Investors were peering into the blur of the 2001 tech earnings picture with dread and uncertainty this morning, and the tech-loaded
Nasdaq dribbled lower at the open.
Cisco
(CSCO) - Get Report
, which reports fourth-quarter earnings tomorrow was a popular whipping post. The networking giant was the most actively traded stock on the Nasdaq, and was lately off 3.2%.
The Cisco kid almost always beats earnings targets by a penny, and investors want to see if the can pull it off in this lousy earnings environment.
Other networkers,
Cabletron Systems
(CS) - Get Report
,
Nortel Networks
(NT)
and
Avaya
(AV)
were following Cisco's lead. Cabletron was lately losing 5.2%, Nortel was losing 1.5% and Avaya was losing 4.1%.
And the semiconductor sector was getting slammed by a negative report on sector inventories out of
Credit Suisse First Boston
. Citing data from the
Semiconductor Industry Association
, the firm said inventory levels have worsened in recent months and could likely take to the end of the second quarter to burn off. Semiconductor titan
Intel
(INTC) - Get Report
was off 1.8% and the
Philadelphia Stock Exchange Semiconductor Index
was falling 3.7%. The majority of the major tech bellwethers were also lower.
Sun Microsystems
(SUNW) - Get Report
was down 2.6%, and PC makers
Hewlett-Packard
(HWP)
and
Dell
(DELL) - Get Report
were falling 0.5% and 3.5%.
IBM
(IBM) - Get Report
was up 0.8%.
The blue-chip
Dow, meanwhile, was shuffling higher making middling gains. Leading the index higher was consumer products giant
3M
(MMM) - Get Report
, with 15 points of upside, and
ExxonMobil
(XOM) - Get Report
with 7 points.
Oil stocks, in fact, were getting a major boost from rises in crude oil prices. Oil prices rallied 4.6% Friday, the biggest gains in two weeks, and they were rising again this morning, lately trading at $31.19.
The
American Stock Exchange Oil & Gas Index
was up 1%.
One of the latest energy companies to report strong fourth-quarter earnings due to the price of oil,
Williams
(WMB) - Get Report
was up 2.2%. The company reported fourth-quarter earnings per share of 57 cents this morning, well above the 22-cent estimate of analysts polled by
First Call/ Thomson Financial
. The company expects to meet existing performance expectations for 2001.
But
Phillips Petroleum
(P)
wasn't participating in that party. The stock was down 9.6% to $52.50 after announcing yesterday that it had agreed to buy
Tosco
(TOS)
for $7 billion in stock. Tosco was trading 14.7% higher in early action.
General market sentiment is probably a bit soggy after Friday's
employment report softened investor expectations about how aggressive the Fed might be with further rate cuts. In early January, the Fed dropped benchmark interbank lending target for the first time in a year and a half. Following that half-point cut, it lowered rates by another half point last week to 5.5%.
The market hungers for rate cuts. Rate cuts encourage consumer and corporate spending, which help get the economy back on its feet. Some economists argue that the economy is already in recession and certainly moving in that direction.
The Fate of Earnings
Meanwhile, a couple of market strategists this morning began predicting an earnings recession for 2001.
Joseph Kalinowski of earnings tracker
I/B/E/S
said the
Nasdaq 100
is due for a profits recession and that "there is a great possibility that the S&P 500 is heading there as well."
On average, analysts are expecting Nasdaq 100 earnings growth of 1.6% for 2001, which means "negative growth" for the entire year is a "viable risk," according to the report.
Still, Kalinowski says the velocity of consensus revisions to earnings estimates is slowing, and 2001 earnings could get a "late boost from a solid fourth quarter."
Prudential Securities
meanwhile, reduced its forecast for S&P 500 earnings growth in 2001. The firm was previously expecting little or no growth but now sees a drop in 2001 vs. 2000, "with no change a best case." Prudential now thinks S&P 500 2001 EPS will be $53 to $55.50 vs. about $55.50 for 2000 for the companies now in the S&P 500 index.
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Sector Watch
Retail stocks were soft this morning, despite upgrades on retailers
AnnTaylor
(ANN)
and
Dillard's
(DDS) - Get Report
. The
S&P Retail Index
was falling 1.2%, AnnTaylor was down 2.6% and Dillard's was lately up 17.1%.
AnnTaylor was upgraded to outperform from neutral at
Morgan Stanley Dean Witter
, though
Prudential Securities
reduced its fourth-quarter earnings estimates on the company to 33 cents a share from 38 cents a share. Dillard's was raised to buy from neutral at
Salomon Smith Barney
.
Prudential also lowered its fiscal 2001 earnings estimates for
Abercrombie & Fitch
(ABF)
to $2.80 per share from $2.85. Abercrombie & Fitch was down 3%.
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Bonds/Economy
Treasuries were flat this morning, with the benchmark 10-year
Treasury note up 4/32 to 104 13/32, yielding 5.156%
Treasury prices ended last week in retreat as traders lowered their expectations of another intermeeting cut in interest rates. The resulting rise in yields was more pronounced among longer-term securities.
The money market had been rallying for three consecutive days as the Federal Reserve announced a half-point lowering in the
fed funds rate on Wednesday.
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