Dow under the gun

Triple-digit loss for Dow

Techs edge higher; retailers take a hit

NEW YORK (CBS.MW) —The Dow Industrials slumped Tuesday due to selling pressure in its retail and financial components while the Nasdaq chiseled out a modest gain as buyers remained enamored with the chip sector.

“It’s not surprising to see some profit-taking in the Dow after recent gains,” said Scott Bleier, chief investment strategist at Prime Charter. He noted, however, that the lion’s share of the blue-chip barometer’s losses were due to a sharp pullback in a handful of stocks, such as Home Depot and Hewlett-Packard.

“The market continues to trade back and forth. It’s a tough environment,” lamented Chris Wolfe, market strategist at J.P. Morgan.

Wolfe said the market believes the U.S. economy will come to a soft landing and that investors are thus rewarding different groups with their continued rotation. The chip sector, for example, got too oversold, he said, and buyers are now slowly regaining their confidence in the group.

Within technology, semis plowed ahead following massive gains on Monday, helping the Nasdaq edge higher. Computer software and hardware shares slumped as Internet and networking issues posted modest gains. The broad market saw the largest losses in the retail and financial sectors while utility and chemical stocks eked out minor gains.

The Dow Jones Industrials Average ($DJ) slid 109.14 points, or 1.0 percent, 11,067.00, ending a three-day winning streak.

The Dow is approaching the Aug. 22 Fed meeting at the top of its trading range, Bleier said. He believes the market has the stamina to run up heading into the policy-setting meeting.

But Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray, notes that market breadth remains negative and participation scant.

The market, Belski said, is looking for a catalyst to bring buyers back into the tech sector. “Investors are still indecisive [but] they have levitated toward buying value stocks,” he said.

“We’re seeing a typical summer slowdown with light volume,” Belski said. He expects a fourth-quarter rally but doesn’t believe it will have the same kind of momentum witnessed last year.

Moving on the downside were shares of Home Depot — which tumbled nearly 9.0 percent — Hewlett-Packard, Boeing and McDonald’s. Among the gainers were shares of Procter & Gamble, Philip Morris, Intel and Merck.

The Nasdaq Composite ($COMPQ) added 1.97 points, or 0.1 percent, to 3,851.66 while the Nasdaq 100 Index ($NDX) added 3.01 points, or 0.1 percent, to 3,722.62.

The Standard & Poor’s 500 Index ($SPX) edged down 0.5 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks erased 0.9 percent.

Volume was again very light, coming in at 895 million on the NYSE and at 1.35 billion on the Nasdaq Stock Market. Losers beat winners by 17 to 12 on the NYSE and by 21 to 19 on the Nasdaq.

Sector movers

Chip stocks put on a impressive performance for a third straight session, with the Philadelphia Semiconductor Index ($SOX) up 3.2 percent on the heels of a 7.7 percent climb on Monday.

Morgan Stanley issued a positive note on the semis Tuesday, saying it believes the semiconductor cycle is intact and has another 18 to 24 months to run.

“Demand remains solid and inventories in check. The seasonal uptick in PC demand is occurring now,” Morgan Stanley said.

The brokerage said concerns over wireless demand are too negative and that the average chip stock appears to have discounted cooler growth, making them attractive at current levels. Some of the stocks mentioned by Morgan Stanley included Intel (INTC), up 15/16 to 67 7/8, LSI Logic (LSI), up 1 1/2 to 37 1/4, Micron Technology (MU), up 6 to 86 1/2, Rambus (RMBS), up 3 13/16 to 80 3/4 and National Semiconductor (NSM), up 2 to 40.

Morgan Stanley also said its believes chip equipment stocks bottomed over the near term, with worries over stocks like Teradyne (TER) and Kulicke & Soffa Industries (KLIC) overblown. The latter shed 2.3 percent to 16 3/16 while the former ended up 2.3 percent to 58 7/8.

Meanwhile, Analog Devices (ADI) posted a third-quarter profit from operations of 43 cents after the close Tuesday, easily beating the First Call estimate of 37 cents share. The stock edged up 1/2 to 76 13/16 ahead of the news.

See for post-market trading activity.

In company news, Motorola Computer Group and Red Hat (RHAT) announced Tuesday that they’ve joined forces to make the Linux operating system ready for telecom applications designed to run 24 hours a day. Red Hat added 2 3/16 to 24 while Motorola (MOT), which is part of the $SOX index, added 3/16 to 35 15/16, erasing earlier losses.

Computer hardware stocks ended a sliver lower, with the Goldman Sachs Hardware Index ($GHA) off 0.3 percent. Dell Computer rose after sliding for three straight sessions following last week’s earnings report. The stock (DELL) added 1 3/8 to 38 1/16. But Hewlett-Packard (HWP) was among the Dow’s downside movers, falling 4 1/16 to 110 7/16.

In merger news, Canada’s Nortel Networks (NT) announced it will purchase Sonoma Systems, a firm that delivers high-speed video, data and voice over a single connection, in a $540 million stock deal. The deal is expected to close in the fourth quarter of 2000 and will result in the issuance of about 6.9 million in Nortel common shares. The company said the acquisition is projected to be neutral to earnings in 2000 and slightly accretive to earnings from operations in 2001. Nortel shares added 3/4 to 80 while Merrill Lynch’s Broadband Holdrs (BDH), of which Nortel is a component, edged up 0.5 percent.

