Nasdaq wilts, Dow flourishes

Nasdaq wilts, Dow blossoms

Profit-takers in charge of tech sector

NEW YORK (CBS.MW) — Tech stocks wobbled Tuesday as investors couldn’t shake off their worries over earnings and future revenue growth.

The Nasdaq saw its early gains evaporate in late afternoon dealings due to sudden profit-taking in the tech group while the Dow Industrials edged higher thanks to sharp gains in shares of J.P. Morgan, Home Depot and McDonald’s.

Decelerating revenues have dictated the market’s mood, noted William Rhodes, chief investment strategist at The Williams Capital Group. “Revenues are still growing, but the rate of growth is diminishing.”

“A lot of the market’s [uneasiness] has to do with the price of oil and people questioning its impact on future earnings,” said Ned Collins, head of trading at Daiwa Securities. Swelling oil prices, he said, have made lots of people nervous.

Rotation has been the market’s main theme, with investors exiting the tech sector and finding other areas to put their money to work — such as utility stocks and, most recently, retail issues.

In the broad market, financial, paper and airline stocks sagged while retail, drug and biotech shares climbed. The latter fell heavily on Monday. Inside tech, networking and chip issues led on the downside.

“The main theme in the market has been rotation from sector to sector,” said Todd Gold, technical strategist at Gruntal & Co.

“You’re seeing a lot of opportunistic trading,” Rhodes commented.

The Dow Jones Industrials Average ($DJ) climbed 37.74 points, or 0.3 percent, to 11,233.23.

Gold lamented the market’s lack of direction.

“Barring [surprises] from this week’s economic numbers, there’s a lack of catalysts. People don’t want to take on and hold new positions. I feel the market’s upside potential is limited in the near-term.”

The market’s recent broadening tendencies, apparent over the past six months, have helped depressed groups participate in advances. Rhodes believes this broadening, so vital to the market’s long-term health, will continue going forward.

The Dow’s frontrunners included J.P. Morgan, Home Depot, McDonald’s and Johnson & Johnson. Gains in J.P. Morgan (JPM) were fueled by renewed merger speculation. In fact, Chase Manhattan is reportedly in advanced stages of talks to buy J.P. Morgan and a formal announcement could come as early as Wednesday. Leading the blue-chip barometer on the downside were shares of Alcoa, off 6.2 percent, Hewlett-Packard and General Motors.

The Nasdaq Composite ($COMPQ) shed 46.84 points, or 1.2 percent, to 3,849.51 and the Nasdaq 100 Index ($NDX) dropped 39.87 points, or 1.1 percent, to 3,666.87.

A lot of the larger Nasdaq stocks look vulnerable, Gold said.

“The techs look like they have made highs that will cap their upside for many quarters. Notwithstanding their ability to have periodic rebounds, examples of major tops include Cisco, Dell, Intel, Corning and JDS Uniphase,” said Tom Peterson, publisher of the newsletter Bulls Eye Research.

The shift from growth to value is evident in the rise in utilities, financials and energy shares over the past few months, Peterson observed.

The Dow Jones Utilities Average ($UTIL) reached an all-time high of 399.02 in intraday dealings Tuesday before backpedaling, slipping 0.1 percent. But the Philadelphia Utilities Index ($UTY) added 0.1 percent.

Among the big-cap stocks in the broad market, Cisco Systems lost 3.8 percent, JDS Uniphase fell 6.0 percent, Lucent Technologies shaved 6.4 percent, Motorola lost 3.7 percent and Advanced Micro Devices slipped 5.4 percent.

The Standard & Poor’s 500 Index ($SPX) edged down 0.4 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks dipped 0.2 percent.

Separately, volume was respectable 981 million on the NYSE and at 1.59 billion on the Nasdaq Stock Market. Market breadth was negative, with losers beating winners by 14 to 13 on the NYSE and by 22 to 18 on the Nasdaq.

See for post-market trading activity.

