Techs implode; Gateway warning weighs

Techs implode; Gateway weighs

Nasdaq off 50% from all-time high

NEW YORK (CBS.MW) – The Nasdaq closed deep in the red for the ninth time in ten sessions Thursday, putting an end to one of its bloodiest months ever, as a profit warning from Gateway ignited another torrent of selling in the tech arena.

The tech meltdown sent shivers throughout the entire market, taking the Dow Industrials down over 200 points. But the blue-chip barometer has held up relatively well over the past weeks compared to the Nasdaq thanks to buying in many of its defensive stocks as investors escaped technology.

The Dow lost 5.1 percent of its value in November versus a 23 percent drop for the Nasdaq.

Underscoring the pain associated with the recent decline, Wilshire Associates said over $1.7 trillion in wealth was destroyed since election day, using the Wilshire 5000 as a gauge for the broad market. And $3.6 trillion in wealth was obliterated since the Wilshire 5000 peaked on March 24. Nasdaq statistics indicate that the index has seen $700 million of its market cap evaporate from the election through Nov. 27.

Screens were awash in red throughout the trading day, with green spots flickering only in the chemical and gold sectors. In the broad market, oil service, biotech, brokerage and paper shares took the biggest blows. In the tech arena, the bomb from Gateway and a warning from Altera that revenue growth would be flat in the current quarter generated a gaggle of downgrades from Wall Street analysts, which further weighed on sentiment. But the software sector managed a tiny recover as Oracle shares staged a furious rally late in the session.

The Dow Jones Industrials Average ($DJ) shaved 214.62 points, or 2.0 percent, to 10,414.49. Leading the Dow deep in the red were its tech components: Intel, Microsoft, IBM and Hewlett-Packard. Among the few names in the black: A&T, DuPont and United Technologies.

The Nasdaq Composite ($COMPQ) gave up 109 points, or 4.0 percent, to 2,597.93 after falling as much as 183 points at its nadir Thursday. The index has been halved from its intra-day high of 5,132 set on March 10. The Nasdaq 100 Index, meanwhile, slipped 96.31 points, or 3.7 percent, to 2,506.54.

One Nasdaq heavyweight that escaped the selling was Oracle (ORCL), up a smashing 15.8 percent to $26.50. Attending the CS First Boston Technology Conference, Oracle made positive and upbeat presentations, reiterating the company’s previous guidance for quarterly results.

“We’re facing the worst tech bear market since 1973. The average Nasdaq stock has fallen 52 percent from its all-time high versus a 57-percent drop for the average stock in 1973,” said Mike Sheldon, chief market strategist at Spencer Clarke. Listen to the interview with Sheldon.

Art Hogan, chief market strategist at Jefferies & Co., said investors may still have more pain to endure. “The pre-announcement season is just beginning. We’ll have to (sift through) more bad news.”

But there will also be good news that, incrementally, should help the market get back onto firm ground, Hogan continued. The Dec. 19 Federal Open Market Committee meeting may, perhaps, give the market the most meaningful piece of good news yet: a shift to a neutral stance on rate from the current tightening bias.

The Standard & Poor’s 500 Index ($SPX) fell 2.0 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks erased 1.9 percent.

Volume was incredibly heavy at 1.51 billion on the NYSE and at 2.74 billion on the Nasdaq Stock Market – the second busiest trading day ever for the Nasdaq. Market breadth was horrendous, with decliners trouncing advancers by 19 to 10 on the NYSE and by 28 to 13 on the Nasdaq.

In the meantime, an amazing 985 Nasdaq stocks hit new 52-week lows Thursday versus a mere 48 reaching fresh 52-week highs. The picture was negative, but not nearly as bleak on the NYSE, where 212 stocks set fresh lows compared to 121 hitting new highs.

See for post-market trading activity.

Abby Cohen bullish

One long-time Wall Street bull remains optimistic.

“Significant cash levels have built in mutual funds and other portfolios. This, in combination with attractive valuation, sets the stage for higher share prices,” said Goldman Sachs’ chief strategist Abby Joseph Cohen in a note to clients.

“Valuations have become more appealing. Our model portfolio is now overweight in technology for the first time in a year,” Cohen added.

