Market Update: Nasdaq Green Ahead of Greenspan Testimony

<LI>Lucent higher despite bad earnings news.</LI> <LI>Broadcom slips after strong earnings and upgrade.</LI> <LI>Drug stocks off.</LI>
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Looks like you just can't keep stocks down these days.

This morning, stocks dipped near the open but were lately up ahead of a speech by

Federal Reserve chairman

Alan Greenspan before the Senate tomorrow. Volume was light, but breadth was pretty decent, with advancing stocks beating decliners by 20 to 14 on the

Nasdaq.

In recent stock market sessions, wishy-washy morning activity has yielded to grazing in the green. Today's action seems a little odd, considering that expectations wavered yesterday that the Fed will cut interest rates by a half-point when it meets on Jan. 30 and Jan. 31. Some began saying a quarter-point cut is more likely. Investors weren't cueing off of any spectacular earnings news, either. Earnings reports were, again, mixed, and several companies announced lay-offs.

TheStreet.com's

Justin Lahart yesterday wrote a story about how soft sentiment is

blurring the outlook for a recovery.

Maybe Wall Street has simply begun to trust the Fed, and is now convinced an economic turnaround is in the cards six months down the line.

But some investors are wary of the nice rally stocks have seen so far this year. Investing patterns are relatively erratic and lacking conviction, with gains jumping from one kind of retailer to another. Non-tech cyclicals are unable to rally along with tech stocks -- which are also cyclical. If investors are really putting money back into stocks because they're convinced an economic turnaround is in the cards, why haven't other cyclical stocks -- like industrial machinery makers -- joined in? After all, cyclical stocks tend to benefit from a pickup in the economy just as much as tech stocks do.

Investors seemed to be celebrating earnings disappointments as midday approached. Beleaguered telecommunications equipment maker

Lucent Technologies

(LU)

missed

earnings estimates by 3 cents, coming out with a 30 cent loss for the first quarter. The company also confirmed that it would slash 10,000 jobs and take a $1.2 billion to $1.6 billion restructuring charge. But investors weren't complaining. The stock was up 7% to $20.06.

Boxmaker

Compaq

(CPQ)

beat

lowered earnings estimates by 2 cents and revenue estimates by $200 million. The company's CEO, Michael Cappellas,

told analysts to expect revenue to grow 6% to 8% in 2001, well below estimates. Still, the stock was on the rise, in recent trading, up 12.2%.

Also on the jobs-slashing front were

newly merged

AOL Time Warner

(AOL)

, and a host of smaller, Internet companies.

Excite@Home

(ATHM) - Get Report

and

MarchFirst

(MRCH)

announced layoffs last night, as

did PC maker

Gateway

(GTW)

. AOL-Time Warner was up 4.7%, Excite@Home was up 3.2% and MarchFirst was down 4.2%. Gateway, was hopping 3.8%.

Now for the good earnings news. Communications chipmaker

Broadcom

(BRCM)

beat

estimates by a penny, reported higher-than-expected revenue and raised guidance for coming quarters. Broadcom was rewarded by

Credit Suisse First Boston

with a boost to its 2001 full-year outlook, but the firm also slashed Broadcom's price target to $175 from $300. The stock was falling 1.8%. It had been climbing out of its recent hole over the past few weeks.

The Dow was getting the biggest lift from

Microsoft

(MSFT) - Get Report

this morning. Last night, the software giant along with

Sun Microsystems

(SUNW) - Get Report

announced a resolution to a three-year-old lawsuit between the companies concerning a Java technology license agreement. Microsoft agreed to pay Sun a lump sum of $20 million for use of its Java technology in its products over the next seven years. Microsoft was lately up 3.3%, and Sun was up 5%.

Other notable Dow components this morning were

DuPont

(DD) - Get Report

and

ExxonMobil

(XOM) - Get Report

, which both beat estimates. DuPont's estimates had been

previously lowered. DuPont was off 0.5%%, while ExxonMobil was down 0.4%.

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Sector Watch

The

American Stock Exchange Pharmaceutical Index

was down 1.4%, after

Pfizer

(PFE) - Get Report

and

Bristol-Myers Squibb

(BMY) - Get Report

reported earnings. Despite better-than-expected results and an upgrade from

Merrill Lynch

, Bristol-Myers was off 3.6%.

The same thing happened Tuesday to

Merck

(MRK) - Get Report

, which fell despite posting better-than-expected earnings. This morning, Merck got an upgrade to strong buy from

SG Cowen

, but it was falling again, off 0.8% in recent trading. Fund managers and analysts say they are

worried about a series of expiring patents for Merck.

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Bonds/Economy

Treasuries are still feeling the effects of a news story yesterday that suggested a more moderate than expected cut in interest rates when the Fed meets next week.

Selloffs continued overnight in shorter-term securities, which derive greater benefit in a falling rate environment. With mortgage rates remaining at low levels, the latest housing data indicates fairly active refinancing. This is not much news to the money market, which is really getting set for Thursday when Greenspan addresses the

Senate Finance Committee

and key employment cost data come out. For now, trading remains quiet, and there is little movement in yields.

The benchmark 10-year

Treasury note lately was up 2/32 to 103 16/32, lowering its yield to 5.278%. Prices and yields move in opposite directions.

In economic news, the

Mortgage Applications Survey

(

definition |

chart |

source

) showed a slight decrease in new mortgage Activity. The

Purchase Index

slipped to 332.6 in the week ending Jan.19 from 332.9 the previous week. The

Refinancing Index

remained robust at 2123.3 for the same period, though it is down from 2800.6. Homeowners continue to take advantage of lower mortgage rates to seek better terms. They may also use the excess money they get from refinancing to make purchases in other consumer sectors, which happened during the last refinancing boom of 1998-1999, thus shoring up the economy.

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