Dow dips while Nasdaq swims

Dow dips while Nasdaq swims

Financials slip in face of Chase-J.P. Morgan union

NEW YORK (CBS.MW) — Nasdaq stocks ended on firm footing Wednesday, led by sharp gains in some of its big-cap names. But action remained extremely volatile throughout the trading day as earnings jitters and an analyst downgrade of Intel and Advanced Micro Devices unnerved investors.

Meanwhile, the Dow Industrials remained firmly in the red as Intel and Hewlett-Packard suffered significant setbacks. And financial stocks offered no support to the broad market in the face of the Chase Manhattan-J.P. Morgan merger.

Inside the market, utility, airline and biotech stocks blossomed while oil and oil service shares slipped as crude oil prices dipped following Monday’s surge.

“The market is in a sideways pattern. We’re in an information vacuum ahead of the third-quarter earnings releases and people are hesitant to [step in] and get overly enthusiastic,” said Mike Sheldon, chief market strategist at Spencer Clarke. But he believes the major players will deliver on the earnings front in the third quarter, setting the stage for a fourth quarter advance.

The Dow Jones Industrials Average ($DJ) erased 51.05 points, or 0.5 percent, to 11,182.18.

Aside from Intel and H-P, selling in shares of Philip Morris, Citigroup, McDonald’s and Home Depot pressured the Dow. The blue-chip barometer’s biggest gainers included shares of AT&T, IBM and Caterpillar.

The Nasdaq Composite ($COMPQ) gained 44.38 points, or 1.2 percent, to 3,893.89 while the Nasdaq 100 Index ($NDX) jumped 74.88 points, or 2.0 percent, to 3,741.75.

The Nasdaq 100 has outperformed the Nasdaq by a wide margin throughout the trading day, buttressed by gains in shares of Cisco Systems, up 4.1 percent, Sun Microsystems, up 3.4 percent, and Oracle, up 3.1 percent. The latter will unleash its first-quarter results after the close Thursday, with First Call estimating earnings-per-share of 13 cents.

Banc of America Securities’ downgrade of Intel and Advanced Micro Devices to a “market perform” from a “strong buy” weighed on sentiment in the tech market early on. But a jump in shares of Rambus (RMBS), up 10 percent, helped to limit the damage in the semis and the Philadelphia Semiconductor Index ($SOX) climbed 1.8 percent gain. Rambus is benefiting from news that Japan’s NEC Corp. signed licensing agreements to use Rambus’ memory designs.

The Standard & Poor’s 500 Index ($SPX) gained 0.2 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks edged up 0.3 percent.

Separately, volume was heavy at 1.08 billion on the NYSE and at 1.65 billion on the Nasdaq Stock Market. Market breadth was shabby, with losers beating winners by 16 to 12 on the NYSE and advancers matching decliners on the Nasdaq.

Earnings jitters

The latest profit warning in the technology sector came from SCI Systems (SCI). The company said it expects first-quarter earnings to come in at 34 cents a share versus the First Call estimate of 38 cents a share, blaming seasonal weakness in consumer electronics and finished personal computer demand for the shortfall. Still, the electronics manufacturer said it stands by earlier guidance of earnings-per-share of $1.70 and $1.74 for the full year. Shares plunged 18.5 percent, or $10.38 to $45.56.

Shares of SCI Systems’ direct competitors fell in tandem. Solectron (SLR) erased 44 cents to $45.81, Celestica (CLS) dropped $3.18 to $72.50. But Flextronics (FLEX) added 11 cents to $82.98.

Some PC stocks fell on the SCI news, with Hewlett-Packard (HWP) down $6 to $105 while Compaq (CPQ) slipped 5 percent, or $1.56 to $29.94. The Goldman Sachs Computer Hardware Index ($GHA) erased 0.4 percent.

From a seasonal point of view, September and October are not good months for the stock market, observed Peter Boockvar, equity strategist at Miller, Tabak & Co.

With the SCI warning, market watchers wonder which company will be the next to reveal they’ll miss estimates, Boockvar said. And the recent jump in oil prices is quickly becoming a problem for the market, creating additional nervousness.

