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Market Update: Stocks' Drop Steepens in Afternoon Trading; Dow, Nasdaq End Lower

<LI>Declines wash away Tuesday rally.</LI><LI>Broadcom down 15% on downgrade.</LI><LI>Other chip stocks, telcos fall.</LI>

The brief respite provided by Tuesday's rally was all but washed away today, with all major indices dropping sharply. Chief among the weaker sectors are semiconductors and telecommunications equipment companies, after Merrill Lynch downgraded the former, citing concerns over inventories and capital spending.

The

Philadelphia Stock Exchange Computer Semiconductor Index

fell 5.6%. Sharp declines were seen in

Broadcom

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, losing 14.8%, and

Vitesse

(VTSS)

, losing 7%.

Semiconductor networker

PMC-Sierra

(PMCS)

also dropped sharply, losing 13.8%. Merrill cited inventory concerns in the telecommunications chip makers as the reason for its downgrade. It's anticipated that telecommunications equipment companies such as

Nortel Networks

(NT)

TheStreet Recommends

and

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

, which buy chip equipment from these names, may decrease spending, and they're having a poor day as well.

As the economy has slowed, business investment has begun to decline slightly; it's hard yet to say whether the slowing in spending is a seasonal issue or something larger. Telecommunications stocks have declined steeply over the last several months on concerns that it's the latter.

Other weak sectors in techland include the business-to-business names like

Ariba

(ARBA)

, falling 15.4%, which

TheStreet.com

wrote about in an

earlier story today.

i2 Technologies

(ITWO)

was also much lower, down 12.4%.

Despite being able to put together mildly impressive rallies every four or five days, the market still hasn't been able to break out of a trading range that has been sagging through most of the year. The belief in technology stocks is hard to shake, and investors continue to pay the price. Leadership is hard to discern at this point.

Meanwhile, the market hasn't gotten any closure as far as the presidential election goes. At this time, it's unclear whether an outcome will be reached by the end of this week; this uncertainty is still putting a bit of a damper on stocks, although the problems in the market are more directly related to earnings results and expectations for growth.

Sector Watch

Commodity-related indices had a hard day today after rallying sharply yesterday. The chemicals stocks, including

DuPont

(DD) - Get DuPont de Nemours, Inc. Report

(off 4.2%) and

Dow Chemical

(DOW) - Get Dow, Inc. Report

(off 2.8%) pulled down the

S&P Chemical Index

by 3.4%.

Paper stocks also suffered. The

Philadelphia Stock Exchange Forest & Paper Products Index

has lost 2.5%, led into the abyss by

International Paper

(IP) - Get International Paper Company Report

, losing 4.7%, and

Weyerhauser

(WY) - Get Weyerhaeuser Company Report

, dropping 2.8%.

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Bonds/Economy

Bond prices were edging higher after data was released showing the CPI rose 0.2% in October. The benchmark 10-year

Treasury note was up 1/32 to 100 18/32, yielding 5.673%.

The 30-year

Treasury bond is at 107 6/32, up 11/32, to yield 5.742%.

Initial jobless claims

(

definition |

chart |

source

) for the week ended November 11 fell to 326,000 from 346,000 in the previous week. 318,000 had been expected. The 4-week moving average edged up to 322,250 from 318,000.

October's

Consumer Price Index

(

definition |

chart |

source

) rose 0.2%, in line with expectations and much lower than September's 0.5% increase. Core inflation also rose 0.2%. Energy prices rose a modest 0.2% after last month's sharp 3.8% increase.

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