Sector movers

In earnings news, a string of retail companies unleashed their results Tuesday. The retail sector continued its ascent for the seventh straight trading session, with the S&P Retail Index ($RLX) gaining 1.5 percent after rising 11.1 percent over the past six sessions.

Kroger (KR) reported a second-quarter profit from operations of 28 cents a share, in line with the First Call estimate. Looking ahead, the company said it remains comfortable with the Wall Street consensus estimate of earnings per share for fiscal 2000. The stock lost 13 cents to $23.25. Meanwhile, Best Buy (BBY) checked in with second-quarter earnings of 36 cents a share, 2 cents ahead of the First Call estimate, while Pier 1 Imports (PIR) registered earnings of 18 cents a share in the second quarter, beating the First Call estimate by 2 cents. Both stocks posted handsome gains.

Chip shares got hit hard, with the Philadelphia Semiconductor Index ($SOX) off 4.0 percent after a short-lived stint in the plus column early in the session. Intel (INTC) was among the upside movers, adding 25 cents to $65.94 while Advanced Micro Devices (AMD) fell 5.8 percent to $30.38.

In the meantime, PRI Automation (PRIA) saw its shares take a drubbing after the supplier of automation systems to the semiconductor industry warned late Monday of a profit shortfall in its fiscal fourth quarter. PRI Automation expects to report net income slightly above breakeven compared to the First Call estimate of 52 cents a share. Sharers tumbled 39.4 percent to $25.88. The company was slapped with downgrades from Morgan Stanley Dean Witter, Bear Stearns, Merrill Lynch and Robertson Stephens.

Shares of semiconductor equipment makers retreated as well, with Teradyne (TER) off $3.63 to $53.56, Novellus Systems (NVLS) down $3.25 to $53 and Kulicke and Soffa Industries (KLIC) shaving $1.19 to $15.31.

The Internet group also came under profit-taking late in the session. The Goldman Sachs Internet Index ($GIN) shed 1.5 percent and the Amex Internet Index ($IIX) slipped 1.0 percent. DoubleClick (DCLK) was among the upside movers, limiting the group’s losses with its 12 percent jump.

Meanwhile, Bear Stearns initiated coverage of a plethora of Internet stocks Tuesday, starting Yahoo (YHOO), Lycos (LCOS), InfoSpace (INSP) and About.com (BOUT) with a “buy” rating. And Amazon.com (AMZN) was initiated with an “attractive” rating.

On Yahoo, Bear Stearns said that in spite of the company’s lofty valuation, it believes the stock is poised to deliver investors long-term returns that will outpace broader indices. That said, Bear believes it’s unlikely the pace of share appreciation will match historical results. The brokerage set a $160 price target on Yahoo stock. Shares added 69 cents to $107.

Oil prices remained in focus Tuesday with crude oil futures lingering at 10-year highs. October crude slipped after posting gains right out of the gate, shedding 86 cents to $34.28. Oil stocks edged lower in reaction to the drop oil prices after rallying heartily on Monday. On Sunday, OPEC members, excluding Iraq, agreed to boost crude oil output by 800,000 barrels per day beginning on Oct. 1, a move that was not viewed by market participants as sufficient to replenish inventories.

Treasury focus

Early, across-the-board gains in the government market were quick to fade and prices ended on a mixed note.

The 10-year Treasury note shed 1/32 to yield ($TNX) 5.77 percent and the 30-year Treasury bond shaved 9/32 to yield ($TYX) 5.75 percent.

In the meantime, fixed-income markets are gearing for this week’s load of corporate supply, including a gargantuan $5 billion offering from Spain’s Telefonica, the first in a series of telecom issues that are expected to wade through the market in September.

Over on the economic front, no data was set for release on Tuesday, though market watchers braced for the onslaught of fresh data on the inflation and consumer spending front, expected later in the week.

Wednesday will see the release of the August import and export price indexes as well as the second quarter current account deficit. View Economic Preview, economic calendar and forecasts and historical economic data.

In the currency arena, dollar/yen (C_JPY) put on 0.7 percent to 106.86 while euro/dollar (C_EUR) gained 0.5 percent to 0.8624.