Today's Market: Stocks End Weak Session Mixed; Tech Fares the Worst

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(Updated from 4:06 p.m. EDT)

This was not impressive. The stock market was weak today, and although the Dow Jones Industrial Average was saved by a couple of outperformers, sectors that have been strong of late weren't, and weak sectors, including technology, were. It was the kind of day that investors like to explain away as a product of listless August meandering, but that's a less convincing argument for those who have watched several months of failed rallies and hopelessly range-bound action.

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 2.93 +0.03% 10,908.76 -5.1% S&P 500 12.62 -0.9% 1460.25 -0.6% Nasdaq 93.51 -2.4% 3759.99 -7.6% Russell 2000 5.85 -1.2% 501.65 -0.6% TSC Internet 14.72 -2% 729.58 -36.8% NOTE CHANGE PRICE YIELD 10-Year Treasury 7/32 99 29/32 5.763%

Some of the positive sentiment garnered after Tuesday's smooth upswing was eroded, because retailers slumped after Gap (GPS) issued a third-quarter earnings warning. The S&P 500 lost 12.62, or 0.9%, to 1460.25, today, while the Dow gained 2.93 to 10,908.76. The Russell 2000 fell 5.85, or 1.15%, to 501.65.

Technology shares came under pressure, as a reasonably strong earnings report from Applied Materials (AMAT) couldn't lift the chip stocks. Applied Materials lost 4% and the Philadelphia Stock Exchange Semiconductor Index fell 2.2%. That, and losses in big-cap stocks and telecommunications names, caused the Nasdaq Composite Index to drop 93.51, or 2.4%, to 3759.99, ending the session near the day's lows. TheStreet.com Internet Sector index lost 14.72, or 2%, to 729.58.

"AMAT can come out with numbers, and it doesn't spark a rally in that space," said Rob Cummisford, portfolio manager at Kent Funds in Grand Rapids, Mich. "People have decided the semiconductor cycle is coming to an end, with Nokia (NOK) announcing slower growth."

Indeed, earnings reports aren't serving as a catalyst for this market anymore. Investors may not get their hopes up that PC-maker Dell's(DELL) post-close earnings will help the market tomorrow. Dell reported earnings of 22 cents a share, beating estimates by a penny.

And the market's confusion, that is, whether to invest in growth or defensive stocks, had resulted in several months of jockeying between pharmaceuticals and technology. Now, with Eli Lilly (LLY) potentially losing patent protection of Prozac, one of the market's defensive supports has been cut down at the knees.

The drug stocks, destroyed yesterday after Lilly lost a court battle intended to protect the company's Prozac patent, were better today, but not by much. TheStreet.com wrote about this yesterday. The Amex Pharmaceutical Index lost nearly 6% yesterday, and gained 1% today. Johnson & Johnson (JNJ) rose 2.8%, however.

And retailers had a terrible day, as the S&P Retail Index ended down sharply, losing 3.4%, due to a 14.3% drop in Gap and a 4% loss in Wal-Mart (WMT). The negative action in retailers serves as a bit of a reminder that the much hoped-for "soft landing" scenario that the market is looking for may have some bumps and bruises along the way -- and if a forceful slowdown in consumer demands is going to be engineered, it's the retailers on the front lines.

Absent the intermittent strength in retailers and drugs that had provided some ballast to this constantly vacillating market, only financials and utilities remained as prominent leaders, and even they suffered today.

"The old economy is getting a little money, but the utilities had a great run, financials had a great run, and retailers are taking it on the chin ... it's a real mixed marketplace," said Bob Basel, director of listed trading at Salomon Smith Barney. "We're having trouble picking it up from here."

The banks were mixed today. The Philadelphia Stock Exchange/KBW Bank Index ended off 0.4%, while the S&P Insurance Index lost 1.3%. The Dow Jones Utility Index dropped 0.5%.

Fed Out of the Way... Doesn't Help Tech

The market's convinced now that the Federal Reserve won't be tightening rates on Aug. 22, the Fed's next meeting, and that's a nice, underlying cushion preventing the market from falling significantly.

But positive developments have been limited. Basel said the market is incessantly waiting for a piece of data to act as a catalyst, when in this stagnant time, there's little an economic release can say that the market doesn't already know. "It's been waiting for data for a year," he said. "It's a day-by-day, data-by-data thing."

Some big economic numbers are due out tomorrow, with the release of retail sales and the Producer Price Index. Retail sales measures consumer demand, while the PPI measures changes in prices received by domestic producers of commodities in all stages of processing (crude materials, intermediate materials and finished goods). Both indicators have the potential to be big market movers.

The consensus in the market currently is that growth, or at least earnings comparisons, is going to slow in the third and fourth quarter. Economic growth is expected to continue its recent strength, perhaps with a mild slowing, but it's no longer accelerating.

Investors seem to be regarding more seriously the notion that technology stocks are more attached to the rest of the economy than was previously thought. With growth expected to ratchet down, prominent big-cap technology stocks haven't been able to bust through levels technicians define as resistance, to take the market higher.

To wit, Cisco (CSCO) can't get through the 70 level, and it finished down today, losing 6.5% to 63 3/8. Adobe (ADBE) dropped 3% and Intel (INTC) fell 2.5%.

