Market Update: Early Tech Rally Fades
(Updated from 11:53 a.m.)
One
Cisco
(CSCO) - Get Report
upgrade just doesn't cut it.
An early tech rally fueled by the analyst action fizzled as sellers came into the market and Wall Street began a second day of profit-taking. After a monthlong rally led by tech stocks, and ahead of Cisco's earnings report after the market closes today, the tech-heavy
Nasdaq was lately around the flatline. Losses in defensive stocks and the
Dow Jones Industrial Average were accelerating.
Cisco
(CSCO) - Get Report
was still rising on heavy volume. Analyst Christopher Stix
raised Cisco to outperform from neutral, saying he thinks the stock will recover a half-year before its fundamentals improve. Cisco was up 5.1% to $20.25, still way off its 52-week high of $70. Cisco is expected to post earnings of 2 cents a share, barely a shadow of the 14 cents it earned in the year-ago period.
John Chambers, Cisco's chief executive officer, has been vocal about the economic slowdown and its impact on his company since early this year, and Cisco recently took a
$3 billion restructuring charge to write down an enormous amount of surplus inventory. There doesn't seem to be any consensus yet on whether the worst is past for Cisco and other high-tech companies -- analysts have been divided on the subject over the past month.
Wall Street paid little attention to ugly data released this morning on first-quarter
productivity and unit labor costs
, echoing its response to Friday's data, which also showed weakness in the economy.
Investors seem to believe bad data indicates the
Federal Reserve will keep cutting interest rates to make the economy stronger.
Alan Greenspan and his policy-making pals already have cut the
federal funds target rate -- the overnight rate that banks charge each other -- four times this year. The bond market is increasingly pricing in expectations the Fed will cut another half-point when it meets a week from today. Lower interest rates make borrowing cheaper for consumers and companies, encouraging them to spend more.
Productivity fell 0.1%, well below the expected 1.2% rise and 2.2% growth in the fourth quarter. Unit labor costs rose a whopping 5.2%, much higher than the 4.4% economists expected, and quite a bit higher than the previous quarter's 4.3% uptick. Low productivity and higher labor costs aren't good for companies. Profits have fallen drastically, so many businesses have been working to keep costs down.
As earnings season winds down, a couple of companies reaffirmed their targets for coming quarters. Four weeks before the end of its fiscal quarter, PC maker
Dell
(DELL) - Get Report
said it was
on target to meet its forecast. But the company also announced job cuts. It was down 4.4% to $24.77.
Motorola
(MOT)
yesterday said it expects its mobile-phone unit to return to profitability in the fourth quarter. It was lately up 1% to $16.57.
Financials
American Express
(AXP) - Get Report
and
J.P. Morgan Chase
(JPM) - Get Report
were helping to put the squeeze on the Dow today. American Express, off 5.1% to $41, was downgraded today by
Morgan Stanley
.
Prudential
yesterday downgraded J.P. Morgan to a sell rating. It was lately off 2.7% to $47.90.
Networking-equipment maker
Ciena
(CIEN) - Get Report
signed a contract to supply optical switching and transport systems for
TyCom's
(TCM)
global communications network. The two-year agreement is initially valued at more than $150 million. Ciena was rising 8.1% to $59.75; TyCom was up fractionally, by 0.3% to $16.30.
The
American Stock Exchange Networking Index
was lately up 1%. Chip stocks were also gaining, and the
Philadelphia Stock Exchange Semiconductor Index
was up 0.8%. Drug, transportation and cyclical stocks were losing.
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