Dow energized while Nasdaq sags

Dow energized while Nasdaq slumps

Buying fizzles out; chip stocks drop

NEW YORK (CBS.MW) – The Dow Industrials clung to respectable gains Monday while the Nasdaq was held down by heavy selling in three of its main components — Intel, Microsoft and Dell Computer – throughout the trading day.

Chip stocks backpedaled significantly, hobbled by an 11.6-percent drop in shares of Intel, which took the Philadelphia Semiconductor Index ($SOX) off 5.8 percent.

Even healthy gains in the computer hardware and Internet segments failed to counter the dumping of chip stocks. The Net advance Monday was propelled by a surge in the business-to-business segment while the Goldman Sachs Hardware Index ($GHA) gained 2.0 percent in the face of a 7.2-percent drop in shares of Dell (DELL).

Inside the broad market, oil and oil service shares sputtered as oil prices declined for a second straight session. November crude, in fact, tumbled $2.07 to $32.92. Among the numerous sectors witnessing an upswing Monday were financial, retail, drug, utility, paper and biotech.

“There’s still a lot of uncertainty out there,” said Jay Suskind, director of trading at Ryan Beck & Co., referring to the upcoming earnings reports, the elections and the tension in the Middle East. But there’s a good deal of money sitting on the sidelines waiting to be put to work, he added.

“We’ll be getting lots of news on earnings in the next couple of weeks. One fear is that companies, while meeting earnings expectations in the third quarter, will lower their guidance for the fourth quarter,” noted Clark Yingst, market strategist at Prudential Securities.

“And the situation in the Middle East remains a huge wildcard,” Yingst added.

The Dow Jones Industrials Average ($DJ) climbed 46.62 points, or 0.5 percent, to 10,238.80 after rising as much as 80 points at its peak Monday.

The greatest struggles were seen in shares of Intel, Microsoft, Exxon Mobil, Alcoa, AT&T and Walt-Disney. Among the upside movers were shares of Wal-Mart, Home Depot, American Express, Honeywell and United Technologies.

Microsoft (MSFT), off 6.3 percent to $50.38, fell to levels not seen in about two years. The software titan will report fiscal first-quarter results on Wednesday, with earnings-per-share seen coming in at 41 cents, per First Call.

The Nasdaq Composite ($COMPQ) erased 26.49 points, or 0.8 percent, to 3,290.28 while the Nasdaq 100 Index ($NDX) gave up 28.31 points, or 0.9 percent, to 3,249.46.

Friday’s rally, Yingst observed, would appear to be nothing more than a bounce from oversold conditions. Short-term technical indicators, he said, continue to point to a market that’s deeply oversold.

“While opinions differ on whether or not a capitulation occurred [last week], we are instead focused on the outperformance of the Nasdaq as an early sign that a preliminary stabilization is beginning to take shape,” commented Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray.

Additionally, with two weeks to go before the end of the mutual fund tax year, Belski believes the bulk of the tax loss selling has already taken place.

“Most disappointing positions have already been dumped during the market’s recent freefall in preparation for picking up new [stocks] that are expected to report solid earnings during the current crunch,” Belski commented.

The Standard & Poor’s 500 Index ($SPX) inched up 0.45 point while the Russell 2000 Index ($RUT) of small-capitalization stocks added 0.3 percent.

Volume stood at 1.00 billion on the NYSE and at 1.77 billion on the Nasdaq Stock Market. Market breadth was narrowly negative, with decliners outpacing advancers by 15 to 14 on the NYSE and by 21 to 19 on the Nasdaq.

Separately, Trim Tabs said U.S. equity funds lost about $9.5 billion in the three days ending Oct. 12 for a monthly rate of negative $69.7 billion. Aggressive growth funds witnessed outflows of $1.7 billion while $4.8 billion flowed out of growth funds. Tech funds saw outflows of $198 million – well below the record $437 million registered in the period ended Aug. 3, Trim Tabs said.

In the meantime, Trim Tabs has turned bullish, using the record outflows from equity funds as a contrary indicator. Further, corporate investors have been net buyers over the past few weeks as cash takeovers and buybacks have exceeded new offerings.

Deluge of earnings

An onslaught of earnings reports will hit the tape this week, with fifteen Dow companies set to report. It’ll also be a big week for technology, with many heavyweights – including IBM, America Online, Texas Instruments, Microsoft, Intel, EMC, Apple Computer, EBay and Sun Microsystems — unleashing their results.

The impact of all the negative pre-announcements for the third quarter was relatively mild, according to earnings compiler First Call said. In fact, expectations for S&P 500 earnings growth currently stand at 15.9 percent, down only modestly from the 18.8 percent anticipated at the start of the third quarter.

The real problem for the market, however, is what the recent steam of negative pre-announcements implies about fourth-quarter results and beyond, First Call said. Expected earnings growth for the S&P 500 technology sector has already been cut from 31 percent on Sept. 1 to the current 25 percent, far more than usual at this stage, First Call notes.

