Dow imperiled by steep declines
By Julie Rannazzisi
Wednesday July 10, 1:30 pm Eastern Time
NEW YORK (CBS.MW) -- Bruising declines in the drug sector socked the Dow Wednesday while the Nasdaq struggled despite a Cisco rally prompted by a Merrill Lynch upgrade.
"You're seeing sector destruction. Two weeks ago it was the media and broadcast sectors and now its drugs and medical devices. You're seeing more valuation contraction within an uncertain environment," remarked Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum.
The strategist said the market has myriad pressing issues to deal with.
"It's a buyer's strike. I sense that investors are waiting for the next big story to hit and are fearing the consequences," Hymn said.
He feels that Wall Street was disappointed with President Bush's speech on corporate responsibility Tuesday, which he dubbed "mediocre."
"Bush needed to be more emphatic. His speech wasn't detailed enough. You really need to attack this problem to regain investor confidence," Hyman concluded.
Heavy trading followed reshufflings in the S&P 500 Index, which produced big gains in companies like EBay, Goldman Sachs, UPS and Prudential.
The Dow Jones Industrial Average (CBOT:^DJI - News) surrendered 117 points, or 1.3 percent, to 8,978.
The Nasdaq Composite (NasdaqSC:^IXIC - News) sagged 8 points, or 0.6 percent, to 1,373 and the Nasdaq 100 Index (NasdaqSC:^NDX - News) inched down 6 points, or 0.6 percent, to 984.
The Standard & Poor's 500 Index (CBOE:^SPX - News) relinquished 1.6 percent while the Russell 2000 Index (CBOE:^RUT - News) of small-capitalization stocks stumbled 1.2 percent.
Qwest Communications (NYSE:Q - News) disclosed the U. S. Attorney's office in Denver began a criminal investigation of the company, sending shares down a debilitating 35 percent. The troubled telecom firm said the subject of the probe had not been disclosed.
Cornering sector action, drug and biotech issues took the biggest lumps, followed by utility, automaker and defense shares. The latter benefited from a mammoth safe-haven bid on Tuesday.
Volume amounted to 1.05 billion on the NYSE and to 1.11 billion on the Nasdaq Stock Market. Market breadth was markedly negative, with decliners sprinting past advancers by 21 to 11 on the NYSE and by 20 to 13 on the Nasdaq.
S&P re-jiggering produces buying
Standard & Poor's booted out the remaining seven non-U.S. companies that were still included in its popular S&P 500 Index (CBOE:^SPX - News) late Tuesday. Among those affected were Royal Dutch Petroleum, Alcan, Nortel Networks and Barrick Gold.
The following U.S. companies are to replace those kicked out: United Parcel Service (NYSE:UPS - News) , Goldman Sachs (NYSE:GS - News) , EBay (NasdaqNM:EBAY - News) , Electronic Arts (NasdaqNM:ERTS - News) , Prudential Financial (NYSE:PRU - News) , Principal Financial Group (NYSE:PFG - News) and SunGard Data Systems (NYSE:SDS - News) .
S&P's move spurred reshufflings on the part of the portfolio managers of index funds that mirror the composition of the S&P 500. That translates into buying of the U.S. companies welcomed into the index and selling of those eliminated.
Checking the newly incorporated S&P 500 stocks, EBay climbed 5.3 percent, Goldman 3.5 percent, SunGard 1.6 percent, Prudential 4.1 percent and Principal 6 percent.
Separately, UPS -- which is being included in the S&P -- reiterated its second-quarter earnings projections while also acknowledging volume declines. UPS shares added 4.5 percent.
Cisco sprints after Merrill call
Merrill lifted Cisco (NasdaqNM:CSCO - News) to an intermediate-term "strong buy" rating from a "buy" on belief the networking giant's fundamentals are improving and that it will show top- and bottom-line outperformance before year-end. The brokerage also feels Cisco's current price represents a favorable entry point for investors looking out 12 months. Cisco shares climbed almost 6 percent while rival Juniper Networks declined 2.1 percent. Extreme Networks (NasdaqNM:EXTR - News) was also upped by Merrill on belief its business is on track for the June quarter, sending shares up 7 percent. Read The Ratings Game for more.
