extremely attractive level." Finally, Hewlett-Packard (NYSE: HPQ - news) climbed 8.3 percent following an upgrade from Prudential Financial to a "buy" from a "hold" on what it views as attractive valuation.
Expectations for positive results from Applied Materials (NasdaqNM: AMAT - news) lifted the entire chip equipment group. Lehman Brothers believes AMAT will check in with "in-line to better-than-expected results" but "worse-than-expected bookings guidance" when it opens its books on the second quarter next week. And SG Cowen feels AMAT could trade up in anticipation of upside in its second-quarter results. AMAT rallied 12.8 percent, KLA-Tencor was catapulted 7 percent higher and Novellus Systems piled on 10.4 percent.
Communications chip stocks also rallied, bolstered by CIBC World Markets' upgrades of PMC-Sierra (NasdaqNM: PMCS - news) and Applied Micro Circuits (NasdaqNM: AMCC - news) to a "buy" form a "hold" on evidence that both the service provider and enterprise networking markets are stabilizing. Applied Micro took off 21.4 percent and PMC 22 percent.
GE, Kodak reaffirm; biotechs bulled up
Dow stock General Electric (NYSE: GE - news) said it "remains on track" to deliver earnings of $1.65 to $1.67 a share in 2002, which compares to the Wall Street consensus estimate of $1.65 a share. GE also said it remains "comfortable" with consensus estimates for double-digit earnings growth targets in 2003. Shares sprinted 6.6 percent.
Not to be outdone, Dow component Eastman Kodak (NYSE: EK - news) swelled 5.5 percent after reiterating second-quarter and full-year earnings projections -- which were provided two weeks ago.
Biotech stocks paced gains in the broad market, with the sector's main gauges up over 7 percent. Group leader Amgen (NasdaqNM: AMGN - news) said it would pay $137.5 million to acquire assets from Roche and saw its shares swell almost 6 percent in recent action.
Additionally, generic drug makers Mylan Labs (NYSE: MYL - news) and Barr Labs (NYSE: BRL - news) both rallied, climbing 9.7 percent and 6 percent, respectively, after posting earnings that breezed past analysts' expectations. And Eli Lilly (NYSE: LLY - news) tacked on 3.6 percent following an upgrade from Sanford Bernstein to a "market perform" from an "underperform" on belief that recent issues plaguing the stock have played out.
KPMG Consulting (NasdaqNM: KCIN - news) rallied 16 percent after acquiring 23 Andersen Worldwide consulting units in a deal worth nearly $400 million in cash and stock.
CVS Corp. (NYSE: CVS - news) perked up 3.5 percent after posting in-line first-quarter results while same-store sales jumped 10 percent.
Check Movers & Shakers for the latest individual stock action.
Stock rally, supply slams Treasurys
Treasury issues took a drubbing right from the onset of trading as fixed-income investors had to contend with stepped up interest in stocks and the second leg of Treasury's refunding auctions.
On Tuesday, a gargantuan $22 billion 5-year auction was met with respectable demand and another $11 billion in supply -- this time in the 10-year sector -- will be up for grabs Wednesday afternoon.
The 10-year Treasury note stumbled 1 3/32 to yield (CBOE: ^TNX - news) 5.21 percent while the 30-year government bond shaved a bruising 1 26/32 to yield (CBOE: ^TYX - news) 5.665 percent.
No economic numbers were on tap Wednesday. Thursday's lineup includes weekly initial claims, the import and export price indexes for April and the minutes of the March 19 FOMC meeting.
In the foreign exchange sector, the dollar again strengthened against the major currencies. The greenback, in fact, climbed 0.5 percent to 128.65 yen while the euro declined 1 percent to 90.50 cents. See dollar story.
The British pound also weakened against the buck, falling 0.5 percent to 1.459 dollars. U.K. manufacturing output fell an unexpected 0.8 percent in March from February levels while the March year-over-year decline in production was the steepest in about two decades, effectively dampening recovery hopes. |
