Today's Market: Dow Picks Up and Moves Ahead, While Nasdaq Turns Back

<LI>Chip stocks drop on inventory concerns.</LI> <LI>Networkers lower ahead of Cisco earnings.</LI> <LI>Investors seek shelter in defensive names.</LI>
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Back from a weekend's rest, investors continue to grapple with a murky economic picture and a frustrating earnings outlook.

As the trading session passed the midday mark, Wall Street experts continued to wrestle with the implications of last Wednesday's

Gross Domestic Product report -- which showed the smallest measure of economic growth since the second quarter of 1995 -- and Friday's confusing

employment report. It showed stronger-than-expected job growth coupled with rising unemployment, putting a damper on investor hopes for another cut in interest rates before the next Fed meeting on March 20.

"People are still extremely confused about Friday's report," said Ned Collins, executive vice president of U.S. stocks at

Daiwa Securities

. "Money is flowing into funds, but the quality of earnings is not there, as it was when the Fed cut rates in 1998. And we still need to see if the layoffs will continue." While Friday's jobs report revealed an increase in new payrolls, it also showed a rise in the unemployment rate. And company announcement after announcement has highlighted the growing pace of job cuts.

It's now established that the manufacturing sector is on the decline. This morning's

Purchasing Managers' Non-Manufacturing Index showed that economic activity outside the manufacturing sector also fell significantly in January. The National Association of Purchasing Management's business index fell to 50.1 from 60.1, the largest monthly decline in the history of the survey, which dates back to 1997. Any reading below 50 shows contraction, while a higher number shows expansion.

"I'm having a hard time convincing Japanese clients to put money to work today," Collins said. "The money is out there, but I'm not convinced that there's a need to get on board right away."

For the third day in a row, the

Nasdaq, which had heady gains during January, was tripped up in negative territory. The technology-laden index dropped 122 points on Friday. It is being dragged lower, in part, today by

Cisco Systems

(CSCO) - Get Report

. The most actively traded stock on the Nasdaq today, Cisco was recently down 4.6%. The networking giant reports fourth-quarter earnings tomorrow, and market observers are on the lookout to see if Cisco can pull it off its habit of beating earnings estimates.

Select networking stocks had fallen in sympathy with Cisco.

Cabletron Systems

(CS) - Get Report

decreased 4.2%, while

Nortel Networks

(NT)

, fell 3.8%. Bucking the trend, Cisco rival

Juniper Networks

(JNPR) - Get Report

, which dropped 7% on Friday, was up 2.5%.

And tech is being hurt by a

negative report by

Credit Suisse First Boston

about inventories in the chip sector. Inventories have grown as the demand for PCs and other equipment has slackened the demand for the chips that power the machines. The

Philadelphia Stock Exchange Semiconductor Index

was recently down 5.4%. Shares of chip giant

Intel

(INTC) - Get Report

, the second most-active stock on the Nasdaq, were lower by 5.3%.

According to a report, released this morning by Joseph Kalinowski, equity strategist at earnings tracker

First Call/Thomson Financial

, the market may be heading for a profits recession among stocks in both the large-cap

Nasdaq 100

and the broader

S&P 500. "While earnings are expected to grow 1.6% for 2001, the probability of 'negative growth' for the entire year is a viable risk," the report said.

Today, investors are finding shelter by rotating out of technology and into defensive sectors. Leading the blue-chip index higher was

IBM

(IBM) - Get Report

,

Minnesota Mining & Manufacturing

(MMM) - Get Report

and

General Motors

(GM) - Get Report

.

Market Internals

Breadth was mixed on light volume.

New York Stock Exchange: 1,454 advancers, 1,420 decliners, 493 million shares. 106 new 52-week highs, 7 new lows.

Nasdaq Stock Market: 1,322 advancers, 2,183 decliners, 805 million shares. 61 new highs, 16 new lows.

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Most Active Stocks

NYSE Most Actives

  • Tosco (TOS) : 9 million shares.
  • General Electric (GE) - Get Report: 6.1 million shares.
  • Phillips Petroleum (P) : 8.2 million shares.

Nasdaq Most Actives

  • Cisco Systems: 46.3 million shares.
  • Intel: 21.4 million shares.
  • Sun Microsystems (SUNW) - Get Report: 22.9 million shares.

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Sector Watch

Oil stocks were on the rise again, thanks to crude oil prices were trading up at $31.08. Several energy companies have reported strong fourth-quarter earnings because of soaring energy prices. In recent action, the

Philadelphia Stock Exchange Oil Service Index

was up 3.7%, while the

American Stock Exchange Oil & Gas Index

was ahead 1.3%.

Phillips Petroleum

(P)

, however, was down after the oil giant announced yesterday that it is buying petroleum refiner and marketer

Tosco

(TOS)

. The deal is worth $7 billion in stock.

Shares of Phillips Petroleum fell 9.2%. Tosco gained 15%. The company that is bought usually moves higher.

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Bonds/Economy

Bonds/Economy

Treasury prices for notes have been trading within a narrow range today. Although the

Treasury

will sell $10 billion to $11 billion each of the 4.75- and 10-year notes and the 30-year bond this week, the 30-year is gathering value because of its near-certain removal later this year.

The benchmark 10-year

Treasury note lately was unchanged at 104 13/32, lowering its yield to 5.16%.

In economic news, the

Purchasing Managers' Non-Manufacturing Index

(

definition |

source

) fell to 50.1 in January from its revised value of 60.1 in December. Readings above 50 denote expansion, so the index is only just barely positive. New orders and order backlogs decreased, and export and employment growth slowed. Imports were unchanged. This data is in line with that of the manufacturing index, which last week indicated a sharp dip into recession territory.

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