ADC Telecom (NasdaqNM:ADCT - News) , meanwhile, dropped 4.1 percent after telling investors that fiscal third-quarter earnings and revenue would fall short of expectations because of lowered capital spending in the industry.
News of a probe into Qwest had a generally ho-hum effect on the telecom sector. Sprint tacked on 6 percent and AT&T 0.3 percent, though Verizon slumped 1.5 percent and SBC Communications relinquished 1 percent.
Favorable comments from one Wall Street firm failed to lure AOL Time Warner buyers into action. The stock (NYSE:AOL - News) dropped 3.5 percent after Deutsche Bank Securities expressed confidence that AOL was on track to meet the broker's earnings and revenue projections for the second quarter. Still, Deutsche Bank conceded the results may not act as a catalyst for shares and A.G. Edwards sliced estimates for the Internet and media kingpin.
Storage issues got a bid from Brocade Communications' (NasdaqNM:BRCD - News) 6-percent ascent, which came following an upgrade from Morgan Stanley to an "overweight" from an "equal weight." Leader EMC rose 2 percent and QLogic climbed 1.1 percent.
Drugs hit again
The drug sector (AMEX:^DRG - News) continued to suffer after Tuesday's widespread sell-off. Wyeth (NYSE:WYE - News) , which took a 24-percent nosedive Tuesday amid worries about the company's top-selling hormone replacement therapy, lost another 3.5 in recent dealings. SG Cowen called the stock's decline an "overreaction" and claimed that Wyeth's top-tier growth remains intact despite the news. UBS Warburg also chimed in with positive comments, contending that Wyeth has "one of the more visible 2002-2004 earnings outlooks in the large-cap pharmaceuticals sector with few patent expiries [and] no overt reliance on new product approvals."
Dow stock Merck (NYSE:MRK - News) , meanwhile, fell for a third straight session after the company postponed an initial public offering for its Medco unit for the third time due to market conditions. Accounting questions have stymied the stock since the start of the week. In recent action, Merck fell 3.8 percent while fellow Dow component Johnson & Johnson was tripped by 4.4 percent. See IPO Report.
But specialty pharmaceutical company Andrx (NasdaqNM:ADRX - News) put on 3.6 percent after the U.S. Food and Drug Administration issued an approvable letter for added use of its lipid lowering drug, Altocor.
Viacom shares (NYSE:VIA - News) took a 10-percent hit following cautious remarks from J.P. Morgan, which said in a research note that its enthusiasm is being tempered by the stock's valuation. Viacom holds a significant stake in MarketWatch.com, the publisher of this report.
Shares of Ford (NYSE:F - News) and Dow stock General Motors (NYSE:GM - News) tumbled after Banc of America Securities downgraded both companies to a "market performer" rating from a "buy" on industry pricing concerns. The firm lowered its 2002 and 2003 estimates for the two automakers and cautioned that there could be more downside since industry pricing looks fierce. "We've been hoping for pricing relief from a weak dollar, but it may be too little too late," B of A continued. Ford and GM both declined 4.6 percent.
Read Movers & Shakers for the latest individual stock action.
Treasurys recover; dollar mixed
Government bonds recouped lost ground as upside in the stock market proved ephemeral.
The 10-year Treasury note sprinted 10/32 to yield (CBOE:^TNX - News) 4.69 percent while the 30-year government bond added on 13/32 to yield (CBOE:^TYX - News) 5.39 percent.
The day's dose of economic news was second-tier in nature.
Import prices descended for the first time this year, moving 0.6 percent lower in June due to a steep drop in imported petroleum prices. Excluding oil, import prices edged up 0.1 percent.
Additionally, wholesale inventories edged up 0.1 percent in May.
In the currency sector, the dollar continued its unrelenting descent against the Japanese currency, moving down 0.2 percent to 117.83 yen while the euro declined 0.4 percent to 98.76 cents. |
