In terms of


(INTC) - Get Report

earnings, rock-legend Tom Petty was wrong: The waiting was the


part and the aftermath the hardest, at least for those long stocks.

Yes, Intel's fourth-quarter results after the close Tuesday bested expectations. But the company's subdued guidance, especially for 2003 capital expenditures, cast a pall on a chip sector that had rallied sharply in the days prior to Intel's report.

In addition to weakness in Intel and chip-equipment makers such as

Applied Materials

(AMAT) - Get Report

, major averages were being dragged down midday Wednesday by profit warnings from


(DD) - Get Report


Automatic Data Processing


, weaker-than-expected producer prices, another rise in oil prices, and North Korea's rejection of an American offer to hold talks regarding its nuclear program.

As of 2:54 p.m. EST, the

Dow Jones Industrial Average

was down 1.2% to 8734.07, the

S&P 500

was lower by 1.3% to 919.82 and the

Nasdaq Composite

was off 1.3% to 1442. Additionally, the Philadelphia Stock Exchange Semiconductor Index was off 3.6%.

The setback was accompanied by the latest

Investors Intelligence

poll, which showed bullish sentiment rising to 50% for the week ended Jan. 10, its highest level since Nov. 8. Meanwhile, bearish sentiment slipped to 22.8%. Excessive optimism combined with the technical overbought condition mentioned here

yesterday conspired with the aforementioned fundamental developments to send shares lower.

"My thought

Tuesday of traders taking profits because of a potential exogenous fundamental event, now just so happens to fit with the technical condition of the market," Scott Bleier, founder of observed Wednesday morning. "It makes sense to lighten up in the face of decent earnings that the market seems to have anticipated and sell the event. Nasdaq is still primarily a volatile trading vehicle and we should not forget that."

Lest anyone had forgotten the market's temperamental nature, it was providing a stern reminder midday Wednesday.

Take the Economy? Please

On the economic front, the producer price index was unchanged in December and down 0.3%, excluding food and energy. Expectations were for a rise of 0.3% for headline PPI and 0.1% for the core. For all of 2002, PPI rose 1.2%. Meanwhile, the core PPI fell 0.4%, its biggest drop since the government started tracking such prices in 1973,



The PPI report revived fears of deflation, which put further downward pressure on equities. Both factors, in turn, helped solidify demand for Treasuries. Of late, the price of the benchmark 10-year note was up 8/32 to 99 20/32, its yield falling to 4.05%.

Despite the PPI report, most economists continue to downplay the deflation threat.

"We continue to believe these

deflation fears are overblown," commented Mark Vitner, senior economist at Wachovia. "The weakness in the core PPI has largely been concentrated in just a few areas, principally motor vehicles and computers." In addition, he noted core raw materials prices have risen 12.4% in the past 12 months and oil prices were on the rise again Wednesday (see below).

In a separate report Wednesday, the Commerce Department said business inventories rose 0.2% in November, the seventh-consecutive month of increases, and vs. expectations for a flat month. Meanwhile, sales rose 0.3% and the inventory-to-sales ratio was unchanged at 1.36 months vs. the record low of 1.35 set in August.

"With the recent variability and softness in final demand, businesses have remained cautious about adding production and have kept inventories lean," commented Susan Polatz, economist at Banc of America Securities. "However, businesses are likely to raise production more sharply once demand clearly picks up."

If and when businesses begin restocking inventories, manufacturers will be able to pass along those aforementioned higher raw materials costs and producer prices will rise, dampening deflation fears, many economists forecast. However, that's a big "if" and contingent upon the economy improving and/or executives reaching some sort of comfort zone regarding the geopolitical situation, especially

vis a vis

Iraq, but also North Korea and Venezuela.

Quick Commodities

Amid heightened concerns about potential war with Iraq, ongoing unrest in Venezuela and the American Petroleum Institute reporting a sharp drop in oil supplies, the price of crude was lately up 2.72% to $33.25.

However, despite the geopolitical concerns and the sharp drop in equity proxies, the price of gold was lately down $1.30 to $351.10. If gold remains subdued, it will encourage those who believe the metal has established a near-term top, as discussed

here the prior two days.

Still, some gold shares were doing better Wednesday, including

Freeport-McMoran Copper & Gold

(FCX) - Get Report




, which were upgraded by UBS Warburg. The Philadelphia Stock Exchange Gold & Silver Index was lately up 0.7%.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.