Market Update: Dow Follows Nasdaq Below Water at Midday
Take this rally and shove it.
That's the mantra among investors and money managers now. Technical strategists and analysts are continuing to find ways to let people know the market has gotten oversold, and perhaps it has; but the broader investment community still intends to run screaming from stocks until the pain stops.
The
Dow Jones Industrial Average, which hovered in positive territory for a time, is now in negative territory again. The
Nasdaq Composite Index is significantly lower, with absolutely putrid breadth -- losers are beating winners by a count of 24 to 10. Significant losses in the semiconductors, networking, fiber-optics and other technology stocks are pounding the Nasdaq and beginning to take down the Dow.
The activity in the market today once again shows a defensive pattern. Drug stocks, tobacco stocks, insurance and utilities are rallying, although there's some assorted strength in cyclical stocks and some commodities stocks. Meanwhile, the tech stocks are lousy and financials are mixed.
Robert Dickey, head of technical strategy at
Dain Rauscher Wessels
, said today the market was oversold. His statements were similar to the tone sounded by Richard McCabe,
Merrill Lynch's
head of technical analysis, yesterday. It's having no impact. Cash levels are building up in mutual funds, but they're not flooding the market yet.
It's due to uncertainty over future earnings growth. Third-quarter GDP figures will be revised this Friday, from an initial estimate of 2.7% to an expected 2.2% rate. It's old news, but there's concern that fourth-quarter results will be similar (somewhere around 3% growth) and earnings could take a hit as a result.
Another ugly call on tech stocks this morning wasn't any good for tech sentiment. Especially after the Nasdaq slipped so dramatically off its early day rally yesterday afternoon. Merrill Lynch analyst
Jerry Labowitz slashed numbers and ratings on electronic-components makers
Vishay Intertechnology
(VSH) - Get Vishay Intertechnology Inc. Report
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and
Kemet
(KEM) - Get KEMET Corporation Report
(KEM:NYSE - news). Vishay was lately falling 18.4%, and Kemet, which was halted in early trading, was off 18.8%.
The semiconductor stocks continued to drag; the
Philadelphia Stock Exchange Semiconductor Index
lost 4.1%. The
Nasdaq Telecommunications Index
fell 3.8%.
The stocks hitting new highs on the big board today included a number of energy providers like
Texaco
(TX) - Get Ternium S.A. American Depositary Shares (each representing ten shares USD1.00 par value) Report
and
Laclede Gas
(LG)
. But the usual suspects were hitting new 52-week lows, including
Lucent
( LU), the
New York Stock Exchange's most active, losing 3.7% to $16.13 on 14.7 million shares.
Sector Watch
Yesterday's rally in retail was pretty short-lived. The retailers climbed on news that retail sales exceeded expectations after the Thanksgiving holiday. Analysts watch this time closely for clues about how spending will go throughout the holiday season.
But market observers think most of that strength is due to big discounts, which aren't good for retailers in the long run. Some are recommending that investors sell off of yesterday's rally, and investors are listening. Merrill Lynch this morning cut
Gap
(GPS) - Get Gap Inc. (The) Report
to intermediate-term accumulate from buy. It was lately off 5.5%. Other retailers were also lower; the
S&P Retail Index
was falling 1%.
Retail stocks have been falling on fears that the slowing economy and weaker stock prices in general would keep shopper's wallets closed during the most important time of the year for retail sales.
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Bonds/Economy
Treasuries are mixed but mostly higher in response to weaker-than-expected economic data.
The benchmark 10-year
Treasury note lately was up 5/32 at 101 2/32, dropping its yield to 5.603%.
Orders for big-ticket items and consumer confidence were both surprisingly low in reports released today.
Durable goods orders
(
definition |
chart |
) fell 5.5%, compared to an average forecast among economists polled by
Retuers
for a 1.3% decline. A 15.8% drop in orders for transportation equipment was largely responsible; still, the growth rate for durable goods orders slipped to 1.4%, the slowest in nearly two years.
Meanwhile, the
Consumer Confidence Index
(
definition |
chart |
) dipped to 133.5 in November, the lowest since October 1999. The index had been forecast to rise to 135.9.
The sluggish economic data is giving Treasuries a boost -- the shortest-maturity issues in particular -- by fostering hope that the
Fed will lower interest rates. At the
Chicago Board of Trade
,
fed funds futures were discounting about a 75% chance that the Fed will lower the rate to 6.25% from 6.5% currently by the end of the first quarter. Yesterday, the futures were discounting even odds of such a move.
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