Chip surge helps Nasdaq fly

Chip surge helps Nasdaq fly

Intel, AMD on fire; financials also gain ground

NEW YORK (CBS.MW) — Buttressed by massive gains in the chip sector, the Nasdaq skyrocketed Tuesday, reversing the lion’s share of the losses suffered during the past couple of trading sessions.

Chip stocks enjoyed the brunt of the buying interest, with the Philadelphia Semiconductor Index ($SOX) surging 8.1 percent after spending three straight days in the red. And an 8.2 percent climb in shares of Intel limited losses in the Dow Industrials — which came at the hands of Alcoa following the company’s earnings warning late Monday.

“It’s too early to say a trend has developed,” said Bryan Piskorowski, market analyst at Prudential Securities, of investors’ appetite for downtrodden tech stocks Tuesday. “We need sustainability and increased participation over the next days.”

“Not surprisingly, we saw a technical bounce back [from oversold levels] in the Nasdaq,” commented Peter Coolidge, senior equity trader at Brean Murray.

The broader market witnessed gains in the financial arena, led by the bank stocks. Biotech and drug stocks also edged higher while paper, retail, utility, oil and oil service issues retreated. Crude oil prices edged down on Tuesday after some more muscle-flexing on Monday. October crude ended down 37 cents to $36.51. Robin Griffiths, chief technical analyst at HSBC Securities, believes the adverse effects of the recent jump in oil prices will be harsher on European and Asian economies compared to the U.S.

Meanwhile, adding to the positive backdrop for tech stocks Tuesday, the Senate breezily approved granting permanent normal trading relations to China Tuesday. The Semiconductor Equipment and Materials International estimates the market for chip manufacturing equipment in China to grow nearly four-fold to $4 billion by 2003. See related Pulse item.

The Dow Jones Industrials Average ($DJ) erased 19.23 points, or 0.2 percent, to 10,789.29. The blue-chip barometer hugged the flatline throughout the session as its old- and new-economy components took separate paths. The tug-of-war kept the index within narrow confines.

The Dow continues to be held down by profit concerns, with one of its old-economy components warning that it will miss Wall Street’s earnings expectations.

In fact, Alcoa (AA) said late Monday third-quarter earnings will be in the range of 40 to 43 cents a share, less than the 49 cents per share expected by First Call. The company blamed softening in the transportation, building, construction and distribution markets as well as higher energy costs for the shortfall. The stock fell $2.62 below its NYSE close to $25.63 and was one of the Dow’s biggest downside movers.

“We’re in the pre-announcement minefield. The slowing economy is taking some casualties and they’re adding up,” Coolidge said. “There’s more to take this market down than push it up.”

“People are worried about earnings. And we’ve had some blowups,” said John Zaro, managing member at Bourgeon Capital Management. “There are many real issues that people are worried about,” he said.

“It certainly doesn’t look like the Fed has any reason to raise interest rates. So, at least [for now], that bogeyman isn’t scaring the market. What has replaced it are concerns over rising oil prices,” Zaro continued. He believes the market will get a reprieve from higher oil prices over the next months.

Other Dow shares that lead on the downside were International Paper, Wal-Mart, Home Depot and McDonald’s while the index’s frontrunners were Intel, Microsoft, Hewlett-Packard and Philip Morris.

The Nasdaq Composite ($COMPQ) piled on 139.12 points, or 3.7 percent, to 3,865.64 while the Nasdaq 100 Index ($NDX) skyrocketed 170.88 points, or 4.8 percent, to 3,756.40.

The Standard & Poor’s 500 Index ($SPX) rose 1.1 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks climbed 1.3 percent.

Separately, volume stood at 1.02 billion on the NYSE and at 1.70 billion on the Nasdaq Stock Market. Market breadth was mixed, with losers beating winners by 15 to 14 on the NYSE and advancers beating decliners by 23 to 17 on the Nasdaq.

Sector movers

The semis were on fire Tuesday. But the group — which investors look to for leadership within technology — has been on shaky ground in recent weeks. In fact, the semiconductor index has fallen 11 percent in September following a percent 16 climb in August.

In the meantime, Banc of America Securities upped Intel and Advanced Micro Devices to a “buy” from a “market perform,” giving an additional boost to the semis, already on a rampage since the start of trading Tuesday. Just last Wednesday, Banc of America Securities downgraded Intel and AMD to a “market perform” from a “strong buy.”

