From Briefing.com: General Commentary - Tech stocks gave up ground for the third day as investors continued taking profits off the table. The downward pressure persisted through much of the day, peaking at 2:00pm ET before buyers began tip-toeing back. Looking ahead, in addition to earnings, investors will be focusing on economic data:
Monday: existing home and new home sales data at 10:00am ET;
Tuesday: durable goods at 8:30am ET followed by consumer confidence at 10:00am ET and the FOMC meeting at 2:15pm ET;
Thursday: initial jobless claims, employment cost index, and GDP, all at 8:30am ET;
Friday: personal income and spending at 8:30am ET, the Michigan Sentiment at 9:45am ET and the Chicago PMI at 10:00am ET.
The combined flow of earnings and economic data will only add to investors' growing reluctance to leave money on the table. We expect continued mild pressure through the week interspersed with moments of optimism as the economic data hit the market, and as investors trade into shares that have dropped significantly below their lower volatility bands. Some names, that have fallen significantly below their lower volatility bands, to keep an eye on : GlobespanVirata (GSPN 6.00 -0.35), Maxtor (MXO 13.15 +0.19), RSA Security (RSAS 12.95 -0.05), Seagate Technology (STX 22.25 +0.05), Storage Technology (STK 22.44 -0.29), Virage Logic (VIRL 8.30 -0.17) and Western Digital (WDC 12.84 +0.44).--Ping Yu, Briefing.com
Weekly Wrap :
Everyone on the long side of things was pleased with how the week began as a good batch of earnings news from the likes of 3M (MMM), Citigroup (C), Lexmark (LXK) and Texas Instruments (TXN) helped the market forge a winning path. Beginning Wednesday, however, the stock market hit a few speed bumps, and when it did, a Chicken Little mentality took root that undermined buying efforts for the remainder of the week.
The speed bumps included the sell-the-news response that followed in the wake of a good earnings report from Amazon.com (AMZN), Merck's (MRK) disappointing Q3 report and guidance, lowered earnings guidance from Sony (SNE) that fueled a 5.1% drop in Japan's Nikkei on Thursday, worrisome order growth guidance from KLA-Tencor (KLAC), the widening investigation into improper trading by mutual funds, and an arguably good earnings report from Microsoft (MSFT) that was deemed concerning by the market due to a reported drop in unearned revenues that raised misgivings about demand and the predictability of revenue growth at the world's largest software company.
Like all good speed bumps, those items slowed the market's progress but they didn't force its wheels to fall off. On the contrary, the losses this week were reasonable when taking into account the handsome gains achieved by the indices in the month of October, let alone for the year.
As one might expect, several defensive-oriented groups, such as gold, healthcare services, tobacco, and beverage, assumed a leadership position and offset some of the market's losses. For the most part, though, there was broad-based selling activity, the bulk of which was concentrated in higher beta names and individual stocks like Merck that made disappointing earnings pronouncements. Big-cap technology shares and small-cap issues comprised notable pockets of weakness.
On the economic front, the offerings were sparse with Leading Indicators and Weekly Initial Claims the only reports of note. The former dipped 0.2% with Real M2 a primary reason for the decline that interrupted a string of four consecutive monthly increases. All in all, Briefing.com didn't find the one-month decline disturbing. In turn, we were encouraged by another dip in initial claims (to 386K from 390K) that left the 4-wk moving average below 400K for the third straight week. The sub-400K trend suggests a modest improvement in employment conditions and that October payrolls will post another small gain.
While the equity market struggled this week along with the dollar, the Treasury market rallied. The yield on the 10-yr note fell 18 basis points to 4.21% amid generally lackluster volume and talk of asset allocation trades that coincided with the stock market's retreat.
As for the retreat, we would urge readers not to be swayed by the Chicken Little mentality. Sure, there are any number of stocks that have run ahead of fundamentals and there may be more corrective activity to come. Long-term investors should take heed, though, that with interest rates as low as they are, with earnings growth as strong as it is, with monetary policy accomodative, and fiscal policy stimulative, the sky is not falling.
