Major averages take different paths

Major averages take separate paths

Nasdaq fumbles while Dow climbs

NEW YORK (CBS.MW) — Tech stocks resumed their downward trajectory Tuesday after a one-day reprieve Monday as sellers emerged in the semiconductor and Internet sectors – the sore spots within technology of late.

But a nice rebound in biotech shares following a month of heavy selling limited the hemorrhaging. The Dow Industrials, meanwhile, managed a respectable advance, courtesy of buying interest in some of its consumer and drug components. But losses in the blue-chip barometer’s tech components prevented additional gains.

“There’s not a lot of spare money around and people are looking to defend their positions,” said Robin Griffiths, chief technical strategist at HSBC Securities. And as market participants remain defensive, there’s a continued lack of follow-through buying to take the major averages higher.

“There’s no forgiveness in this market. Any slight sign of bad news and investors will drop a stock like a rock,” said John Waterman, managing director of investments at Rittenhouse Financial.

Investors, in fact, have been quick to unload their holdings as fears increase that an economy growing at a milder pace will translate into more anemic earnings growth going forward. “People sell a stock and ask questions later,” Waterman opined.

Within the broad market, biotechs surged after a harsh sell off on Monday. Pockets of strength were also seen in the drug, oil service, paper and utility sectors. But the tech sector saw plenty of red as all sectors fumbled. Investors again lightened up on chip stocks — a sector that saw gains for two straight sessions following two weeks of heavy losses — as well as Internet stocks.

The Dow Jones Industrial Average climbed 84.97 points, or 0.8 percent, to 10,606.95.

Leading on the upside were shares of Eastman Kodak, Walt Disney, AT&T, Procter & Gamble, Coca-Cola and Merck. Moving lower were shares of Intel, Microsoft, Hewlett-Packard and IBM.

Dow component Procter & Gamble (PG) posted fourth-quarter earnings-per-share of 55 cents, in line with the First Call’s lowered estimate and matching last year’s quarter. See story. The stock added 2 1/8, or 3.7 percent, to 59 1/8. P&G warned of an earnings shortfall for the fourth quarter on June 8 and of a third-quarter earnings miss on March 7.

Going forward, P&G said it’s comfortable with Wall Street’s earnings estimates for 2001. But P&G now estimates July-September earnings-per-share to come in at around flat levels compared to the same period last year while earnings-per-share growth is expected to accelerate to about mid-single digits in October-December and return to double-digit growth rates in the second half of the year.

Intel (INTC) shed 2 1/8 to 64 5/8. The chip stalwart announced that it’s buying privately-held Trillium Digital Systems for $300 million in cash and unregistered stock. Intel said Trillium, a communications software and services provider, will complement Intel’s communication silicon business with software products, support and services. See Tech Report.

The Nasdaq Composite trimmed 81.48 points, or 2.2 percent, to 3,685.51, ending just 3 points above its lows of the session. The Nasdaq 100 Index erased 88.20 points, or 2.4 percent, to 3,521.15 — just 2.50 points above its session lows.

Notable losers in the tech arena Tuesday included: Intel, down 2 1/8, or 3.2 percent, to 64 5/8; Dell Computer, down 2 3/8, or 5.4 percent, to 41 9/16; Cisco Systems, off 2 1/4, or 3.4 percent, to 63 3/16; and Advanced Micro Devices, down 6.9 percent, or 5 to 67.

“We’re still in the period when investors are looking to pound stocks,” Griffiths said, referring to the market’s recent practice of unloading even companies that deliver good quarterly results.

He sees additional downside potential over the next six weeks but expects the market to run up heading into the presidential elections this fall.

“We’re clearly waiting for the Fed meeting in August,” Griffiths added.

A string of data released last week is telling us that there’s real strength in the U.S. economy, Waterman said, referring to the gross domestic product and durable goods numbers.

“[These numbers] have increased the odds of a 25-basis-point rate hike in three weeks,” he added.

The Standard & Poor’s 500 Index edged up 0.5 percent while the Russell 2000 Index of small-capitalization stocks slipped 0.6 percent.

Elsewhere, volume was light at 920 million on the NYSE and at 1.34 billion on the Nasdaq Stock Market. Breadth was mixed, with winners outnumbering losers by 17 to 12 on the NYSE while decliners bested advancers by 23 to 17 on the Nasdaq.

Inside the data

The morning’s spate of economic news was generally market-friendly – but failed to inspire stock market participants.

