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Wednesday's Market: Nasdaq Rallies on Strong Volume; Dow Finishes Lower

The Nasdaq's strong performance today -- despite mixed earnings news -- has some speculating that the bear may be retreating.

Displaying considerable institutional and intestinal fortitude, investors shrugged off mixed earnings-related data today and pushed stocks higher today, concentrating on the technology sector, supported by one of the day's strongest earnings releases,

Juniper Networks

(JNPR) - Get Juniper Networks, Inc. (JNPR) Report

.

The networking, fiber optics and semiconductor sectors were the day's strongest, helping the

Nasdaq Composite Index to a 64-point gain, a strong advance, though off the high. At one point, the Nasdaq was up nearly 140 points.

Meanwhile, breadth was strong on the

New York Stock Exchange, despite a lackluster performance for the

Dow Jones Industrial Average, which ended the day lower due to significant weakness in

3M

(MMM) - Get 3M Company Report

, which didn't even come close to expectations in its earnings release. 3M lost 3%, and the Dow ended down 68 points.

But today's action shows investors aren't necessarily focused on earnings reports as a barometer of how the market should trade. The going sentiment is already shrugging off this quarter's earnings reports as things of the past; instead, the market is discounting the looser credit and the recovery in economic demand it anticipates six months down the line. Expected increases in demand for products certainly means technology, which explains how the market was able to ignore the multitude of analysts grousing about

Intel

(INTC) - Get Intel Corporation (INTC) Report

after the company reported earnings post-close yesterday.

"I don't know if it's a bull yet, but the bear is starting to retreat," said Scott Curtis, trader at

Kaufman Brothers

, speaking about the Nasdaq. "It's a stealth bull."

After trading higher most of the day, the market became wary of Intel, which lost 88 cents to $30.05, or 2.8%, after the company reported earnings yesterday. The chipmaker beat earnings estimates by just one cent and said first-quarter revenue would be

weak. Analysts concentrated on Intel's promise to spend $7.5 billion in capital expenditures this year, ahead of last year's $6.7 billion rate, saying it was an unreasonable figure. Others said the company was losing market share to

Advanced Micro Devices

(AMD) - Get Advanced Micro Devices, Inc. Report

.

But for semiconductor stocks, it didn't matter today, as investors took the news of increased spending as gospel, using this and

Novellus'

(NVLS)

earnings to rally semiconductor equipment stocks.

KLA-Tencor

(KLAC) - Get KLA Corporation (KLAC) Report

gained 8.6% and

PMC Sierra

(PMCS)

(a chip/networking name) rose 14.7%. The

Philadelphia Stock Exchange Semiconductor Index

rose 6.3% today.

Overall, technology stocks have performed strongly since the Fed surprised with a rate cut at the beginning of the month. The market's strength today continues a general trend of selling defensive stocks and favoring the sectors with greater growth prospects than other sectors. Cyclical stocks haven't been part of the recent upswing, which suggests that investors in those stocks are being cautious about this recovery, eschewing growth-oriented names that take longer to rebound in terms of demand when compared to tech stocks.

"The way it looks is, we're in a recessionary environment," said Rob Cummisford, portfolio manager at

Kent Funds

in Grand Rapids, Mich. "We're accepting that we've been in it. But the Fed's now on our side....There's a lot of people who don't want to miss it when

the economy finally does turn up."

Among other sectors that pleased investors were the networkers, thanks to Juniper Networks, which reported earnings following the close

yesterday. The

Amex Networking Index

gained 4.7%, led by Juniper (up 6.5%) and

Nortel Networks

(NT)

, which gained 8.8%.

In addition, telecommunications equipment maker

Applied Micro Circuits

(AMCC)

gained 14.2% today, after reporting stronger-than-expected earnings.

The fact that Intel's cautious comments about the first quarter didn't deter investors from rallying other similar names shows that the market may have already discounted poor earnings performance for chip companies; but it leaves investors wondering whether the market is headed for a shock if some other technology company says it anticipates rough going in the coming months.

"I guess what's going to be tested is how much staying power this has," said Cummisford. "We could get some kind of negative-type announcement, like next quarter's earnings, earnings outlooks or economic news."

The economic news didn't hurt anybody today. The

Consumer Price Index showed a meager 0.1% gain in December for its core figure, which excludes food and energy prices. That was short of economists' expectations for a 0.2% gain. But more slowing could be in the cards -- the inventories-to-sales

ratio at businesses hit a 19-month high in November. Businesses build up inventories expecting a certain level of sales, and when those sales don't come through due to a slowing in the economy, companies are forced to slow production in order to work off excess inventories, which slows economic growth. This process is a continuing one. It could result in more weakness for at least the first quarter.