Next week will be a full week in terms of newsflow as more than 200 companies are scheduled to report their quarterly results. There is also a full slate of releases on the economic calendar, including the advance Q3 GDP report, Home Sales, Durable Orders and Consumer Confidence. Finally, there is an FOMC meeting on Tuesday. In short, Briefing.com expects no change in the fed funds rate and the risk assessment to imply an easing bias. Further perspective on the FOMC meeting can be found in the Looking Ahead Story Stock and the Fed Brief, which is avaliable for subscribers to Briefing.com's Professional service. -- Patrick J. O'Hare, Briefing.com
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 9721.79 9582.46 -139.33 -1.4 % 14.9 %
Nasdaq 1912.36 1865.59 -46.77 -2.4 % 39.7 %
S&P 500 1039.32 1028.91 -10.41 -1.0 % 17.1 %
Russell 2000 520.36 506.43 -13.93 -2.7 % 32.2 %
2:27PM ChipPAC: disappointing Q3 already priced in - Piper Jaffray (CHPC) 6.59 -0.29: Piper Jaffray maintains their Outperform rating and $9 target, saying a disappointing Q3 is already priced into the stock; firm believes that CHPC has reset expectations in light of poor Q3 performance, and with a cyclical IC upturn in progress as measured by units, and industry capacity better rationalized, firm anticipates potential upside to numbers in 2004 from both fundamentals improvement and capital restructuring.
2:00PM VECO Earnings Preview 25.14 -0.48: VECO is scheduled to release earnings Monday morning before the open. Current Reuters Research consensus is for a profit of $0.04 on revs of $68.68 mln. Going into the report, Smith Barney believes that co will meet Q3 order guidance for a sequential increase of $67-70 mln and expects co to guide for low single digit sequentially improving orders. Notable that Oppenheimer recently downgraded the stock based on valuation and concerns over the capital spending outlook for the disk drive industry following cautious comments from Maxtor and Seagate about drive pricing and demand.
1:35PM Plexus Corp upgraded to Strong Buy at Needham (PLXS) 16.97 +0.76: Needham upgrades to Strong Buy from Buy and raises their target to $25 from $16; firm says PLXS had the most upbeat conference call and strongest forward guidance of any EMS co; in addition, firm believes gross margins are going to rise faster and higher than expected due to a richer mix of business from new and existing customer wins, and when combined with a stable SG&A expense ratio and lower tax rate as more production moves to China and Malaysia, this should produce EPS greater than previously expected.
10:55AM Concurrent cut to Sell at Roth Capital (CCUR) 4.63 -0.01: --Update-- Although co will likely benefit from increased momentum in VOD rollout over the next several quarters, firm finds it difficult to envision a near-term scenario that will make the co profitable. Roth suggests that time is not a luxury Concurrent can afford, as the co's cash balance declined nearly $5 mln in the quarter to $25 mln. Firm lower rating to Sell from Neutral with a fair market valuation of $3.30.
9:11AM California Micro cut to Hold at Needham on valuation (CAMD) 8.50:
9:10AM Therma-Wave upgraded at Needham (TWAV) 3.79: -- Update -- Needham upgrades to Buy from Hold following stronger than expected results, citing improved customer penetration as evident in the multi-system orders and LOIs announced yesterday; firm considers these developments signs of increased customer confidence and think they may foreshadow more volume wins in the quarters to come. Target is $6.
9:01AM Extreme Networks upgraded at JMP (EXTR) 7.07: -- Update -- JMP Securities upgrades to Strong Buy from Mkt Outperform and raises their target to $12 from $9 following mixed Q1 results; co is in the middle of a number of product transitions, and with a majority of these products entering the channel in the Sept/Dec qtrs, firm believes that rev will begin to accelerate; also, the co has begun to see benefits from its revamped channel strategy, and firm has greater confidence that Dec will be a breakout qtr.
8:33AM KLA-Tencor and Accretech USA settle litigation (KLAC) 53.49:
8:09AM TriQuint Semi upped to Buy and $10 target at WR Hambrecht (TQNT) 7.00: WR Hambrecht is upgrading TQNT to a Buy rating and is increasing its price target to $10 from $7. Firm believes the company will achieve profitability in Q3:04. Q4 guidance has gross margin expected to improve again to the 30-32% range. The firm believes Q4 will be seasonally strong for the handset industry while they also expect additional growth in the company's optoelectronics business.
Simple Tech (STEC) 7.25 -0.60: Priced 10 mln share offering at $7.
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