Ah, the economic slowing. It tolls for thee.
Taken aback by last night's earnings report from networking chip company
, the stock market is renewing worries about what effects a reduction in demand and inventory problems are going to have on technology companies, specifically those related to the infrastructure buildout.
The networking stocks are getting hammered today, and along with weakness in telecommunications and semiconductors, the
Nasdaq Composite Index is in poor shape, losing 21 to 2734, although lately it's trimmed losses. The
Dow Jones Industrial Average isn't faring well either, seeing significant weakness in its technology components, along with some of the defensive names. Just about everybody's taking some kind of beating, with the exception of financial stocks and pharmaceuticals. The
S&P 500 was lately down 7 to 1350.
last night met analyst expectations for fourth-quarter earnings at 34 cents a share, but the company cautioned that inventory backlogs and a slowing in overall demand could hurt results next quarter and in coming quarters.
But investors, already confused as to whether the
Federal Reserve will indeed cut rates by 50 basis points next week or by just 25 basis points, didn't want to hear about this kind of problem. They've already discounted an improving economy based on aggressive Fed action, and the notion that current problems could be ongoing ones messes up that carefully constructed thesis. So they're killing PMC today -- the stock was lately down $24.50 to $71.38, a 25.4% drop. It's one of the
Nasdaq Stock Market's
most active stocks today.
"It throws a wrench in the market," said Roseanne Lang, vice president at program trading at
. "Regardless if earnings coming in are good or not, all the guidance going forward is very cautious. It does not eliminate the cloud over the market in general -- we might prevent a recession over a period of time, but the sustainability of earnings growth has to be a key factor."
Losing ground in sympathy are other networking names, as well as companies that provide equipment to communications stocks. So there's weakness in
, down 6.8%;
, off 6.3%; communications chip-maker
, down 1% and
Applied Micro Circuits
, off 5.4%.
was also lower, down 2.2%.
"I think the reaction to PMC is probably overdone, much like
yesterday," said Brian Belski, fundamental market strategist at
U.S. Bancorp Piper Jaffray
came out with some decent numbers also. A lot of this is stock specific. With a combination of the growing debate between 50 and 25, it just accentuates things, accentuates emotions."
American Stock Exchange Networking Index
, which counts Cisco and Ciena among its components, was lately down 1.7%. The
Philadelphia Stock Exchange Semiconductor Index
was down 1.7%. Among other major technology indices,
TheStreet.com Internet Sector
index (the DOT) was lately down 2.6% and the
Nasdaq Telecommunications Index
was off slightly.
Hurting the telecommunications index were the performance of the cellular phone companies.
is today's culprit; the company
announced poor fourth-quarter results and said it was going to outsource its handset manufacturing business to
in an effort to focus on businesses that will help it turn in stronger results. The stock was crushed, lately down $1.88 to $11.06, or 14.9%.
was also weak, losing 0.8%.
These specific stocks were the focus of the session today, which traders described as quite hectic in the morning, although quieting down into the afternoon. In the last few days, technology's solid run has been interrupted by a string of earnings results that suggest weakness will continue through the next couple of quarters. That rally had been fueled by anticipation of a 50 basis-point cut by the Federal Reserve next Wednesday, and though the fed funds futures contract is still pricing in a 96% chance of a 50-point cut, more investors are worried, Lang said. Fed funds futures are a proxy for what futures traders believe the Fed will do at upcoming meetings.
Yesterday, during testimony before the
Senate Budget Committee
, Fed Chairman
Alan Greenspan said he believed the economy was very close to "zero growth," and cited the inventory drawdown as a reason why growth may continue to move slowly. It suggests the Fed will take a more aggressive action.
Activity on the
New York Stock Exchange, while muted, is notable in that not even defensive stocks are reacting to the swoon in technology; it's an indication that investors are concerned about the sustainability of this rally. Whereas last week, rotation ruled the day, investors seem loath to get into the market now. Of course, the Fed has something to do with this; money managers rarely bet heavy right before a Fed meeting, especially when the outcome is up in the air.
That said, the weakness is abundant in other sectors today also. The
S&P Retail Index
is down 0.4%, pushed lower by Dow component
, which is losing 3%.
Breadth was sour on moderate volume.
New York Stock Exchange: 1,130 advancers, 1,531 decliners, 591 million shares. 79 new 52-week highs, 5 new lows.
Nasdaq Stock Market: 1,388 advancers, 2,126 decliners, 1.239 billion shares. 51 new highs, 18 new lows.
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Most Active Stocks
NYSE Most Actives
- Lucent Technologies (LU) : 13.7 million shares.
Corning: 13.3 million shares.
AOL-Time Warner (AOL) : 12.4 million shares.
Nasdaq Most Actives
- Cisco: 81 million shares.
Ericsson: 60.6 million shares.
PMC-Sierra: 33.9 million shares.
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On the heels of
earnings miss, diversified manufacturers were having a tough day. Electrical equipment company
was lately down 2.1%;
lost 2%, and defense system manufacturer
There was a lot of red all of everywhere today and few safe havens. Only airline and drug stocks were leaning upward and just by a hair. The
American Stock Exchange Airline Index
was rising 0.4%, while the
American Stock Exchange Pharmaceutical Index
was lifting 1%. The drug stocks got a bit of a rally yesterday after a two-day selloff despite strong earnings reports.
was up 1.9% to $83.44.
Most airline stocks were lower, but
KLM Royal Dutch Airlines
were up 1.2% and 2.5%, respectively.
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Treasuries started the day stronger but have slipped lately as dealers indulge in some profit selling 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
) 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 and Jan. 31. Twenty-four out of 25 primary dealers expect that to happen, as reported by
The benchmark 10-year
Treasury notelately was down 6/32 to 103 12/32, yielding 5.286%.
In economic news,
durable goods orders
) rose 2.2% in December, after a 1.8% increase in November. This was contrary to expectations, as economists polled by
had predicted a fall of 1.7%. But the number is subject to much volatility and it was also the high demand for new commercial aircraft that 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. The shipments of finished goods declined for the third straight month.
Help Wanted Index
), which tracks the number of recruiting ads across the country, rose by 4 points to 79 in December.
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European markets were generally weak today, although they recovered late. London's
finished up 38.70 to 6294.70. Across the channel, Paris'
ended off 9.06 to 5925.62. Frankfurt's
was down 39.31 to 6688.18.
The euro was trading at $0.9231 this morning. The euro hit a one-month high against the dollar Thursday. The euro has been slowly gaining against the U.S. dollar amid expectations of a slowing domestic economy.
Asian markets broke a recent winning streak overnight after the U.S. market put in a lackluster performance Thursday.
slipped again for the third time this week, dropping 107.32, or 0.78%, to 13,696.06. The index was on an upswing until Tuesday after hitting a 27-month low Jan. 11. Hong Kong's
remains closed for the Chinese New Year until Jan. 28.
For more on the world stock markets, check out TheStreet.com's
global indices information.
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