Market Update: Stocks Painted Red as Earnings Concerns Take Center Stage

<LI>Telecom and networking equipment makers ignite Nasdaq selloff.</LI><LI>PMC-Sierra plummets on crummy outlook.</LI><LI>Banks and drug stocks among the few pockets of green.</LI>
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The bloodletting has begun.

There were few pockets of safety today, with an across-the-board selloff under way.

Yesterday's speech to the

Senate

from

Federal Reserve chairman

Alan Greenspan didn't do much to help encourage investors who were looking for some hint as to what the Fed's going to do next week.

So, investors focused their attention again on earnings news -- and too much of that was negative.

The

Nasdaq Composite Index had made some impressive gains since last week, but with so many companies reporting less-than-stellar earnings and a good number of them lowering forecasts, there wasn't an incentive to rally. The Comp has spent the morning in the downside.

The blue-chip

Dow Jones Industrial Average has fared no better today. Lately, the index was giving back much of the gains it made in Thursday's trading action.

Communications-equipment stocks took the Nasdaq down yesterday, and they were doing it again today. The spark that started the fire was 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 plummeting 27.2% to $69.88, and was one of the most actively traded stocks on the Nasdaq.

Others were suffering in sympathy.

TranSwitch

(TXCC)

was falling 9.8% and

Exar

(EXAR)

was losing 12.8%. And a couple of PMC-Sierra's customers were getting hit right along with them, including

Cisco Systems

(CSCO) - Get Report

and

Nortel Networks

(NT)

, down 7% and 1.3%, respectively.

But optical stock

JDS Uniphase

(JDSU)

was bouncing back, despite warning 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. Corning's pain was continuing today, but not quite as severely as yesterday's 19% drop. In recent trading, the stock was down 1.3% to $55.50.

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. In addition, the company 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 16.4%%, and competitor

Motorola

(MOT)

was falling 2.2%.

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 and Dow component

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

and home improvement retailer

Home Depot

(HD) - Get Report

.

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Sector Watch

There wasn't much playfulness going on in the market today. Only drugs and bankers were looking like they were having any kind of fun.

The

American Stock Exchange Pharmaceutical Index

was 0.9% higher, after seeing many of its components report mixed earnings this past week.

Schering-Plough

(SGP)

, which reported earnings in line with estimates yesterday, was lately the victim of profit-taking and was down 2.2%. But component

Abbott Labs

(ABT) - Get Report

was getting a nice bounce, up 2.6%, on news that Uprima, its treatment for erectile dysfunction got a nod from the

European Union's

Committee for Proprietary Medicinal Products.

The

Philadelphia Stock Exchange/KBW Bank Index

was jumping 0.2% ahead of an expected interest rate cut from the Fed next week. The only thing disputed about the cut is how much it'll be -- 25 or 50 basis points.

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Bonds/Economy

Treasuries started the day stronger but have slipped lately as dealers indulge in some profit-taking 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 30-31. Twenty-four out of 25 primary dealers expect that to happen, according to

Reuters

.

The benchmark 10-year

Treasury note lately was down 3/32 to 103 17/32, and yielding 5.274%.

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, moreover, high demand for new commercial aircraft 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. 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.

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