WALL St. bruised by techs
Tuesday, May 29th 2001, 12:00 am
By: News On 6
NEW YORK (CNNfn) - U.S. technology stocks tumbled Tuesday as fears about corporate earnings growth gripped Wall Street after estimates for workstation maker Sun Microsystems and data storage provider EMC were cut by Goldman Sachs.
But it wasn't all bad news for a market that gained 33 percent from early April on the Nasdaq composite index and 18 percent from late March on the Dow Jones industrial average.
"The market has priced in a lot of positive news - but the bottom line is that corporate earnings are not there, there's zero visibility and there's not going to be for at least another two quarters," said Ken Sheinberg, head of New York Stock Exchange-listed trading with SG Cowen.
Tech firms often set the pace for negative guidance and investors are still concerned that the worst may not be over. But traders said the day's sell-off was due more to a lack of any significant driving force rather than panic and fear.
"There's really no catalyst for anyone to step in - you had a couple of negative comments but there's nothing out this week aside from economic numbers," said Nick Angiletta, global head of trading with Salomon Smith Barney. "I think the buyers want to step back in but they're letting the market do its thing."
The Nasdaq composite index fell 75.49 points to 2,175.54, while the Dow Jones industrial average advanced 33.77 points to 11,039.14 - the blue chip index had briefly slipped below 11,000 for the first time since May 16. The S&P 500 declined 9.96 to 1,267.93.
Still, trading volume was light as market participants returned from a long holiday weekend. Analysts said light volume on a selling session bodes well for the markets. U.S. markets were closed Monday for Memorial Day.
"It definitely says there are a lot more people on vacation than we thought but we like the market to sell off on low volume because it's a good technical sign," Patrick Boyle, head financial trader with Credit Suisse First Boston, told CNNfn's Street Sweep. "The key thing we're looking for as far as technology is concerned is what Q3 and Q4 look like."
Analysts also said it was not unusual to see some investors cashing in on the recent rally, and even called it a healthy sign.
"It's welcoming to see the market give a little back," said Angiletta.
Despite the Goldman call, analysts said investors were more keenly focused on gauging the pace of an economic rebound.
"What Goldman is saying about Sun and EMC is IT (information technology) spending hasn't picked up that much," said Art Hogan, chief market strategist with Jefferies & Co. "But we're more concerned about the economic recovery, so the data will probably play a larger role."
Investors digested the first of several economic reports due this week. While personal spending fell in line with estimates, the Conference Board's report on consumer confidence topped expectations - a sign that the economy may be rebounding.
"At the beginning of the year, it was what will technology do to help the economy and now it's what will the economy do to help technology," said Angiletta.
Market breadth was negative. Declining issues on the Nasdaq topped advancing ones 2,477 to 1,362, as 1.59 billion shares changed hands. NYSE losers topped winners 1,692 to 1,399, as 1.0 billion shares traded.
In other markets, Treasury securities edged lower. The dollar rose against the euro but fell versus the yen.
With little else to focus on after the long weekend, investors reacted to negative news in the technology sector. But conviction was limited, as attention also has started shifting beyond the quarter ending in June.
"Leadership isn't phenomenal and now you're entering pre-announcement season, so people are worried," said SG Cowen's Sheinberg. "Volume hasn't been great, but trends are definitely in place technology is for sale and defensive issues are to buy."
Goldman Sachs analyst Laura Conigliaro cut her fiscal 2002 earnings estimate for Sun Microsystems (SUNW: down $1.80 to $18.67, Research, Estimates) to 50 cents a share from the previous 53 cents. Conigliaro also cut her 2001 earnings estimate for EMC (EMC: down $3.11 to $33.99, Research, Estimates) to 76 cents a share from 81 cents.
EMC said it is cutting its worldwide staff by about 4 percent, or 1,100 people, during the next several weeks in an effort to lower operating expenses.
Still, Conigliaro kept both Sun and EMC on Goldman's "recommended" list.
Sun was scheduled to hold its mid-quarter conference call for analysts after the market closes. Some analysts said the Goldman call just could be an early indicator of what Sun executives may say.
"The risk is we are staring down the barrel of negative pre-announcements, so the market has the potential to be disappointed short term," James Awad, money manager with Awad Asset Management, told CNNfn's Before Hours
But Jefferies' Hogan said much of the negative news for the June quarter already has been priced in, and investors are looking further out.
"I think the market has discounted a lot of the bad second-quarter chatter we're going to hear, and my guess is that conference calls going forward are going to be much more positive," Hogan said.
Other techs that took their cue from Sun and EMC included Cisco Systems (CSCO: down $1.59 to $20.46, Research, Estimates), Dell Computer (DELL: down $1.35 to $25.65, Research, Estimates), and Applied Materials (AMAT: down $1.86 to $51.85, Research, Estimates).
The Dow was mixed, with tech components such as IBM (IBM: down $2.53 to $115.27, Research, Estimates) and Intel (INTC: down $1.25 to $27.85, Research, Estimates), which also is a Nasdaq issue, taking a hit.
But strength in Merck (MRK: up $1.79 to $74.39, Research, Estimates), Caterpillar (CAT: up $1.14 to $55.14, Research, Estimates), DuPont (DD: up $1.20 to $46.82, Research, Estimates), and Procter & Gamble (PG: up $1.14 to $64.64, Research, Estimates) offset the losses.
Many of the Dow components are often seen as weathering times of economic uncertainty.
Two economic reports also gave investors something to chew on. "The concern is about how much the economy picks up and how quickly that translates into earnings growth for corporate America," Jefferies' Hogan said.
The Conference Board's Consumer Confidence Index rose this month to a stronger-than-expected 115.5 from a revised 109.9 in April. Wall Street economists had forecast a reading of 110.3.
U.S. personal spending rose faster than income in April as the nation's savings rate fell, according to the Labor Department. Income rose 0.3 percent, while spending increased by 0.4 percent.
"Half of the gain (in spending) was due to price increases," said Bill Meehan, chief market analyst with Cantor Fitzgerald. "Mr. (Alan) Greenspan may want to convince you that inflation is relatively contained but that's hardly the case with what the data shows," he said, referring to the Fed chairman.
Consumer spending rose only 0.2 percent in April, translating into higher prices being responsible for half the gain in spending. If consumer spending continues to be weak, retailers like Home Depot (HD: down $1.74 to $50.54, Research, Estimates) may continue to suffer, especially if spending on durable goods continues to deteriorate.
Lucent Technologies (LU: down $1.08 to $8.32, Research, Estimates) and Alcatel (ALA: down $0.70 to $27.41, Research, Estimates) could announce a deal as early as Wednesday, according to the Wall Street Journal. Alcatel would acquire Lucent for about $23.5 billion in stock, with the deal excluding the Agere Systems (AGR.A: down $0.60 to $7.50, Research, Estimates) chipmaking unit that would be spun off to existing Lucent holders.
An official of South Korea's ruling party said General Motors (GM: up $1.08 to $57.33, Research, Estimates) is expected to make a bid for Korean automaker Daewoo, perhaps as early as Wednesday. Daewoo has been in court receivership since the Asian debt crisis of 1997.
Integrated oil producer Conoco (COC.B: unchanged at $31.40, Research, Estimates) said it agreed to buy Gulf Canada Resources (GOU: up $1.99 to $7.91, Research, Estimates) for $C6.7 billion (US$4.3 billion) cash and also assume about US$2 billion of debt. The move to acquire Gulf Canada is intended to bolster Conoco's energy production and expand its reserves in North America and Southeast Asia.