Sector movers

Chip stocks were the hardest hit in the tech sector, with bellwether Intel (INTC) off 11.6 percent, or $4.69 to $35.69. The company will post third-quarter earnings after the close Tuesday, with First Call anticipating earnings-per-share of 38 cents versus the 28 cents earned in the year-ago quarter. On Monday, Salomon Smith Barney lowered his third- and fourth-quarter earnings-per-share estimates to 37 cents each, from 38 cents and 40 cents, respectively. In addition, Salomon lowered its 2001 estimate to $1.55 per share from $1.75.

Net stocks, led by the business-to-business sector, put on quite a show in Monday. But the admirable performance wasn’t sufficient to overcome weakness in other areas of the market, although it helped to limit damage in the Nasdaq. Among the Net bellwethers, however, not all was well, as Yahoo continued to struggle, tacking on heavy losses for four out of the past five trading sessions. The stock (YHOO) lost 7.9 percent to $55.25. Another loser was Amazon.com (AMZN), off 14.5 percent to $24.31, while EBay (EBAY) managed a 6.7-percent gain to $59.63.

Within the B2B group, shares of PurchasePro (PPRO) were on fire, tacking on 27.6 percent to $44.75. Merrill Lynch’s B2B Holdrs (BHH) climbed 8.1 percent. Prudential Securities named the company the “single best idea” and reiterated its “strong buy” rating on the stocks. A number of outfits in the group, including Ariba, Commerce One and PurchasePro, will unleash their results this week.

The oil sector got a dose of merger news, with Chevron confirming its purchase of Texaco in a $35.7 billion deal. Under the terms of the deal, Texaco shareholders will receive 0.77 shares of Chevron common stock for each Texaco share, which represents an 18-percent premium. Texaco (TX) gained $3.88 to $59 while Chevron (CHV) lost $2.25 to $82.

In the oil service arena, meanwhile, Schlumberger (SLB) said it’s acquiring Convergent Group (CVGP) for $276 million, or $8 a share. Convergent shares surged 65.6 percent to $7.81 while Schlumberger eased by $1.56 to $79.88. Oil and oil service shares retreated, mirroring declines in oil prices for a second consecutive session following a spike on Thursday. The Philadelphia Oil Service Index ($OSX), of which Schlumberger is a component, lost 3.0 percent while the CBOE Oil Index ($OIX), of which Chevron and Texaco are components, lost 0.9 percent.

A couple of earnings reports emerged in the financial arena Monday in a week that’ll be dense with releases in the sector. Financial stocks recovered after struggling with losses early in the session and the Amex Securities Broker/Dealer Index ($XBD) added 1.2 percent while the S&P Bank Index ($BIX) edged up 0.6 percent. 

On the earnings front, Bank of America (BAC) posted a profit from operations of $1.31 a share in the third-quarter, surpassing the First Call estimate of $1.29 a share and the $1.23 earned in the year-ago quarter. The stock shed $1.38 to $45.19. And the Bank of New York (BK) reported third-quarter earnings of 49 cents a share, matching the First Call estimate and ahead of the 42 cents a share made in the year-ago period. The stock added $2.19 to $53.31.

In the meantime, Merrill Lynch’s Judah Kraushaar had some cautious comments on the financial group, suggesting that investors remain exceedingly cautious on the sector and not build positions aggressively unless they are geared for the long term.

Downside risks to earnings relate to credit costs, reduced market-sensitive and spread-related revenues, possible hits on private equity stakes and reduced bank credit, Kraushaar said. Earnings estimates for 2000 and 2001 were lowered on Goldman Sachs, Lehman Brothers, Morgan Stanley Dean Witter and Citigroup.

In other earnings news, Continental Airlines (CAL) posted a third-quarter profit from operations of $2.24, beating the First Call estimate of $2.19 a share and ahead of the $1.44 earned in the year-ago quarter. The company saw its shares edge up 19 cents to $42.69. The Amex Airline Index ($XAL) shed 0.1 percent, erasing earlier gains, ahead of a busy reporting week for the group.

See for post-market trading activity.

Treasury focus

Government prices slipped into the minus column for a second consecutive session. The 10-year Treasury note erased 2/32 to yield ($TNX) 5.74 percent while the 30-year bond slipped 2/32 to yield ($TYX) 5.81 percent.

Fed Chair Alan Greenspan spoke early Monday on financial markets to an Atlanta Fed conference via video but made no reference to interest rates or the stock market. The Fed Chief will appear at the Cato Institute on Thursday to speak on monetary policy.

There will be lots of economic data to chew on this week, providing the market with much-anticipated information on the state of the U.S. economy. The highlights include the release of the September consumer price index, the August trade gap, September housing starts and the October Philadelphia Fed Index.

Monday saw the second-tier release of business inventories, which rose 0.7 percent in August. On tap Tuesday: September industrial production, seen rising by 0.1 percent, and capacity utilization. View Economic Preview, economic calendar and forecasts and historical economic data.

In the currency arena, the dollar strengthened against both the yen and the euro. Dollar/yen gained 0.4 percent to 108.06 while euro/dollar dropped 0.7 percent to 0.8494. The latter has fallen for the fourth straight session and is now hovering about 1.3 percent below Sept. 21’s closing level – the day before the joint intervention effort by the European Central Bank, Federal Reserve and Bank of Japan to prop up the fledgling currency.