Tech Stocks Snowed Under - TheStreet

Tech Stocks Snowed Under

November's employment report and Intel's revenue forecast weigh on the major averages.
Publish date:

Updated from 4:17 p.m. EST

Tech stocks came under pressure Friday following a disappointing midquarter update from


(INTC) - Get Report

, while the broader market was also weighed down by a lackluster employment report.


Dow Jones Industrial Average

fell 68.14 points, or 0.7%, to 9862.68, after hitting a new 18-month high Thursday, while the

S&P 500

declined 8.22 points, or 0.8%, to 1061.50, and the

Nasdaq Composite

dropped 30.98 points, or 1.6%, to 1937.82.

Trading was light as a Nor'easter gripped the East Coast. Volume on the

New York Stock Exchange

was 1.23 billion shares, while 1.65 billion shares changed hands on the Nasdaq. Decliners beat advancers on the NYSE by about 5 to 4 and nearly 2 to 1 on the Nasdaq.

The Dow gained 0.8% on the week, the S&P rose 0.3% and the Nasdaq lost 1.14%.

Nonfarm payrolls grew by only 57,000 in November, a significant drop from October's 137,000 gain. Some of the weakness was because of the California grocery strike. The government said it reduced overall payroll gains by about 25,800 to 30,800. Even still, payrolls were way short of the 150,000 forecast of economists.

The unemployment rate ticked down to 5.9% from 6.0%. That's the lowest since March and better than economists' forecasts.

Despite the disappointing headline numbers, investors should be "looking to the positives of the employment report," said Robert Pavlik, portfolio manager with OakTree Asset Management. "There is still payroll growth, instead of continued losses, and the California grocery strike appears to have negated some of the

market impact."

Instead, Pavlik attributes much of today's declines to Intel's revised revenue forecast.

David Greenlaw, U.S. economist at Morgan Stanley, pointed to another increase in the average work week and continued growth in temporary jobs as signs of "some continued improvement in labor demand."

Fed Policy

On Dec. 9, the

Federal Reserve

is widely expected to keep interest rates at a 45-year low of 1%, but there's been speculation about whether the central bank would alter its language about keeping interest rates low for a "considerable period." Despite robust growth in the third quarter, the Fed isn't likely to slam on the breaks anytime soon, but a subtle shift in language would be akin to easing their foot off the gas.

For the Fed, "it's all about payrolls and inflation," said Ram Bhagavatula, chief economist for the Royal Bank of Scotland. "Today's employment report gives the Fed more degrees of freedom in keeping their language unchanged."

David Greenlaw, U.S. economist for Morgan Stanley, echoed this sentiment in a note to clients. "The data also reinforce our expectation that the FOMC will not make any significant wording changes in the official statement that will be issued following next Tuesday's meeting."

Mildly out-of-consensus, Stone & McCarthy economist Kenneth Kim believes the Fed, "may alter its language to reflect that the economy is getting better." However, Kim stresses that a subtle shift in language will not change his monetary policy forecast. He doesn't expect the Fed to begin tightening until the latter half of 2004.

Other Markets

Overseas markets closed lower on the day. London's FTSE 100 dipped 0.3% at 4367 while Germany's Xetra Dax lost 0.9% to 3842. In Asia, the Hang Seng was down 0.2% at 12,315 and Japan's Nikkei dropped 0.5% at 10,373.

Bonds surged across all maturities following the jobs report. The 10-year Treasury note rallied 1 6/32 points, its yield falling to 4.22%.

The dollar was weaker vs. the Japanese yen and the euro. One euro now fetches $1.2164; once again the dollar is flirting with all-time lows against the European currency.


Intel narrowed its fourth-quarter revenue guidance to between $8.5 billion and $8.7 billion from a previous estimate of $8.1 billion to $8.7 billion. In addition, the company took a $600 million charge, related to its struggling wireless business. Investors were disappointed that Intel didn't raise guidance and shares lost $1.44, or 4.3%, to $32.10.

In earnings news, grocery store chain



earned 25 cents a share in its third quarter, well short of analysts' estimates for 37 cents a share. The company blamed it on the supermarket workers' union strike in Southern California. Albertson's shares fell 84 cents, or 4%, to $20.31.


(JBLU) - Get Report

shares plunged $5.52, or 17.6%, to $25.86, after the company said fourth-quarter margins would be lower due to increased competition and last month's California wildfires.

In research reports, CIBC World Markets upgraded


(CMCSA) - Get Report

and downgraded

Cox Communications


. Comcast shares fell 33 cents, or 1%, to $31.57, while Cox shares lost 39 cents, or 1.2%, to $33.40.

Also, U.S. Bancorp Piper Jaffray downgraded shares of

Adobe Systems

(ADBE) - Get Report

to outperform from strong buy. The company's shares dropped $2.75, or 6.6%, to $38.90.

Smith Barney upgraded


(CAT) - Get Report

to buy from hold. The company's shares rallied $1.56, or 2.1%, to $76.50.

Next week, attention will be firmly focused on Tuesday's Fed policy meeting. As discussed, the Fed is widely expected to leave interest rates unchanged at 1%, but could alter the language in the press release to reflect improving economic conditions.

Aside from the FOMC meeting, the calendar is very light. November retail sales for November are expected to rise 0.5%, after a 0.3% decline last month. In addition, University of Michigan consumer sentiment for December is expected to improve to 96.4 from 93.7. Finally, initial jobless claims will attempt to make it ten consecutive weeks under the key 400,000 level thought to be necessary for labor market improvement.