From Briefing.com: It's a safe bet that the newspapers on Friday morning will attribute the market's advance on Thursday to the minutes of the May FOMC meeting at which it was noted that the Committee saw "...only a remote possibility that the process of disinflation would cumulate to the point of a decline for an extended period..." That certainly sounds like a good reason to rally, and it makes for a good story, but it's a stretch to say the least.
If that was the real reason, then, presumably, the market should have sold off after the downward revision to the Q1 GDP report, or more directly, it should have rallied on Wednesday since the May minutes communicated essentially the same comments on disinflation that were made at the June FOMC meeting. Recall that the risk assessment from the June FOMC meeting acknowledged that there is still a probability, though minor, of an unwelcome substantial fall in inflation that exceeds that of a pickup in inflation from its already low level. To be sure, the market didn't rally after that commentary was shared on Wednesday, and yet, it is heartened today by similar comments made nearly two months ago?
No, the market and the tech sector were heartened by other considerations on Thursday, namely that the SOX Index and the S&P 500 both garnered renewed buying interest at notable support levels. For the SOX, support came in at its 50-day simple moving average (355.72), and for the S&P 500, support was found with a breach of 974.86, which was Wednesday's low and just slightly beyond the 38% retracement of the May 20 to June 17 advance. That support arrived prior to the release of the May minutes so, if anything, the minutes simply contributed to the positive bias that was already in place.
The thumping that the Treasury market took for the second day in a row, combined with the resurgence of leadership from momentum favorites (think semis, Internet, and biotech), the understanding that the Nasdaq was on the verge of a sixth, consecutive decline, and quarter-end posturing, all played into the tech sector's winning performance.
Up volume was well ahead of down volume and advancers were well ahead of decliners at both the NYSE and Nasdaq. As was the case with the recent retreat, though, volume wasn't particularly heavy as 1.37 bln shares and 1.57 bln shares traded at the NYSE and Nasdaq, respectively. All in all, Thursday was a good day for the tech sector, but given the moderate volume, it wasn't the most convincing reversal.-- Patrick J. O'Hare, Briefing.com
4:09PM Cirrus Logic and ChipPAC announce strategic alliance : CRUS announces it has agreed to sell its semiconductor test operations assets in Austin, Texas, to CHPC; the transaction is expected to close by June 30, 2003. In addition to the transfer of assets, CRUS and CHPC have entered into a long-term strategic alliance under which CHPC will provide package development, wafer probe, assembly, final test, and distribution services to CRUS.
Close Dow +67.51 at 9079.04, S&P +10.49 at 985.81, Nasdaq +31.35 at 1634.01: Despite a slow start to the day, the major indices put together a respectable rally that culminated in the Nasdaq finishing higher for the first time in five sessions... Yesterday's late afternoon fallback set the stage for renewed buying interest today, and investors used the weakness to bid up shares of areas hit hardest in this week's pullback - namely, technology and biotech... The resilience of the latter two sectors in the face of selling pressure in the broader market invited more buying activity as the day drew on...
Other factors that contributed to the bullish tone of trading were the inclination on the part of portfolio managers to "dress up" their portfolios at the end of the quarter, and the prospect that yesterday's 25 basis point cut may be the last for this interest rate cycle... The idea that 45-year low interest rates may finally provide the impetus for stronger economic growth has enhanced the attractiveness of stocks, and contributed to today's pullback in the treasury market... Such notions of improved economic activity were supported by the 22K fall in initial claims for the week of June 21...
Specifically, weekly jobless claims dropped for a third consecutive week and were better - at 405K - than the consensus estimate of 415K... Additionally, the 14 ET release of the minutes from the May FOMC meeting offered investors some relief as voters deemed there was only a remote possibility that disinflation would cumulate to the point of a decline for an extended period in light of the positive impact of the weaker dollar... As a result, the equity market edged progressively higher throughout the day, and took influential sectors such as financial, drug, and transportation with it...
Volume, though, was noticeably lighter for the session and in keeping with the drop in volume levels seen since the rally peaked last Tuesday... Finally, today's other economic report - the final revision to Q1 GDP to 1.4% from 1.9% (consensus of 1.9%) - was dismissed by traders given its read on past economic conditions that were impacted by the war...Nasdaq 100 +2.2%, SOX +2.8%, NYSE Adv/Dec 2150/1143, Nasdaq Adv/Dec 1981/1155
3:13PM FOMC Minutes : The May FOMC minutes reveal the Fed's concerns regarding disinflation risk as the committee saw higher risk given the level of excess industrial capacity. The disinflation concerns were softened by the weak dollar (higher import costs) as the tax cuts and low interest rates provided impetus for a stronger economy. The uncertainty surrounded the timing and severity of an upturn was the chief economic concern given the lack of business confidence which continues to restrain investment. As opposed to yesterday's policy dissent (Parry) in favor of a stronger ease the May discussion included two members who preferred a balanced directive rather than the weakness tied to disinflation risk.
2:30PM Microsemi back for another try at resistance (MSCC) 15.44 +0.76: -- Technical -- Stock retesting resistance at yesterday's high (15.44) and the June/52-wk high (15.45).
12:13PM O2Micro -- Small-Cap Profile (OIIM) 16.49 +0.94: Shares of O2Micro (OIIM) are showing relative strength today, and are trading just below its 52-week high of $16.55. The co makes high performance mixed signal integrated circuits for power mgmt and other power-saving applications. Yesterday, Adams Harkness said data points from several different sources suggest that notebook PC trends (75% of sales) remain strong and that the co is likely benefitting from the ramp of new products. Analysts expect the co to grow 2003 EPS by 4% to $0.28 (P/E 59x), and to grow 2004 EPS by 79% to $0.50 (P/E 33x). Mkt cap: $592 mln, float: 22.8 mln shares, avg daily volume: 259k shares, short interest: 10%.
8:00AM Taiwan Semi to offer 79 mln ADSs (TSM) 10.02: Taiwan Semiconductor Manufacturing Ltd has announced a filing with the SEC for a global offering of 79 mln ADSs with all of the securities being sold by shareholders. Goldman Sachs Intl and Merrill Lynch are handling the stock sale with the underwriters having the option to purchase 11.8 mln ADSs in case of significant demand. The 79 mln ADSs are the equivalent to 395 mln common shares.
7:51AM SanDisk files complaint against IFX (SNDK) 40.25: Sandisk has filed a complaint of declaratory relief with the U.S. District Court for Northern California against Infineon Technologies AG. The complaint seeks a declaratory judgment that SanDisk does not infringe U.S. Patent No. 5,726,601 (the "'601 patent") and that the '601 patent is invalid. SanDisk believes that its products do not infringe the '601 patent, as alleged in a letter received from Infineon. Co believes Infineon's correspondence was motivated by Infineon's announced intention to become a flash supplier.
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