In the meantime, another batch of retailers checked in with quarterly results on Tuesday. The retail sector weakened after leading the broader market higher on Monday. The S&P Retail Index ($RLX) fell 3.5 percent and was the broad market’s downside mover among sectors Tuesday.

Home Depot (HD) was the Dow’s downside leader in the wake of its earnings report. The company posted a second-quarter profit of 36 cents a share, matching the First Call estimate. The company made 29 cents in the year-ago quarter. Banc of America Securities downgraded the stock to a “buy” from a “strong buy” rating and slightly lowered its earnings estimates for 2000 and 2001. Home Depot fell 5 3/8 to 53 5/8 after rising 3 1/16 on Monday.

J.C. Penney (JCP) registered a second-quarter profit from operations of a penny a share versus the First Call estimate of a breakeven quarter. Looking forward, the retailer said it believes third-and fourth-quarter earnings per share could be adversely affected if the ongoing slowdown in the department store sector continues and leads to a “more promotional” second half, unleashing worries in the retail group that a cooler economy will hurt profits. The stock fell 1 7/16 to 16 1/2.

Staples (SPLS) posted a second-quarter profit of 10 cents a share, meeting the First Call estimate. The company made 11 cents in the same period last year. Staples slipped 11/16 to 17 7/16.

Target (TGT) registered second-quarter earnings of 28 cents a share, in line with the First Call estimate and ahead of the 24 cents a share earned in the same quarter last year. Shares lost 2 15/16 to 27.

Williams-Sonoma (WSM) posted second-quarter earnings of 9 cents a share, beating the First Call estimate by a penny. The retailer fell 3/16 to 39 7/8.

And BJ’s Wholesale Club (BJ) checked in with a second-quarter profit of 42 cents a share, surpassing the First Call estimate by 2 cents and ahead of last year’s earnings-per-share of 34 cents. The stock ended flat at 35 1/4.

Brokerage stocks came under some selling pressure after posting healthy gains over the past weeks. The Amex Securities Broker/Dealer Index ($XBD) erased 2.6 after reaching a record high on Monday.

Still, Merrill Lynch had positive comments on some of the major brokerages, raising its third-quarter and fiscal 2000 and 2001 earnings-per-share estimates on Goldman Sachs (GS), Lehman Brothers (LEH) and Morgan Stanley Dean Witter (MWD). Lehman fell 6 5/8 to 130 3/4, Goldman lost 2 9/16 to 118 3/16 and Morgan Stanley slipped 2 9/16 to 101 1/2.

Over in the bank sector, the S&P Bank Index ($BIX) declined 1.2 percent. Morgan Stanley Dean Witter issued a cautionary note on bank stocks indicating that valuations for the sector are not attractive.

Oil shares slipped, erasing earlier gains, as crude oil prices retreated after rallying for most of the day. The CBOE Oil Index ($OIX) ended close to flat levels while the Philadelphia Oil Service Index ($OSX) lost 1.1 percent. Schlumberger (SLB) edged up 1/8 to 82 1/8 while Baker Hughes (BHI) lost 1/2 to 37 11/16. In the oil sector, Dow-component Exxon Mobil (XOM) shed 1 1/4 to 81 5/16. Market watchers kept a close eye on oil prices Tuesday ahead of supply data due out after the close from the American Petroleum Institute. September crude shed 27 cents to $31.67 after reaching an intra-day high of $32.65 and piercing the $32.00 mark on Monday. In London, September Brent pierced 10-year highs Tuesday.

Shares of Deere Co. (DE) slid 10.1 percent, or 3 3/4 to 33 1/4 following its earnings report. The company checked in with third-quarter earnings of 72 cents a share, handily beating the First Call estimate of 59 cents a share. But investors zeroed in on the company’s forward-looking statements. Deere said its fourth-quarter profit will be negatively affected by normal seasonal factors and by an increase in promotional programs. In addition, weakness in the fundamentals of the farm economy is likely to continue next year, the company said, with industry-retail sales of farm machinery in the U.S. and Canada forecast to be flat to down 5 percent.

Treasury focus

Governments ended with slight losses, led by the 30-year issue, in a day dominated by extremely steady trading.

The 10-year Treasury note shed 7/32 to yield ($TNX) 5.805 percent and the 30-year bond lost 12/32 to yield ($TYX) 5.72 percent.

Tuesday’s economic docket saw the release of July industrial production, which rose by an as-expected 0.4 percent. Capacity utilization, meanwhile, stood at 82.3 percent compared to June’s 82.2 percent. The market barely batted an eye following the release of the data. .

Wednesday will see the release of the July consumer price index, which is expected to rise by 0.2 percent both overall and at the core. Also due out are July housing starts, which are seen coming in at 1.55 million. View Economic Preview, economic calendar and forecasts and historical economic data.

In the currency arena, the greenback weakened. In recent action, dollar/yen (C_JPY) fell 0.3 percent to 109.05 while euro/dollar (C_EUR) rose 0.8 percent to 0.9127. See latest currency rates.