June personal income rose 0.4 percent compared to the expected 0.5 percent increase while June personal consumption expenditures added 0.5 percent versus the expected 0.4 percent rise. The personal consumption expenditure deflator, which the Fed closely watches for signs of inflation, added 0.3 percent while its core rate, which excludes food and energy prices, came in at flat levels. See full story.

In the meantime, the July NAPM index was inadvertently released about 45 minutes early, coming in at 51.8 percent in July, flat from June’s reading. The new orders sub-component checked in at 49.9 percent from June’s 50.6 percent. Read the story.

“Most of the key components [in the NAPM] were little changed, though the new orders index slipped below 50 for the first time since December 1998. Most of the softness, surprisingly, seems to be in export orders,” observed Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Finally, June construction spending fell a lofty 1.7 percent vs. expectations for a 0.1 percent increase.

Wednesday will see June new hole sales – expected to come in at 878,000 according to a survey of economists conducted by CBS MarketWatch.com
. Also due out: June leading economic indicators, seen slipping by 0.1 percent. View Economic Preview, economic calendar and forecasts and historical economic data

Sector movers

Biotech shares put on the best performance Tuesday after Monday’s shabby showing. Merrill Lynch’s Biotech Holdrs (BBH) rose 5.0 percent, with lofty gains in shares of Sepracor, up 13 7/8, or 13.1 percent, to 119 5/8, and Gilead Sciences, up 12 13/16, or 17.3 percent, to 86 15/16. See biotech sector story. The Amex Biotech Index ($BTK) put on 5.5 percent after falling 8 percent in July and about 17 percent during the last couple of weeks of the month.

Retail stocks recovered late in the session. CVS Corp. registered a second-quarter profit of 46 cents a share, matching the First Call estimate. The company earned 40 cents in the year-ago period. Shares (CVS) lost 3/4 to 38 3/4.

CVS is a component of the S&P Retail Index ($RLX), which added 0.5 percent after falling a heady 3.6 percent on Monday, led by steep losses in shares of Wal-Mart. On Tuesday, Wal-Mart (WMT) trimmed 11/16 to 54 9/16. See retail sector story.

Priceline (PCLN) added 1 5/16, or almost 6 percent, to 24 15/16. The company received a $190 million investment from Liberty Media and Paul Allen’s Vulcan Ventures. The agreement calls for the purchase of 8 million shares of Priceline stock. Priceline will use the proceeds to participate in the third round of financing of WebHouse Club — a privately held licensee of Priceline, which began operations in Nov. 1999. See full story.

Also moving on the upside in the Internet arena were shares of Exodus Communications, up 1 2/2 to 45 15/16, and Amazon, up 1/8 to 30 1/4. Still, the broad sector remained in a slump and the Goldman Sachs Internet Index ($GIN) dipped 3.0 percent while Merrill’s Internet Holdrs (HHH) lost 1.3 percent. Among the biggest downside movers in the group were CMGI, off 3 3/8, or 9 percent, to 34 1/2, and Inktomi, down 8 11/16 to 98 5/16.

Networking stocks slipped in tandem with the rest of the technology sector. The Amex Networking Index ($NWX) fell 1.6 percent. Cisco Systems (CSCO) lost 2 1/4 to 63 3/16. The networking giant announced that it’s buying privately-held IPmobile in a stock deal valued at $425 million. IPmobile provides software enabling service providers to build the next generation IP-based wireless infrastructure known as “third generation.” Read the full story.

EchoStar Communications (DISH) checked in with a second-quarter loss of 28 cents a share, ahead of the First Call estimate of a loss of 34 cents a share. The company lost 20 cents a share in the year-ago quarter. See story. The stock added 1 11/16 to 41 1/8.

See After Hours for post-market trading activity.

Treasury focus

Buying in the government arena picked up steam following the release of the morning’s spate of data.

The 10-year Treasury note rose 12/32 to yield 5.985 and the 30-year bond put on 19/32 to yield 5.74 percent. See Bond Report.

Looking ahead, Treasury’s quarterly refunding auctions will take place next week, with 5- 10- and 30-year issues on tap. And the market is gearing up for a gigantic offering in the corporate arena from Fannie Mae (FNM) on Wednesday.

In the currency arena, dollar/yen slipped 0.1 percent to 109.23 while euro/dollar tumbled 1.3 percent to 0.9140. See latest currency rates.

In the commodity market, September crude gained 36 cents to $27.79 while the Bridge CRB index added 0.25 to 218.67. See related story.