Market Update: Tech Stocks Flat as Blue-Chips Stay in Negative Territory

Nasdaq heads down after strong open on back of positive unemployment report. Data shows jobless rate fell to 4.4% in May.
By Kristen French ,

(Updated from 9:53 a.m.)

Tech stocks fell to the flatline after rising at the open this morning following a favorable May

jobs report

and moderate gains Thursday.

Blue-chips opened stronger, too, but headed down much more quickly than their tech counterparts.

The

Nasdaq Composite Index was lately down 1.8 points to 2109; the

Dow Jones Industrial Average was down about 46 points to 10,866; and the broader

S&P 500 index was off about 7 points to 1249.

Investors betting on an economic and earnings recovery later this year or early next year were likely cheered to finally see a concrete sign of improvement. Networking stocks were lifting again today after falling in the wake of a downgrade Wednesday. Chip stocks were also rising after chip-equipment maker

Novellus

(NVLS)

reaffirmed its second-quarter guidance last night. Even Altera

(ALTR) - Get Report

was up, despite it lowering forecasts after the close of regular trading yesterday.

The unemployment rate fell for the first time in eight months to 4.4% from April's 4.5%. Economists were expecting 4.6%. Nonfarm payrolls declined by 19,000 vs. the expected 17,000 drop. But April and March figures for declines in nonfarm payrolls were revised up sharply.

"It was certainly stronger than expected, though not overly strong," said Joseph Abate, an economist at

Lehman Brothers

. "All the major sectors -- from retail to financial services -- actually fell in the month, but they didn't fall as much as in April. So we are still seeing a decline in hiring, but not at the same pace as we were in April.

"I think the

Federal Reserve will still likely to cut by 25 basis points, which is what we expected, but not by 50, because

the report does show an overall improvement in the employment environment," he added. The Fed has slashed its benchmark lending rate five times this year, dropping short-term rates by 250 basis points to 4%. The policy-making body next meets to determine the direction of interest rates on June 26 and 27.

July futures now are putting a 90% chance of a 25 basis-point cut at the June meeting.

The

Purchasing Manager's Index

for May, a key measure of demand in the manufacturing sector, is also due out this morning, at 10 a.m. EDT. Economists are expecting a reading of 43.5, up from 43.2 the previous month. A reading above 50 signals expansion, while a reading below 50 signals contraction. The PMI has not been above 50 since July 2000.

Meanwhile, earnings concerns are still weighing heavily on the market after

Sun Microsystem

(SUNW) - Get Report

warned on Tuesday that it would miss its second-quarter targets, kicking off the

second-quarter confession season. Some market professionals say Sun's news has sparked a major change in market psychology. In early action today, Sun was down 0.9% to $16.33.

Last night, the earnings news was mixed. Filing into the confession pew, chipmaker Altera

lowered its revenue guidance for the second quarter, citing lower-than-expected international sales. For the quarter ending June 30, the chipmaker said it expects revenue to decline about 25% from the first quarter's top line of $287.4 million. Altera earlier expected a sequential decline of 20%. The stock was lately up 1.6% to $24.39.

But in a conference call last night, chip-equipment maker Novellus

maintained its prior financial guidance for the second quarter. There had been some buzz on Wall Street that the company would warn. Novellus was lately up 1.7% to $48.72 this morning.

Investors today will likely also trade on the

rebalancing of the

Russell 2000

, the index of small-cap stocks, which is done annually and based on stocks' closing prices on May 31. The rebalancing takes effect July 1.

Yesterday's market gains snapped a three-day down streak on the Nasdaq and two days of losses on the Dow.

The Nasdaq rebounded 25.99 points, or 1.25%, yesterday. The Dow rose 39.3 points, or 0.36%, closing below the 11,000 mark the second straight session since it crossed past it on May 15.

TheStreet.com

took a look at what

history says about the Dow's recent levels.

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