Tech Stocks Unravel
Paint drying, grass growing, and the time it takes Dante Bichette to prepare for a pitch were all I could come up with when trying to describe forever, which is about how long Tuesday's session felt like, in my opinion. Coming back from a three-day weekend is always tough, but when you come back and the news is almost all negative, it makes the day even longer. Looking for some excitement, the latest talks, which are now defunct, regarding the possible $23 billion merger between Lucent (-11.4%) and Alcatel or today's $6.3 billion Conoco (NYSE: COCa: -0.21)/Gulf Canada (NYSE:GOU +1.99) just didn't do it for me. Does anyone have a couple of those defibrillator paddles? This market needs some help.
Looking to the day's economic news for signs of hope, it was nothing but more mixed signals. For starters, the Conference Board reported that its monthly consumer confidence survey rose to 115.5 in May versus April's revised reading of 109.9. Good news if you are a long-term player looking down the road, but bad news if you were hoping for more aggressive rate cuts by the Fed. The Street had been looking for a reading in the neighborhood of 111, so the news was certainly encouraging, but nothing to get traders on the bid. Tuesday's second piece of economic data came courtesy of the Commerce Department, which revealed that consumer spending, the dominant driver of this nation's economy, increased almost $29 billion in April, twice as high as the market's "enlightened ones" were predicting. Once again, good if you are looking 6-12 months ahead, but useless if monetary policy is your focus. Adding to somewhat upbeat news, personal income also came in strong, rising 0.3 percent, matching forecasts, though down slightly from March's 0.5 percent bump.
So, on one hand, confidence is improving and Americans are spending more, yet the private sector is still suffering from a lack of demand for routers, telecom equipment PCs and chips. The silver lining is that these companies continue to respond by making the necessary cuts, though the cuts are coming at the hands of their respective workforces.
It was ugly from the get-go on Tuesday, as Goldman Sachs' analyst Laura Conigliaro got things started by ratcheting down her 2001 and 2002 EPS estimates on storage juggernaut EMC (-8.3%). The company did say it was cutting 1,100 jobs, or 4% of its work force, adding that it is beefing up its sales force to meet top and bottom line targets, but investors ran for the hills, as shares plunged more than $3 to $33.99 on above average volume. Also taking it on the chin were shares of server/workstation giant SUNW (NASDAQ:SUNW -1.80). Ms. Conigliaro cut her grow rate target on SUNW from 15% to 12.8% and knocked 3 cents per share off of her 2002 estimates. In its mid-quarter conference call after the bell, SUNW ended up lowering its 4Q revenue guidance, adding that EPS would likely come in between 2 and 4 cents per share, below estimates of 6 cents. Weakness in Europe and Asia were cited in the call.
The news sent technology issues across the board lower. The networking, PC, telecom, Internet, and chip making sectors all took it on the chin. Some of the noteworthy percentage losers included BRCD (-11.4%), ITWO (-13.6%), JDSU (-9.8%), JNPR (11.1%), NTAP (12.3%), RNWK (-18.9%), and YHOO (-10.2%).
As far as the details go, the Dow, in spite of Tuesday's selling pressure, managed to end the day in the green, closing up 33 points at 11039, staying above the 20-dma (11001). HD and INTC suffered the worst losses, while gains in MO, MRK, and IP helped keep the old-school index above water. Financial and consumer issues also showed strength, though the brokers lagged. The Dow, after flirting with the 11,300-level just last week, now sits a scant 39 points above 11k, down roughly 300 points in the last three sessions. Breadth on the NYSE finished in favor of the decliners, but only by a 17-14 margin. Volume was average, as just over 1 billion shares crossed the tape. New highs, however, continued to outshine lows almost 5-1.
Over at the NAZ, the tech carnage on Tuesday left the COMPX with its worst performance in several weeks, down 76 points at 2176, breaking below both its 10-and 20-dmas in the process. Immediate support is now at 2100 and down at 2000. While the downgrades on SUNW and NYSE-based EMC were the chief causes of Tuesday's woes, there were a few other trouble spots. Shares of LPTH (-29.4%) and CTLM (-17.0%) also fell sharply after downgrades. On the flip side, good news regarding its HIV vaccine sent shares of VaxGen(NASDAQ:VXGN: +5.00) sharply higher to $23.89. Finally, despite announcing the acquisition of privately held Hydrocarbon Technologies, shares of Utah-based chemical binding firm Headwaters Inc. (NASDAQ:HDWR) rose 15.5% to $14.26. Breadth on the NASDAQ, needless to say, ended clearly in favor of decliners, as 25 stocks closed lower for every 14 upside movers. New highs outpaced new lows 4-1.
Broader indices such as the S&P 500 Index (SPX: -0.8%), the small-cap weighted Russell 2000 (RUT:-1.2%) and the Wilshire Total Market Index (TMW) all gave back ground.
Weakness in the much of the equity markets, offset by the prospects of further interest rate cuts, made for a difficult day in the bond pits. At the close, the two-year Treasury finished down 3/32 at 99-14/32, pushing the yield up to 4.31%. Five-year notes dropped 5/32 to 98-4/32 to yield 5.06%. The Benchmark 10- year note lost 5/32 to 98-4/32, yielding 5.49%, while the 30-year bonds gave back 5/32, yielding 5.86%.
Despite the weakness in most sectors, there were a few bright spots, namely Healthcare (HCX:+1.2%), Chemicals (CEX:+1.2%), Insurance (IUX:+0.5%) and Banking (BKX:+0.2%). Those areas suffering the worst were Software (GSO:-5.4%), Networking (NWX:- 5.2%), Biotech (BTK:-2.2%) and Gold (XAU:-1.8%).
The war for subs got a little hotter today. After the close, Microsoft (-0.8%) said its MSN Internet unit has launched a $50 million advertising campaign to lure consumers from rival America Online (-4.7%). Given AOL's price hike last week to $23.90 from $21.95 per month, the national ad campaign is aiming to persuade consumers to drop that service and sign up for MSN Internet Access. Just think, last week these two giants seemed like best buddies, announcing a software bundling deal.
With today's break below 2200 for the NASDAQ and the 300-point retracement back to the 11,000-level for the Dow these past few days, not to mention a neutral VIX at 24, the theory that better days are soon coming seems to have suddenly taken a back seat. Add to that, a Fed nearing or at the end of its latest interest- rate cutting cycle, along with the market's typical summer doldrums, and it's possible we may retest NAZ 2000 or Dow 10,500 or 10,000. Oh, by the way, second quarter earnings pre- announcements sure seem to be starting early, especially given the SUNW news after the bell. I'm not saying this latest pull back it WILL continue, but it's something to consider. Tomorrow, all we have slated is oil and gas inventories, but things ought to heat up on Thursday (jobless claims) and Friday (employment).