Market Update: Cisco Pushes Nasdaq into the Dumps
Near midday, the
Dow was barely above the flatline and the
Nasdaq Composite Index was descending deeper into the red.
The
Cisco
(CSCO) - Get Cisco Systems Inc. Report
-motivated tech selloff was sparing few areas of tech.
After all, networking giant Cisco comprises a big chunk of the Nasdaq's market capitalization. Last night Cisco
announced that it missed earnings targets for the first time in three years.
Cisco was off 12.2% to $31.38, just shy of its 52-week low. The Nasdaq is off more than 2%.
CEO John Chambers said that "this capital spending trend could get worse before it improves" and that the company's visibility on capital spending was poor. A slew of companies have lately said they lack visibility, casting into doubt expectations that the economy will start to pick up in the second half of this year.
Electronics components makers, for whom Cisco is a big customer, were falling on the Cisco news.
Flextronics
was off 8%,
Medtronic
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(MDT) - Get Medtronic plc. Report
was down 2.3% and
Jabil
was slipping 7.9%. These firms do outsourcing work for a host of companies that need manufacturing services.
Networkers were obviously feeling the heat of Cisco's earnings news, with
Network Appliance
(NTAP) - Get NetApp Inc. Report
,
Cabletron Systems
(CS) - Get Credit Suisse Group American Depositary Shares Report
and
Juniper Networks
(JNPR) - Get Juniper Networks Inc. Report
hit hard. PC makers were also generally weak as were semiconductors and Internet stocks.
Another big mover is
Sun Microsystems
(SUNW) - Get Sunworks Inc. Report
, falling 4.7%. Sun CFO Michael Lehman gave a rather gloomy
outlook yesterday afternoon, speaking at the Unix-systems company's two-day analyst meeting in San Francisco.
The blue-chip
Dow was getting a lift from financial stocks
J.P. Morgan
(JPM) - Get JP Morgan Chase & Co. Report
and
American Express
(AXP) - Get American Express Company Report
were higher.
The Data, The Fed, The Rates
A mixed but somewhat disappointing preliminary fourth-quarter
productivity report wasn't helping matters. But it didn't do much damage either.
Productivity rose 2.4% in the fourth quarter, preliminary results out this morning show, compared to economist forecasts of 2%. That's still lower than third-quarter productivity, which was revised down to 3% from 3.3%.
Unit labor costs grew 4.1% in the quarter. Economists were expecting 3.3%. Third-quarter unit labor costs were revised upwards to a 3.2% rise from a 2.9% increase. The fourth-quarter rise in unit labor costs is its biggest gain since second quarter of 1999 when it rose 4.3%. Productivity measures changes in output per hour for all members of the nation's workforce, while unit labor costs measures the labor costs per unit of output.
The big question now is whether the Fed can help stave off a deep recession in corporate earnings and throughout the economy.
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Sector Watch
Fiber optic stocks were under fire after Cisco said that its business was showing marked weakness.
SDL
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and
JDS Uniphase
(JDSU)
were off 6.8% and 7.1%. Both rose yesterday on news that their merger had been approved by the government. Other optical names,
PMC Sierra
(PMCS)
and
Corning
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were falling.
Insurance and retail stocks were rising along with defensive utility and tobacco stocks. The
S&P Insurance Index
was up 1.2%, the
S&P Retail Index
was climbing 1.6% and the
American Stock Exchange Tobacco Index
jumped 2.6%.
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Bonds/Economy
Treasuries were rallying early this morning ahead of the productivity report. The benchmark 10-year
Treasury note was lately unchanged at 104 6/32, yielding 5.187%.
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