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Market Update: Cautious Bounce Yields to Rally by Midmorning

<LI>PC-makers, semiconductors lead rally.</LI> <LI>Drug, tobacco stocks back out of favor.</LI> <LI>PMI comes in below forecast at 47.7.</LI>

A bargain-hunting bounce was under way at the open this morning as investors scraped the pavement for tech stocks flattened by yesterday's raging selloff.

The rally started at a moderate and cautious pace amid doubts over its staying power. But buyers held on tight, and stocks have begun to climb boldly higher. A change in

J.P. Morgan's

portfolio weightings may have helped. J.P. Morgan strategist Douglas Cliggot raised his equity allocation to 60% from 50% and dropped his bond and cash allocations to 20% each from 25%. Initially unable to break away from the flatline, the

Dow and the

S&P 500 were lately working their way higher along as well.

Investors this morning particularly fancied big-cap PC-makers and semiconductor stocks, which were the culprits for yesterday's selloff, and were shunning defensive plays such as drug and tobacco stocks, which had been rallying of late.




-- the eye of Thursday's hurricane -- was up 5.2% after losing 36% of its value yesterday. Gateway and specialty semiconductor-maker


(ALTR) - Get Free Report

helped spark the selling spree yesterday in tech after both companies lowered profit and revenue estimates for upcoming quarters. Altera was up 5.5%.

Other bellwethers such as networker

Cisco Systems

(CSCO) - Get Free Report

, optical giant

JDS Uniphase


, and telecom



were also culling favor with investors. Cisco was rising 5.9%, JDS was 13.6% higher and WorldCom was up 10.9%.

It was about time for a technical bounce. The tech-heavy

Nasdaq has been just about cut in half since hitting a high of 5132 only nine months ago. The Nasdaq lost 25% in November alone, making it the second-worst month in the index's history.

In fact, negative calls on semiconductor-making goliath Intel and a bunch of semiconductor-equipment manufacturers from

Credit Suisse First Boston's

this morning couldn't even put a damper on the buying. After all, the CSFB call is a little, well, after the fact. The

Philadelphia Stock Exchange Semiconductor Index

was lately up 4.9% after losing over 60% since hitting its March high.

"A lot of these stocks have already dropped substantially in the last week, at this point," said Phil Ruffat, vice president of

Fuji Futures

. Adding to the fray might be bullish at this point, since analysts have been lowering after stocks are already down a lot lately," he said.

Semis titan Intel was suffering from the CSFB call. CSFB lowered its earnings estimates on the company, citing PC-pricing pressures and declining demand. Glavin dropped his 2001 earnings estimate to $1.66 from $1.75, on revised revenue estimates of $37.6 billion from $39.3 billion. He maintained a buy rating. Intel was off 1.5%.

CSFB also lowered earnings estimates for several semiconductor-equipment manufacturers -- saying the changes reflect difficulties likely to manifest in the first half of 2001. Estimates were dropped for


(KLAC) - Get Free Report


Applied Materials

(AMAT) - Get Free Report


Lam Research

(LRCX) - Get Free Report




. KLA was up 9.6%, Lam was rising 2.5%, Novellus was 7.95% higher and Applied Materials was barely up, higher by 0.8%.

Still, it's unclear whether this bounce will hold into the close. The Nasdaq has lost its shirt in the rallying game over and over again in the past three months as buyers coming into the market ultimately lose their nerve and duck back out.

Meanwhile, keep a watch on the U.S. Supreme Court. That court will hear arguments from both Bush and Gore's legal teams today over whether the Florida Supreme Court overstepped its boundaries by extending the vote recount deadline. If the court rules the state court did overstep its authority, George Bush, who has already been certified by the Florida secretary of state as the winner of the state's 25 electoral college votes, would become president.


National Purchasing Manager's Index gave further indications that the economy is slowing. A highly timely and market-moving number that measures growth in the manufacturing sector, the PMI came in at 47.7, below forecasts of 48.5 and the previous month's 48.3. The figure signals factory-sector expansion when it is above 50 and contraction when below it.

Slower growth is bad for corporate earnings, but it could prompt the Fed to ease its interest-rate policy. As weak economic data accumulate, some economists think the policy-making body could move away from viewing inflation as a continuing risk. This bias change would be a first step towards a potential future interest-rate cut. Some pundits think a rate cut is the only thing that can turn this market around, because lower rates are good for business.

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Sector Watch

Financials continued the winning streak that began last Friday, rallying back from a sharp selloff sparked by worries over credit risk in the first week of November. Financial giant

J.P. Morgan

(JPM) - Get Free Report

, which didn't rally with them yesterday and was the biggest loser on the Dow for the day, was up 5.4% this morning.


(C) - Get Free Report

was up 1.5% and

American Express

(AXP) - Get Free Report

was 0.5% higher. The

Philadelphia Stock Exchange/KBW Bank Index

was up 1.2%.


American Stock Exchange Broker/Dealer Index

was up 4%.

The drugs were following through on their late afternoon sell-off yesterday. The sector has rallied smartly since early September, when the Nasdaq began to falter seriously for the second time this year. The

American Stock Exchange Pharmaceutical Index

was lately down 2.8%.


(MRK) - Get Free Report

, which hit an all-time high Wednesday, was down 2.4% to $90.41.

Another traditionally defensive sector, the

American Stock Exchange Tobacco Index

was losing 0.2%.

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Bond prices were running higher this morning after a resounding rally yesterday. But lately, the benchmark 10-year

Treasury note was down 6/32 at 101 25/32, yielding 5.509%.

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