Among the big winners, Advanced Micro Devices (AMD) shot up 13.2 percent, or $3.50 to $30, Intel (INTC) climbed $4.56 to $60.38 and Micron Technology (MU) jumped 11.4 percent, or $6.69 to $65.19.

In the note accompanying its decision to upgrade both Intel and AMD, Back of America said since declining over the past week, both stocks sufficiently discount potentially slower PC sell-through as well as the potential for aggressive pricing this winter.

Bear Stearns also had positive comments on Intel and Micron Technology.

“Intel’s stock has weakened over concerns about the health of the PC market. We believe the PC market is healthy, and should experience normal strong seasonal demand in the fourth quarter, which should in turn drive string unit and revenue growth for Intel’s microprocessor business,” the brokerage said.

Chip equipment makers were also heading north with a vengeance, with Applied Materials (AMAT) up $4.69 to $76.94 and Novellus (NVLS) up 9.3 percent, or $5.25 to $61.75.

Internet shares managed decent gains, with the Goldman Sachs Internet Index ($GIN) up 3.3 percent and Merrill Lynch’s Internet Holdrs (HHH) up 2.1 percent. The biggest gainers in the group included CMGI (CMGI), up $2.19 to $37.50, Exodus Communications (EXDS), up $2.38 to $61.63. But Amazon.com (AMZN) bucked the upward trend, losing 4.8 percent, or $2.06 to $40.75. Barnesandnoble.com will replace Amazon as the premier bookseller on Yahoo’s Web sites. Barnesandnoble.com (BNBN) skyrocketed 30.1 percent to $5.94.

Sun Microsystems (SUNW) saw earlier losses evaporate and ended up $2.44 to $117.69. The company announced Tuesday that it’s acquiring Cobalt Networks in a stock deal valued at about $2 billion. Cobalt Networks (COBT), which specializes in Linux-based server gear, surged 39 percent to $57.19 while Sun sipped $1.56 to $113.69.

Financial stocks got a boost from Goldman Sachs’ earnings news. The company (GS) posted third-quarter earnings of $1.62 a share, well ahead of the First Call estimate of $1.51 a share. The stock was up $1.38 to $119.94. Among the brokerages scoring big gains: Bear Stearns (BSC), up 5.6 percent to $63.38, and Lehman Brothers (LEH), up 6.5 percent to $143.69. Checking the indexes, the S&P Bank Index ($BIX) gained 1.8 percent and the Amex Securities Broker/Dealer Index ($XBD) shot up 2.6 percent.  

Another company in the financial arena unleashing results Tuesday included A.G. Edwards, which earned 93 cents in its second quarter, beating the First Call estimate of 90 cents a share. The company made 86 cents in the year-ago quarter. The stock (AGE) rose $1.50 to $52.94.

See for post-market trading activity.

Treasury focus

Government prices ended mixed, with long-dated issues gaining respectable ground as short issues slumped

The 10-year Treasury added 5/32 to yield ($TNX) 5.855 percent and the 30-year Treasury bond gained 14/32 to yield ($TYX) 5.92 percent.

On the economic front, August housing starts edged up 0.3 percent to a 1.531 million rate, less than the 1.55 million rate expected from economists surveyed by CBS MarketWatch.com.
Building permits fell 2.8 percent to a 1.468 million rate. .

Wednesday will see the release of the July trade numbers, with the deficit seen coming in at $31.3 billion. View Economic Preview, economic calendar and forecasts and historical economic data.

In the currency arena, dollar/yen (C_JPY) edged up 0.1 percent to 106.97 while euro/dollar (C_EUR) slipped 0.5 percent to 0.8504.

The euro reached a fresh all-time low against the dollar in intra-day dealings Tuesday, tumbling to 0.8479. Many multinationals, including Gillette (G) on Monday, have cited the sagging euro as the reason behind profit shortfalls.

“The strength in the dollar adds to the list of forces creating a drag on U.S. corporate profitability,” noted Bridgewater Associates.

“In the near future, corporations will be faced with paying the tab caused by today’s heavy capital investment, which is being financed through debt. Add to that the surge in oil prices — which is having the impact of squeezing profit margins. With these drags in place, it seems unlikely that U.S. corporations will be able to meet up to the lofty earnings growth that the marketplace is expecting,” Bridgewater concluded.