U.S. tech buyers re-emerge
By Julie Rannazzisi
CBSMarketWatch
Wednesday May 15, 1:07 pm Eastern Time
NEW YORK (CBS.MW) -- Tech buyers shrugged off a larger-than-expected increase in retail inflation last month and instead found solace in solid earnings from Applied Materials and an upgrade of AOL Time Warner.
While blue-chip buyers remained sluggish, losses were pared considerably from early dealings.
Red spots in the broad market were found in the oil, oil service, natural gas, gold and drug sectors. But buyers continued to nibble on biotech, retail and bank stocks.
The tech sector drew its bid from the Internet, networking and chip sectors while a deep decline in Hewlett-Packard dogged the hardware group.
A.G. Edwards' Chief Equity Strategist Stuart Freeman pointed to a "non-technology bull market" raging beneath the cover of the S&P 500 Index.
"The technology and telecom sectors are still giving the major indexes a hard time. Only 6.1 percent of the stocks that have increased in value during the last six months are found in the tech or telecom sectors while more than 40 percent of the decliners are [in those groups]," he noted.
The Dow Jones Industrial Average (CBOT: ^DJI - news) gave up 35 points, or 0.3 percent, to 10,262, weakened by losses in H-P, American Express, Exxon Mobil, Boeing and Philip Morris. But Caterpillar, Wal-Mart, Home Depot, International Paper and Citigroup captured investors' fancy.
The Nasdaq Composite (NasdaqSC: ^IXIC - news) climbed 18 points, or 1.1 percent, to 1,738 and the Nasdaq 100 Index (NasdaqSC: ^NDX - news) advanced 22 points, or 1.7 percent, to 1,327.
Freeman expects corporate tech spending growth to lag other capital spending in this cycle as a result of the excesses of the late 1990s.
"The economy is clearly moving toward recovery and investors' attention should be placed upon the sectors most likely to benefit from early and mid-cycle expansion. The earliest beneficiaries tend to be transportation companies, retailers and financials," he told clients in a research note.
The Standard & Poor's 500 Index (CBOE: ^SPX - news) dipped 0.2 percent while the Russell 2000 Index (CBOE: ^RUT - news) of small-capitalization stocks edged up 0.2 percent.
Volume came in at 732 million on the NYSE and at 1.22 billion on the Nasdaq Stock Market. Market breadth was marginally positive, with advancers squeaking past decliners by 16 to 15 on the NYSE and by 17 to 14 on the Nasdaq.
An overflowing data calendar
Wednesday's data calendar was jam-packed with releases.
A key report on tap was the consumer price index, which jumped 0.5 percent vs. the expected 0.4 percent while the core -- which takes out the food and energy components -- edged up 0.3 percent vs. the expected 0.2 percent.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, said a 10.1 percent spike in gas prices explained the spread between the headline and core CPI while higher tobacco prices explained the core overshoot.
"But tobacco prices are a law unto themselves and their behavior tells us nothing about wider inflation pressures. On this score, the news was mostly good. Overall, [the number is] Fed neutral," the economist concluded.
In other news, April industrial production rose an as-expected 0.4 percent while capacity utilization rose a touch to 75.5 percent vs. the expected 75.6 percent level. and check economic calendar and forecasts.
Also on the agenda were March business inventories, which fell 0.3 percent, a touch more than the 0.2 percent decline that had been expected.
AOL lifts, AMAT recovers from early selling
Internet and entertainment titan AOL Time Warner (NYSE: AOL - news) added 2.3 percent after Merrill Lynch made a bold call on the stock, lifting its intermediate-term rating to a "buy" from a "neutral" purely on valuation. Merrill, in fact, said the move was not prompted by fundamental improvements in the company's AOL division but on belief that the share price is already discounting bad news. See The Ratings Game.
Applied Materials (NasdaqNM: AMAT - news) climbed 1.7 percent, reversing early looses after posting better-than-anticipated fiscal second-quarter earnings and revenues late Tuesday. Wall Street analysts homed in on AMAT's results: Lehman Brothers said it maintains a cautious stance on the chip equipment leader despite early, encouraging signs due to the company's "limited visibility" into the second half of the year and as the weak summer period commences with no real evidence of a pick-up in demand.
UBS Warburg feels semiconductor industry dynamics are pointing to an "intense and brief upcycle" rather than a slow build-up to a robust 2004 and 2005." It thus feels AMAT is approaching "full valuation" and would be "cautious about chasing rallies." And Deutsche Bank Securities downgraded AMAT to a "buy" rating from a "strong buy" due to the recent run-up in shares and a still uncertain outlook.
Chip stocks ascended, with Texas Instruments (NYSE: TXN - news) up 2.8 percent after reaffirming its second-quarter revenue and earnings expectations late Tuesday. Check the full story.
H-P (NYSE: HPQ - news) cast a pall on the hardware sector, with a revenue miss in its fiscal second-quarter late Tuesday prompting investors to take shares 6 percent lower even as the company met earnings goals. Warburg said it maintains a "hold" rating on H-P given the unattractive revenue mix of a combined H-P/Compaq and the large integration risks the new company must deal with.
And a 13.4-percent slide in Network Appliance (NasdaqNM: NTAP - news) hobbled the storage sector. The company reported late Tuesday a fourth-quarter profit from operations that matched Wall Street's numbers but fell short of revenue projections. The company also unleashed a first-quarter revenue outlook that was shy of the current consensus estimate. Goldman Sachs feels the company's valuation is already high in the face of limited upside. Another struggling storage stock was QLogic (NasdaqNM: QLGC - news) , which was lowered to a "neutral" from an "attractive" rating by Bear Stearns on valuation.
Gold stocks take a dip
The gold group turned early gains to losses, with Newmont Mining (NYSE: NEM - news) down 2 percent after posting a first-quarter loss vs. an expected profit as swelling gold prices failed to offset increased costs and reduced production. Additionally, the company's goals for the year are expected to fall short of Wall Street's current targets.
Separately, UBS Warburg increased its gold price forecast for 2002, 2003 and beyond on belief that larger-than-expected reductions in producer hedging, increased investment demand and stable central bank sales point to higher prices in the short and intermediate term. Warburg also raised its earnings-per-share estimates and price targets on Newmont, Barrick Gold (NYSE: ABX - news) and Placer Dome (NYSE: PDG - news) . Warburg feels that Newmont stands to benefit the most from its revised outlook. Barrick climbed 0.2 percent while Placer shed 0.5 percent.
Adelphia Communications (NasdaqNM: ADLAE - news) announced the resignation of its chairman, chief executive and founder as the troubled cable company looks to "fresh, independent leadership" in the face of an escalating fiscal crisis. Trading in the shares was halted. Adelphia said its audit was suspended pending completion of an internal investigation into issues related to the filing of its annual report. Salomon Smith Barney lowered the stock to a "neutral" from a "speculative buy."
Read Movers & Shakers for the latest individual stock action.
Treasurys edge up
Treasury bonds reversed a two-day losing streak and headed higher across the board as slumping stocks provided a bid to fixed-income securities.
But heightened Fed tightening expectations following the strong retail sales data and higher retail inflation reading are likely to cap the market's upside. Long yields reached a six-week peak on Tuesday.
The 10-year Treasury note added 3/32 to yield (CBOE: ^TNX - news) 5.265 percent while the 30-year government bond gained 3/32 to yield (CBOE: ^TYX - news) 5.74 percent.
The dollar weakened against the major currencies: the greenback, in fact, shed 0.3 percent to 128.07 yen while the euro gained 0.4 percent to 90.62 cents. |