Strategists say the Comp's volatility is part of a lingering process involved in its correction. Despite correcting, investors still aren't yet comfortable with advancing the Nasdaq past the 4000 point.

"The psychological impact is tremendous on the Nasdaq right now," said Steven Goldman, market strategist at Weeden. "We exceeded expectations last year on the Comp. And seasonally, it's not the strongest couple of months, as well."

One of the worst sectors today were local communications providers, led by ICG Communications (ICGX), which dropped 54%, from 14 1/4 to 6 9/16, after issuing an earnings warnings for 2000 and 2001. MGC Communications (MPWR) dropped 13.7% and Viatel (VYTL) fell 5.8%.

Market Internals

Breadth was negative on moderate volume.

New York Stock Exchange : 1,350 advancers, 1,473 decliners, 942 million shares. 82 new 52-week highs, 24 new lows.

Nasdaq Stock Market : 1,585 advancers, 2,377 decliners, 1.3 billion shares. 50 new highs, 117 new lows.

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Most Active Stocks

NYSE Most Actives

• Gap (GPS): 38.2 million shares.

• Petrolo Brasilero SA (PBR): 36 million shares.

• Eli Lilly: 24.8 million shares.

Nasdaq Most Actives

• Cisco: 58.4 million shares.

• WorldCom (WCOM): 33 million shares.

• Applied Materials: 29.7 million shares.

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Sector Watch

The American Stock Exchange Broker/Dealer Index dropped 1.7%. Stalwarts Lehman Brothers (LEH) and Merrill Lynch(MER) struck new intra-day trading highs, though both ended lower.

Biotechnology stocks were whipped, with the Nasdaq Biotechnology Index ending 3.7% lower. High-flying momentum plays such as Protein Design Labs (PDLI) and Human Genome Sciences (HGSI) were slammed, each dropping 7.2%.

With crude oil prices tipping over $30 per barrel, oil stocks were higher. The American Stock Exchange Oil & Gas Index rose 1.2%, and Dow component ExxonMobil(XOM) ended up 1.7%.

"I think it's a combination of the API numbers and some political controversy," said Charles T. Maxwell, senior energy analyst at Weeden & Co., commenting on the pop in the price of crude oil after a report from the American Petroleum Institute.

"The API numbers that came out on Wednesday indicated a drop in crude inventory in the U.S. And there's also some political maneuvering going on that is causing the prices to go up," Maxwell said. "Venezuela President Hugo Chavez is making a tour of OPEC capitals and will make a stop in Baghdad to meet with Saddam Hussein."

All this is making waves in the United States because Venezuela is a member of the United Nations.

The Philadelphia Stock Exchange Oil Services Index ended 0.9% lower.

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Bonds/Economy

Treasuries were up modestly following today's very successful 30-year bond auction, the third and final auction of the so-called quarterly refunding, in which the Treasury Department issues new notes and bonds.

The auction produced a bid-to-cover ratio of 3.71, the highest in years, indicating strong demand for the bonds. At $5 billion, the 30-year bond auction was the smallest in years, and long-maturity issues have become somewhat scarce, a result of government initiatives to pay down the national debt.

There are no top-tier economic releases today, but the Import Price Index showed July import prices, excluding oil, rising at the fastest pace in more than four years, up 1.6%. Including oil, the index was unchanged in July, with prices rising at a 6.6% pace, down from 7.7% in June.

Meanwhile initial jobless claims rose to a still very low 293,000 in the latest week, up from 275,000 the previous week.

The benchmark 10-year Treasury note was up 9/32 at 99 29/32, to yield 5.763%. The yield is some 10 basis points lower than yesterday's end-of-day yield because the 10-year quoted today is the new one that was auctioned yesterday. As the newest issue of its kind, it is the most liquid, and that is an asset traders are willing to pay for by accepting a significantly lower yield.

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International

European markets closed mixed, with drug stocks putting pressure on London's FTSE after the ruling against Prozac-maker Lilly yesterday.

London's FTSE was down 26.70, or 0.4%, to 6387.30.

Europe's other major markets were mixed, with the CAC 40 in Paris down 7.64, or 012%, to 6562.54 and the Xetra Dax in Frankfurt was up 54.82, or 0.7%, to 7281.53.

The euro was lately trading lower at $0.9079.

Asian markets were flat to lower overnight.

With the government wielding its big stick, and trying to entice central bank members to not raise interest rates, Tokyo shares closed slightly lower today in a jittery market that's awaiting Friday's Bank of Japan policy board meeting. The Nikkei 225 index fell 58.95 to 15,975.65.

Meanwhile, Japan's biggest tire-maker, Bridgestone fell 226, or 10.9%, to 1849 after local papers reported that the firm likely will post a group net loss of around 37.2 billion yen. The company announced yesterday that it is recalling 6.5 million tires.

Currency dealers started to price in a possible interest-rate hike today, with the greenback losing over 50 yen to fetch around 107.64 in Tokyo currency trading. The dollar was recently trading up against the yen at 108.78.

Hong Kong's Hang Seng index managed to close in the black, up 151.22 to 17,333.21 amid a general lack of direction. Some buying materialized in telecom shares, including index heavyweight China Mobile(CHL), up HK$2.25, or 3.6%, to 64.00 ($8.21), while Hutchison Whampoa(HUWHY) gained 0.50 to 116.00.

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