Rising oil prices have indeed been another sore spot for the market. On Wednesday, October crude fell 46 cents to $33.82.

“Higher oil prices have exacerbated concerns. Some consumer products companies have reported disappointing earnings due to higher energy costs. It’s absolutely an issue and reinforces [earnings jitters],” said Clark Yingst, market analyst at Prudential Securities.

Sector movers

Financials stocks – on a rampage in recent weeks courtesy of merger news and speculation of future unions – came under some mild selling pressure Wednesday as Chase Manhattan (CMB) confirmed it’s snapping up Dow-component J.P. Morgan (JPM). The transaction values J.P. Morgan shares at $207. Chase fell $5.37 to $50.69 while J.P. Morgan added $3.75 to $181.50.

The merged entity, to be named J.P. Morgan Chase & Co., will have assets totaling around $660 billion.

The Amex Securities Broker/Dealer Index ($XBD) dipped 0.9 percent, while the S&P Bank Index ($BIX) shaved 1.1 percent.  

“On a technical basis, the financials are oversold and entitled to a pause or a pullback. But the group’s uptrend [is intact] thanks to the favorable interest-rate environment,” said Yingst. “The financials will continue to provide leadership.”

Shares of financial companies viewed as potential takeover targets — such as Bear Stearns (BSC) and Lehman Brothers (LEH) — slid Wednesday after enjoying huge run-ups in recent weeks. Bear fell $2.56 to $69.06 while Lehman shaved $8.50 to $150.

“Buying a brokerage stock right now is playing an arbitrage game. It’s not investing. It’s simply betting on who will be next on the merger platform,” Boockvar commented.

Meanwhile, Knight Trading Group (NITE) saw its shares swell 22.5 percent, or $6.63 to $36.06, on talk that the largest Nasdaq market maker is a takeover target. Many online brokers saw their shares head north as well, with Ameritrade (AMTD) up 7 percent to $20.63 and E-Trade (EGRP) up 4.4 percent to $19.31.

Chip stocks remained in positive territory, thanks primarily to a jump in shares of Rambus, which gained $7.66 to $84.47. Also sharply higher were shares of Micron Technology (MU), up 4.5 percent to $66.18, Applied Materials (AMAT), up 3.2 percent to $74, and Novellus Systems (NVLS), up 3.7 percent to $54.94.

But Intel (INTC), off 5.7 percent to $61.25, and AMD (AMD), down 6.8 percent to $28.44, were big losers within the semi group on the heels of the Banc of America downgrade. “The tables have turned between AMD and Intel in microprocessor manufacturing execution,” Banc of America analyst Rick Whittington said in a note to clients.

See for post-market trading activity.

Treasury focus

Treasury prices gained some minor ground but ended well off session highs as investors processed a deluge of corporate issuance.

The pricing of a $4.5 billion Fannie Mae reopening created a slight bid in the government market early in the session as underwriters unwound the hedge trades placed to protect them from interest rate swings. Meanwhile, a $5.0 billion sale from Spain’s Telefonica launched in the afternoon.

The 10-year Treasury note added 10/32 to yield ($TNX) 5.74 percent and the 30-year Treasury bond rose 1/8 to yield ($TYX) 5.73 percent. .

On the economic docket, Wednesday saw the release of the August import price index, which added 0.2 percent as natural gas and petroleum prices climbed. Excluding petroleum prices, import prices edged up 0.1 percent. Export prices, meanwhile, fell 0.3 percent, its third straight decline.

Additionally, the second-quarter current account deficit came in at a $106.1 billion versus the downwardly revised $101.5 billion deficit in the first quarter.

Thursday will see the release of the producer price index, expected to rise 0.2 percent both overall and at the core — which excludes the volatile food and energy components. And August retail sales will be out, seen rising 0.4 percent. Economic Preview, economic calendar and forecasts and historical economic data.

In the currency sector, dollar/yen (C_JPY) edged up 0.3 percent to 107.13 while euro/dollar (C_EUR) dropped 0.5 percent to 0.8593. The euro reached an all-time low of 0.8545 in intraday trading on Tuesday.