U.S. techs rally while Dow slips

Dell reaffirms, Techs swell for 2nd day

But Dow surrenders earlier gains

By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 5:26 PM ET Oct 4, 2001

NEW YORK (CBS.MW) — Tech stocks saw outsized gains Thursday for a second consecutive session as Dell Computer told investors it would meet its financial targets, adding to the bullish backdrop created by Cisco Systems on Wednesday.

But the Dow Industrials ended in the minus column, relinquishing an early advance, as sellers had the upper hand in the index’s retail, financial and consumer sectors.

The hardware and chip sectors fared the best among techs while gains in the broad market were dominated by the oil service, oil and natural gas sectors. Retail, bank, airline, drug, and biotech stocks declined. Check market stats and latest sector performance.

“We had a fear-driven market low and it has created a great short-term opportunity. The Cisco story, the Dell story and the fiscal stimulus story created the conditions for a positive tone in the short term,” remarked Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum.

“I don’t think we’ll undercut the September lows, though a retest is certainly possible. You have to be careful here. Emotions will continue to rule the market and create volatility during the fourth quarter. We’ll settle into a wide trading range from here,” Hyman said.

The Dow Jones Industrial Average ($INDU) descended 62.90 points, or 0.7 percent, to 9,060.88 after rising as much as 64 points at its intraday peak. Ending with losses were shares of American Express, Alcoa, Coca-Cola, General Motors, General Electric, Home Depot, J.P. Morgan Chase and Procter & Gamble. Leading on the upside were shares of Intel, United Technologies, Honeywell and Exxon Mobil.

The Nasdaq Composite ($COMPQ) gained 16.50 points, or 1.0 percent, to 1,597.31 while the Nasdaq 100 Index ($NDX) added 11.25 points, or 0.9 percent, to 1,260.66.

“Do we buy now or not? My view is that after Wednesday, if there is a retest (of the recent lows), it will be successful,” commented Ralph Bloch, senior vice president at Raymond James & Co.

“I think (investors) can buy 1/2 positions and then complete them if there is a test. If there isn’t a retest, then we’ll buy when the market simply pauses,” he concluded.

The powerful rally over the past couple of sessions has swept the Dow Industrials and Nasdaq up 10 percent and 12.2 percent, respectively, from their 2001 closing lows reached on Sept. 21.

Mike Hurley, technical analyst at SoundView Technology Group, said that while it’s too early to say whether the market’s rally is “for real,” he points out that sentiment readings recently reached levels often associated with major bottoms and that the stock averages have now “followed through.”

He notes that certain indicators used in technical analysis aren’t overbought and that thus additional upside in the days ahead is feasible.

“It’s how stocks handle themselves at areas of potential resistance that will be the first key hurdle to the longevity of this rally. Traders may want to take profits at those levels once we do get overbought while investors may be best served to wait for either a test of the recent lows and/or confirmation of a new uptrend,” Hurley concluded.

The Standard & Poor’s 500 Index ($SPX) lost 0.2 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks climbed 0.9 percent.

Volume came in at 1.56 billion on the NYSE and at 2.57 billion on the Nasdaq Stock Market. Market breadth was positive, with winners outpacing losers by 18 to 13 on the NYSE and by 21 to 15 on the Nasdaq.

Read for trading after the official closing bell.

Sector and specific movers

Hardware stocks were underpinned by Dell’s good news. Dell (DELL) reaffirmed its financial targets for the fiscal third quarter during its analyst meeting on Thursday. Dell sees earnings-per-share of 15 to 16 cents a share on revenue of $7.2 billion to $7.6 billion. Dell pointed to the “potency and efficiency” of its direct business model in the face of continued economic challenges. The stock jumped 8.1 percent and took the Hardware Index ($GHA) up 4.6 percent.

Cisco Systems (CSCO) continued its ascent, ending up 3.4 percent after rallying almost 22 percent on Wednesday. The networking giant told investors that it’s “very comfortable” with its fiscal first-quarter financial targets. Among Cisco’s peers, Juniper Networks (JNPR) rallied 10.6 percent after Morgan Stanley upped the stock to an “outperform” from a “neutral,” citing increased confidence in its long-term growth prospects.

Fiber-optic stocks traded mixed in response to a profit warning from Corning (GLW) late Wednesday. The company said it won’t meet its third-quarter targets and that it will cut 4,000 more jobs. Corning blamed the deterioration in global economic conditions, particularly over the past few weeks. The company said it does not expect any significant market recovery until late 2002 or 2003. Corning fell 14.4 percent while Nortel, which warned earlier in the week, added 0.2 percent. JDS Uniphase declined 1.5 percent and Ciena 6.2 percent.