Economic slowing was confirmed by today's release of the Federal Reserve's

Beige Book, an anecdotal view of economic conditions around the country. The

release talked of slowed manufacturing activity in all areas of the country and a significant decline in retail and automobile sales.

Market Internals

Breadth was strong on heavy volume.

New York Stock Exchange: 1,591 advancers, 1,330 decliners, 1.3 billion shares. 168 new 52-week highs, 11 new lows.

Nasdaq Stock Market: 2,370 advancers, 1,600 decliners, 2.76 billion shares. 128 new highs, 19 new lows.

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Sector Watch

Consumer products companies, a traditional defensive sector, fell today after 3M's poor earnings results. The

Morgan Stanley Consumer Index

fell 1.4% today, led down by 3M and

Procter & Gamble

(PG) - Get Procter & Gamble Company Report

, which lost 1.9% today.

Bad news in the banking industry was putting pressure on financials. Yesterday,

Bank of America

TheStreet Recommends

(BAC) - Get Bank of America Corp Report

met

lowered estimates and said that it expects higher loan losses in 2001. The banking sector got the added bonus of crummy earnings from

J.P. Morgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

and

Bank One

(ONE) - Get OneSmart International Education Group Ltd Sponsored ADR Class A Report

. The Philadelphia Stock Exchange/KBW Bank Index ended off 1%.

Crude oil prices slid today, pulling down related sectors. The

American Stock Exchange Oil & Gas Index

was down 1.7%, while the

Philadelphia Stock Exchange Oil Service Index

ended 4% lower. Oil prices, which were up yesterday in advance of OPEC's announced production cut, fell today after OPEC released more details of the plan. The oil-producing nations are expected to cut production by 1.5 million barrels a day.

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Bonds/Economy

Treasuries ended higher today, as the markets digested a sizable amount of commercial data released this morning, with the pricing on the long bond especially strong. Although the latest information was mixed, the overall message remains unchanged from that of recent weeks: The weakening economy will need active support from the Federal Reserve.

The benchmark 10-year

Treasury note lately was up 14/32 to 104 9/32, yielding 5.175%.

In economic news, the

Consumer Price Index

(

definition |

chart |

source

), which measures the prices paid for goods and services, provided fresh evidence that a tepid inflation rate is not the problem.

The core CPI -- which measures the prices of goods and services excluding food and energy -- whose prices are volatile, rose 0.1% in December, below expectations of economists polled by

Reuters

. The annual growth rate of the core CPI remained at 2.6%, its peak level of the year.

Consumer prices of all goods and services, including food and energy, rose 0.2% in December, while its annual rate of increase held steady at 3.4%.

The weekly

Mortgage Applications Survey

(

definition |

chart |

source

) detected increases in refinancing and new mortgages, as mortgage interest rates remained low.

The refinancing index rose from 1572.1 to 2800.6, the highest it's been since October 1998. It has now almost doubled in value for two successive weeks. The purchase index rose to 332.9 from 292.8, continuing its upward trend of the last four weeks.

The

BTM-UBSW Weekly Chain Store Sales Index

(

definition |

chart) fell 0.3%, after rising for four consecutive weeks. Its change from the same period 12 months ago fell to 4.9% from 5.7%, but it remains relatively strong. The

Redbook Retail Average

(

definition |

chart) found this month's sales after two weeks running 2.6% ahead of December's. Sales in January rose by 3.6% compared to a year ago.

Industrial production

(

definition |

chart |

source

) fell 0.6% in December. That was slightly higher than economists' expectations of a 0.5% slide. It is the third consecutive decline and confirms yet again the cooling in the economy.

As production fell, the capacity utilization rate, which measures anti-inflationary slack in the industrial sector of the economy, fell to 80.6%, the lowest since September 1992.

Finally,

real earnings

(

definition |

chart |

source

) fell 0.4% in December after having remained unchanged during the previous month.

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International

European markets ended higher today.

London's

FTSE

soared 114.1 to 6197.4. Across the channel, Paris'

CAC-40

gained 122.4 to 5884.1, while Frankfurt's

Xetra Dax

ended up 150.5 to 6653.38

Asian markets were mixed overnight. Tokyo's key

Nikkei 225

index rose for a fourth straight session after hitting a 27-month low last Thursday. The index, led higher by banking shares, closed up 83.18, or 0.61%, to 13,667.63.

Losses in Chinese shares pressured the Hong Kong stock market lower Wednesday after Chinese Premier Zhu Rongji supported a crackdown on stock market manipulation. The key

Hang Seng

index closed down 101.67, or 0.66%, to 15,261.48.

For more on world stock markets, check out

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global indices information.

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