(Updated from 9:38 a.m.)
Another earnings catastrophe in the tech sector last night had investors on the run at the open this morning, but 15 minutes after the bell was rung, tech and blue-chip stocks were turning it around.
News out after the close of regular trading that
expects to fall dramatically short of earnings expectations had deflated optimism for tech stocks after
modestly upbeat earnings report was released after the close on Monday.
Dow Jones Industrial Average was lately up 43 points to 10,640; the
Nasdaq Composite was rising some 7 points to 1999; and the broad
S&P 500 was up by 5 points to 1218.
That optimism was thin, anyway. The
Nasdaq Composite Index managed to snap a seven-day losing streak yesterday following the Oracle news, but an early rally faded and the tech-heavy index closed up just 4.03 points, or 0.2% higher. The blue-chip
Dow Jones Industrial Average fell 48.71 points, or 0.46%, while the broad market
S&P 500 added 4.15 points, or 0.34%.
"Watch out for 1900 on the Nasdaq," said Jay Meagrow, vice president of trading at
. "We had Tellabs last night -- it just becomes contagious with the tech stocks." Meagrow said he thinks stocks are in for some more damage. "You may retest the lows
of April. There sure aren't a lot of positive preannouncements. This summer is going to be slow, and it's going to be punishing."
Tellabs was off 19.5% to $17.08 in early trading. But a host of other tech names, including
, were lately rising, after falling earlier in sympathy with Tellabs.
Kansas City Southern Industries
was climbing 16.4% to $14.60 in active trading, however, after deciding not to issue new common stock and convertible units, which would have diluted the value of its shares. The company fell 19% after saying on June 7 that it planned to expand its float. It closed at $12.54 yesterday.
Investors are now searching for more concrete signs that earnings growth will reaccelerate in the fourth quarter of this year, a recovery scenario that Wall Street began betting on in early April. Thus far, the good news has mostly consisted of empty promises from corporate leaders that the worst of the economic slowdown is over. Meanwhile, earnings news released in the past two weeks has been overwhelmingly negative. It is so-called confession season, after all, when companies let the market know if they expect to miss previously set earnings targets.
Citing falling demand for new equipment from cash-poor phone companies, Tellabs warned investors that it
expects to break even on an operating basis on sales of $500 million for its second quarter. The gearmaker had been expected to earn 29 cents a share on revenue of about $800 million, according to analysts surveyed by
Thomson Financial/First Call
. It earned 39 cents in the year-ago period.
The Dow could teeter under pressure from
again today after European antitrust officials, in a draft proposal, recommended formally blocking the merger deal between the two Dow components. The companies could still submit a new plan for regulatory approval, though GE has said the recent proposal to divest some of Honeywell's businesses was its final offer. Because of the merger trouble, Honeywell has fallen sharply in recent sessions -- which has weighed heavily on the Dow. In early trading, Honeywell was off 3.6% to $37.15; GE was up 0.8% to $49.30.
"On the Dow, it's GE, Honeywell and United Technologies -- people are shorting it because they expect UTX to go in an buy Honeywell
which, for all purposes should be going up, but there isn't absolute certainty yet
that the deal is dead," said Meagrow.
Some market pros expect stocks to remain in a narrow trading range until the
Federal Reserve meeting on June 26 and 27, when the monetary policy body will decide where to take interest rates. The bond market is currently predicting the Fed will make another quarter-point cut, but weakness in recent economic data has some convinced the Fed will cut short-term rates by as much as a half-point.
Alan Greenspan and friends have already dropped short-term rates by 2.5 percentage points since the beginning of this year, to 4% -- one of the Fed's most aggressive rate-cutting schedules in recent history.
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Bond prices were rising this morning. The benchmark 10-year
Treasury note was up 6/32 to 98 12/32, yielding 5.216%. The 30-year note was gaining 6/32 to 95 21/32, yielding 5.679%.
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European markets were bumping lower in early trading. Weakness in telecom stocks was cutting into the
this morning, pushing it down by 37.3, or 0.66%, to 5643.1, near a 10-week low. The Paris
was falling 59.55, or 1.15%, to 5139.86, and Frankfurt's
was slipping 81.54 points, or 1.38%, to 5840.99.
The euro was lately trading lower at $0.8508. The greenback was higher to 123.54 yen.
Asian markets closed mixed overnight. Tokyo's
broke a three-day losing streak to close up by 100.38, or 0.8%, to 12,674.64. But Japanese bank stocks remained weak amid concerns about loan quality. Hong Kong's
fell 214.95, or 1.64%, to 12,918.71.
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