Market Update: Nasdaq Correction Spreads to Dow, Broader Market

<LI>PMC-Sierra knocks over communications chipmakers.</LI><LI>JDS Uniphase up despite recent warnings.</LI><LI> IBM, Microsoft, Qualcomm rise.</LI>
Author:
Publish date:

With little direction from

Federal Reserve chairman

Alan Greenspan in his speech before the

Senate

Thursday, investors turned earnings-focused again. And they found themselves wading through a sludge, with several high-tech heavyweights warning about future growth prospects and announcing new job cuts.

Some say the

Nasdaq Composite Index was due for a pullback anyway after putting in an impressive performance so far this year. That downswing on the Nasdaq began Thursday -- when the tech-clogged index lost 3.5% of its year-to-date gains -- and was continuing today. But stocks were seeing weakness across the board.

The blue-chip

Dow, which performed better yesterday, tried to launch itself into the green again today but had lately lost its footing and was back in the red. The

S&P 500 was wading in the red.

The communications-equipment stocks were the most battered in techland this morning. Communications equipmentmakers were knocked down by a dire warning from

PMC-Sierra

(PMCS)

, which

said orders fell severely in the fourth quarter. The company said the economic slowdown has caused an inventory glut among its customers. Six firms rushed in to downgrade the stock this morning, and some said PMC-Sierra's problems were not stock-specific.

PMC-Sierra was off 27.3%,

TranSwitch

(TXCC)

was falling 9.1% and

Exar

(EXAR)

was losing 14%.

But some of the optical stocks were bouncing back, despite a warning about growth prospects from

JDS Uniphase

(JDSU)

. JDS said Thursday that growth was

hitting the skids, echoing fellow optical

Corning's

(GLW) - Get Report

Wednesday warning. JDS blamed high customer inventory levels and weak customer spending prospects.

But Corning's warning had already inspired a selloff in the sector yesterday. That selloff took Corning down 19%, networking giant

Cisco

(CSCO) - Get Report

8% lower and former investor favorite

Ciena

(CIEN) - Get Report

down 12%.

JDS was lately up 5.1% and Corning was down 0.5%. Cisco was falling another 6.8% and Ciena was down 2.8%.

Swedish mobile phone giant

Ericsson

(ERICY)

was also falling after it reported a 46% drop in pretax income on a year-over-year basis and a 64% drop in earnings, said it will quit producing its own mobile phones and that it was slashing jobs to save $1.55 billion a year. Ericsson was off 14.9%, and competitor

Motorla

(MOT)

was falling 1.4%.

TheStreet.com

took a look at Ericsson's

ugly report and at the repercussions of a growing round of

job cuts. Telecom

WorldCom

(WCOM)

is also planning layoffs, the

Wall Street Journal

reported today. The company expects to let go between 10% and 15% of its workforce as part of a restructuring effort.

Not all was lost in tech, with PC maker

IBM

(IBM) - Get Report

, software mammoth

Microsoft

(MSFT) - Get Report

and wireless-communications company

Qualcomm

(QCOM) - Get Report

all higher. Qualcomm reported better-than-expected earnings after the close Thursday and fell short of consensus revenue estimates. But it said it is comfortable with analysts' estimates for the current quarter and the year.

The Dow was falling on weakness in diversified industrial

United Technologies

, consumer products giant

3M

(MMM) - Get Report

, oil driller

ExxonMobil

(XOM) - Get Report

and airplane manufacturer

Boeing

(BA) - Get Report

.

Another Dow component,

Honeywell

(HON) - Get Report

, was rising despite missing fourth-quarter earnings estimates by a penny with 70 cents per share. The company has yet to complete its merger with

General Electric

(GE) - Get Report

. The stock was up 0.9%.

Back to top

Sector Watch

There was a lot of red all of everywhere today and few safe havens. Only airline and drug stocks were leaning upward and just by a hair. The

American Stock Exchange Airline Index

was rising 0.04%, while the

American Stock Exchange Pharmaceutical Index

was lifting 0.6%. The drug stocks got a bit of a rally yesterday after a two-day selloff despite strong earnings reports.

Merck

(MRK) - Get Report

was up 1.5% to $83.13 and

Schering-Plough

(SGP)

was up 2.5% to $52.25.

Most airline stocks were lower, but

KLM Royal Dutch Airlines

(KLM)

and

Southwest Airlines

(LUV) - Get Report

were up 1.8% and 2.4%.

Back to top

Bonds/Economy

Treasuries started the day stronger but have slipped lately as dealers indulge in some profit selling or complete other trades within the range. Factory data released this morning indicated further slowing in the manufacturing sector and will have negative implications for the upcoming

gross domestic product

(

definition |

chart |

source

) number next week. For now, the market has settled on hopes of a half percentage-point cut in the

fed funds rate during the Federal Reserve's meeting on Jan. 30 and Jan. 31. Twenty-four out of 25 primary dealers expect that to happen, as reported by

Reuters

.

The benchmark 10-year

Treasury note lately was down 1/32 to 103 22/32, yielding 5.253%.

In economic news,

durable goods orders

(

definition |

chart |

source

) rose 2.2% in December, after a 1.8% increase in November. This was contrary to expectations, as economists polled by

Reuters

had predicted a fall of 1.7%. But the number is subject to much volatility and it was also the high demand for new commercial aircraft that accounted for most of the increase. Excluding transportation equipment, new orders fell 1.4% for the month after having gone up by 0.3% in November. The shipments of finished goods declined for the third straight month.

The

Help Wanted Index

(

definition |

chart |

source

), which tracks the number of recruiting ads across the country, rose by 4 points to 79 in December.

Back to top