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Tech Stocks Taken Apart

Robert Holmes

Stocks dropped again Monday as selling pressure built throughout the session and swept across practically every area of the market.

The Dow Jones Industrial Average was down 172.65 points, or 1.29%, to close at 13,167.20. Twenty-six of the Dow's 30 components finished with losses, with Caterpillar (CAT Quote) one of the biggest decliners, down 3%

Earlier, Morgan Stanley downgraded the construction-equipment maker to underweight from equal-weight, forecasting dwindling sales in 2008.

At the same time, the S&P 500 was off 22.05 points, or 1.5%, at 1445.90. The Nasdaq Composite lost 61.28 points, or 2.32%, at 2574.46.

Big-cap tech stocks were particularly sluggish. Intel (INTC Quote), Microsoft (MSFT Quote) and Cisco (CSCO Quote) each fell roughly 2%. Apple (AAPL Quote) lost 3.2%, and Research In Motion (RIMM Quote) slid 5.2%.

"We have the same list of concerns we've had for a while now," said Art Hogan, chief market analyst with Jefferies. "Everyone is predicting a slowdown domestically and globally, but no one expected a pickup in inflationary pressures. If we continue to see a slowing economy and rising inflation, it's a huge problem for equities."

Breadth and volume were poor to start the week. On the New York Stock Exchange 3.48 billion shares changed hands, as decliners toppled advancers by a 4-to-1 margin. Volume on the Nasdaq reached 1.85 billion shares, with losers beating winners 3 to 1.

Traders were bracing for quarterly results from some big finance names, as fears swirled over what each will say about subprime mortgage-related losses.

Goldman Sachs (GS Quote) will post earnings on Tuesday, Morgan Stanley (MS Quote) is out on Wednesday, and Bear Stearns (BSC Quote) will be out on Thursday.

Several financials were under pressure after Citigroup cut its ratings for Capital One (COF Quote), Countrywide (CFC Quote), Radian Group (RDN Quote) and MGIC Investment (MTG Quote).

Citi also downgraded a host of banks, including Bank of America (BAC Quote), JPMorgan Chase (JPM Quote), Wachovia (WB Quote) and Wells Fargo (WFC Quote).

Meanwhile, CIBC World Markets downgraded Swiss bank UBS (UBS Quote) to sector underperform from sector perform. UBS was off $1.23, or 2.6%, to finish at $46.12.

One of the winners, though, was bond insurer Ambac Financial (ABK Quote), which rose 17% to $26.68 after Moody's affirmed the Aaa rating on its Ambac Assurance unit.

Still, the NYSE Financial Sector Index was off 1.7%, the Nasdaq Financial 100 shed 1.2%, and the Amex Financial Sub Index was down 1.1%.

Among the few gainers, the Philadelphia Housing Sector Index edged up 0.1%.

"Technically, the market is very close to the middle of the broader trading range for this year," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "High inflation, a weakening growth picture and high energy prices are favoring the bears. There is still a chance that bulls make a run at it, but it looks as though we're starting this week on our heels."

Overseas markets fell hard as losses from Friday's U.S. session lingered. In Asia, Hong Kong's Hang Seng dropped 3.5%, and Japan's Nikkei 225 shed 1.7%. In Europe, London's FTSE 100 slid 1.9%, and Germany's Xetra Dax was down 1.6%.

Back in the U.S., M&A activity wasn't enough to lift the market. Ingersoll-Rand (IR Quote) said it will acquire Trane (TT Quote) for $10.1 billion in cash and stock. Shares of Trane surged 21.6% to close at $45.25, but Ingersoll-Rand slid 11.6% to $43.47.

Elsewhere, insurer Ace Ltd. (ACE Quote) will buy Combined Insurance Co. of America from Aon Corp. (AOC Quote) for $2.4 billion. Ace rose $1.75, or 2.9%, to $61.26. Aon tacked on 57 cents, or 1.2%, to $49.51.

Another deal will see a merger of two oil-service firms, as National Oilwell Varco (NOV Quote) will acquire Grant Prideco (GRP Quote) for more than $7 billion. Shares of Grant Prideco jumped 13.8% to $54.01.

On the economic front, the Commerce Department said that the third-quarter current account deficit came in at $178.5 billion, down from $188.9 billion in the second quarter. The deficit was much narrower than expected.

"The market chaos is all over these data, but the trend in the current account deficit is now favorable," said Ian Shepherdson, chief economist with High Frequency Economics.

Also on the economic docket, the New York Federal Reserve said its Empire State manufacturing index tumbled to a reading of 10.3 in December from 27.4 last month.

U.S. Treasury securities were rallying. The 10-year note was up 23/32 in price, dropping the yield to 4.15%. The 30-year bond was adding 1-5/32 in price, yielding 4.59%.

Commodity prices were mixed. Crude oil was down 64 cents to $90.63 a barrel, gold rose and silver was little changed.