And fund managers are indeed sitting on hoards of cash. The Investment Company Institute said cash at U.S. equity funds surged to $212.9 billion in October, up 10.2 percent from the end of September.

The Gateway whammy

Gateway (GTW) hit the market with a whammy late Wednesday, revealing that it expects revenue and earnings-per-share for the fourth quarter to come in “significantly lower” than Wall Street estimates due to weaker-than-expected consumer holiday sales. In addition, Gateway guided EPS estimates for 2001 lower. The stock plunged $10.50, or 35.6 percent to $19. Gateway got slapped with downgrades from ING Barings, Gerard, Klauer & Mattison and Prudential Securities.

Other PC stocks saw their share of downgrades from Wall Street analysts: Lehman Brothers cut its ratings on Dell Computer (DELL) and Compaq (CPQ) while Salomon Smith Barney slashed its view on Dell.

Compaq fell $1.20 to $21.50 and Dell shed $2.56 to $19.25 while the Goldman Sachs Hardware Index ($GHA) shaved 5.5 percent.

Chip rout

Aside from the Gateway profit warning, news from Altera (ALTR) roiled the chip sector Thursday, taking the Philly Semiconductor Index ($SOX) down 6.8 percent – its fourth consecutive day of losses. The programmable logic device maker told investors late Wednesday that it expects fourth-quarter revenue to be flat from the previous quarter due to weaker-than-expected sales in November and expected sluggishness for December. The stock tanked $2, or 7.7 percent, to $23.94. Altera saw its shares downgraded by Chase H&Q and Merrill Lynch.

Among Altera’s competitors, Xilinx (XLNX) shaved $5.06 to $37.94. Merrill Lynch and Chase H&Q lowered their ratings on the stock.

In other analyst actions, Lehman Brothers lowered its ratings on a number of semis, including PMC-Sierra (PMCS), off 10.9 percent, Advanced Micro Devices (AMD), down 10.6 percent, Intel (INTC), off 11 percent, and Micron Technology (MU), down 8.2 percent.

And Cypress Semi (CY) shed 12.4 percent to $21.13 after Merrill lowered its rating on the stock to a “near-term accumulate” from a “near-term buy.”

Sector movers

Internet stocks slumped, drawing the curtain on their worst month ever. The Goldman Sachs Internet Index ($GIN), off 3 percent, languished at its lowest levels since late 1998.

Retail stocks retreated Thursday, with the S&P Retail Index ($RLX) off 1.3 percent. Ann Taylor (ANN) and Abercrombie & Fitch (ANF) witnessed mammoth losses after reporting ho-hum November sales, plunging 34.6 percent and 29.5 percent, respectively.

Paper stocks slumped, with a drop in shares of Dow-company International Paper (IP) heavily weighing on the group. The stock fell 6.7 percent to $33 after UBS Warburg lowered its fourth-quarter and 2001 earnings per share estimates for the company. UBS said IP indicated that the fourth quarter was a continuation of the third quarter trend, in addition to a seasonal downturn. See related Market Pulse item.

Treasury action

Government prices benefited from the fallout in stocks prices. The 10-year Treasury note gained 1/4 to yield ($TNX) 5.49 percent while the 30-year government bond swelled 15/32 to yield ($TYX) 5.62 percent.

In the meantime, Thursday saw the release of October personal income, which fell 0.2 percent versus the expected 0.2 percent rise. And personal consumption expenditures rose by 0.2 percent versus the expected increase of 0.3 percent.

In other economic news, weekly initial claims rose 19,000 to 358,000 and the Chicago Purchasing Mangers Index fell to 41.7 percent in November versus October’s 48.7 percent. All of the index’s key components – new orders, prices paid and employment — posted marked decreases.

Friday will see the release of the November National Association of Purchasing Management Index, seen coming in at 48.5 percent, and October construction spending, seen rising 0.3 percent. View Economic Preview, economic calendar and forecasts and historical economic data.

Cornering the currency market, dollar/yen slipped 0.8 percent to 110.33 while euro/dollar rallied 1.7 percent to 0.8726. The European Central Bank left short-term rates unchanged at its policy-setting meeting Thursday.