Among other tech groups, software stocks gained traction for a third straight session. But some analysts are displaying some caution on the sector. Microsoft (MSFT), for one, got a downgrade from A.G. Edwards but ended up 0.4 percent. The software behemoth was lowered to a “buy” from a “strong buy” due to its recent appreciation. A.G. Edwards said it expects the company to meet earnings-per-share estimates but feels it could fall short of revenue expectations.

And in a note to clients, SG Cowen & Co. cautioned investors not to get “overly excited over the lack of third-quarter pre-announcements. “Although estimates have not come down recently, software companies are not out of the woods on third-quarter earnings. With large-cap software stocks up 18 percent in the past week, risk/reward is beginning to look more negative,” Cowen said. Among stocks in the group, BEA Systems added 2.7 percent, Siebel Systems climbed 6.8 percent and Oracle 1 percent.

The market got its first IPO since August on Thursday as Israel-based Given Imaging (GIVN), a firm that makes a pill containing a wireless video camera, climbed 3.9 in its first day of trading.

In the telecom segment, Global Crossing (GX) tumbled 48.8 percent after the firm said it’s in preliminary talks with Asia Global Crossing (AX) — in which it holds a 59 percent stake — about acquiring the company outright. Global Crossing also warned that its third-quarter results would miss Wall Street expectations.

In earnings news, Dow stock Alcoa (AA) posted third-quarter earnings of 39 cents a share, matching the Thomson Financial/First Call estimate. The aluminum giant said it’s on target to meet its 2003 cost-cutting goal, adding that cost-reducing measures helped it to weather hardships resulting from lower prices and weak markets. Alcoa said it sees this challenging environment continuing in the fourth quarter, with the impact of the terrorist attacks of particular concern. The stock fell 4.0 percent.

Tyco International (TYC) added 1.6 percent after announcing that it’ll purchase the remaining shares of TyCom (TCM) that it doesn’t already own in a stock deal valued at approximately $784 million. TyCom surged 52.5 percent.

Market maker Knight Trading Group (NITE) climbed 8.5 percent even after telling investors that it expects to report a loss for the third quarter due to adverse market conditions following the Sept. 11 tragedies.

Energy company El Paso (EPG) climbed 5.1 percent after affirming that it expects to meet or exceed Wall Street’s estimate for the third-quarter. Shares of major oil-related companies rallied heartily Thursday on growing expectations that OPEC will soon cut production, which also sparked a rally in crude futures prices. The Philly Oil Service Index ($OSX) was especially ebullient, taking on 6.2 percent.

Treasury focus

Treasurys ended lower after registering outsized gains in recent sessions and digesting a special 10-year note auction.

Treasury sold a $6 billion reopening of 10-year notes first auctioned in August in an unusual step to alleviate some of the pent up demand that has backlogged the government bond market in the wake of the Sept. 11 terrorist attacks.

The 10-year Treasury note was off 10/32 to yield ($TNX) 4.51 percent while the 30-year government bond was off 2/32 to yield ($TYX) 5.30 percent.

In economic news, weekly jobless claims climbed 71,000 to 528,000, much higher than the 468,000 reading that had been expected and the biggest jump and highest level since late July 1992. In other news, outplacement firm Challenger, Gray and Christmas said almost a quarter million job cuts were announced in September — many a direct result of the Sept. 11 attacks.

Separately, August factory orders came in flat vs. the expected 0.3 percent decline. Excluding transportation, orders rose 0.2 percent. Excluding defense orders, factory orders gained 0.2 percent as well.

And the minutes of the Aug. 21 FOMC meeting revealed that the Federal Open Market Committee voted unanimously for rate cuts on Aug. 21 and Sept. 17.

The week’s economic kingpin — the jobs report — will be released Friday. Non-farm payrolls are expected to have declined 117,000 in September and the jobless rate is seen edging up to 5 percent while average hourly earnings are seen increasing by 0.3 percent. Check economic calendar and forecasts.

In the currency segment, the dollar inched down 0.2 percent to 120.36 yen while the euro added 0.4 percent to 91.80 cents.

The Bank of England lowered short-term rates by 25 basis points at its policy-setting meeting Thursday for the second time in three weeks — just two days after the Fed lowered rates by 1/2 percentage point. .

Julie Rannazzisi is markets editor for CBS.MarketWatch.com in New York.

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