Nasdaq Drops 1% on Semiconductors

Elena
27 Oct, 2005
New York City

U.S. stock markets have sustained the bearish sentiment throughout the whole trading session. The negative tone was set by news that Dow component GM had been subpoenaed by U.S. regulators. The stock's decline of 5.5% dragged blue chips. The three major averages have extended declines with the Nasdaq down by 1% on weak semiconductors. All sectors trade in the red just before market close.

U.S. MARKET AVERAGES

Dow component General Motors set a negative tone to pre-market trading and the whole morning session after it was announced that the SEC is conducting a financial investigation of the world’s biggest automaker. The three major indexes have extended losses with the Nasdaq being the biggest decliner, down by 0.8%.

Economic data release also weighed on the market sentiment as the Commerce Department said that durable goods orders fell 2.1% in September. Economists had been expecting a 1.5% decline.Transportation orders, orders for computers, electrical equipment and appliances fell sharply. Data on new home sales in September showed a smaller-than-expected rise to 1.22 million units, which weighed on home builders' shares.

An upbeat report, released by The Labor Department said that initial jobless claims in the week ended October 22 expectedly decreased.
The report showed that initial jobless claims in the week ended October 22 fell to 328,000 from the previous week's revised figure of 356,000.

In the heat of the earnings season, over 150 companies released results with the vast majority continuing to exceed expectations and reflecingt solid growth,

The housing sector stands out as one of the day’s biggest decliners, posting a loss of 2.3%. Energy stocks fell sharply on government's weekly natural gas inventory report, which showed an increase of 77 billion cubic feet. The natural gas sector is the worst performer in the group, down by 1.8%.

The chemical and HMO sectors are notable movers to the upside. Bank stocks are posting modest gains.

Among the stock losers, General Motors ((GM)) is the worst Dow component, falling 3.5% on news that it has received SEC subpoenas, dealing with accounting. Johnson & Johnson ((JNJ)) is another notable Dow decliner, adding to recent losses and currently down 2%. Altria ((MO)) is showing a loss of 1.4%.

DuPont ((DD)) is the best performing blue chip, extending earnings-related gains for the third straight session. The stock’s advance is 1.1%. Verizon ((VZ)) is 1% higher on earnings news. Exxon Mobil ((XOM)) is also posing gains.

MOVERS AND SHAKERS

Carmaker General Motors Corp. ((GM)) rejected speculation it was planning to file for bankruptcy and may seek protection from its creditors. This suposition came as a result of the company’s report that it had received requests from the Securities and Exchange Commission as part of an agency investigation of its pension obligations and business dealings with bankrupt company Delphi Corp. General Motors stock dropped 2.6%.

Telecom giant Verizon Communications ((VZ)) reported third-quarter results that beat forecasts, boosted by continued strength in its wireless business. In addition, the company’s rival SBC Communications ((SBC)) confirmed speculation that it will aquire the AT&T name when the two companies' union is completed. Verizon stock gained 1.3%.

Oil company Exxon Mobil Corp. ((XOM)) posted adjusted quarterly results that fell slightly of analyst predictions. The company’s stock declined 0.4%

Dow Chemical ((DOW)) reported quarterly results that were well above Wall Street expectations. These results were boosted mainly by strength in the company’s Plastics division. Dow Chemical stock jumped 2.6%.

Chinese search engine Baidu.com Inc. ((BIDU)) posted its first quarterly results since going public. The company’s results fell short of analyst expectations. Baidu shares fell more than 15%.

ECONOMIC NEWS

Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended October 22, showing a bigger than expected decrease.

The report showed that initial jobless claims in the week ended October 22 fell to 328,000 from the previous week's revised figure of 356,000. Economists had expected jobless claims to fall to about 340,000 from the 355,000 originally reported for the previous week.

About 24,000 of the new jobless claims were people that were put out of work by Hurricanes Katrina and Rita. The increase lifted the total number of claims resulting from the storms to 502,000.

The Labor Dept. also said that the 4-week moving average fell to 366,500 from the previous week's revised average of 376,500. This marks the third consecutive decrease by the less volatile moving average.

The report also said that continuing claims in the week ended October 15 rose to 2.904 million from the preceding week's revised level of 2.862 million.

After showing a notable increase in August, new orders for durable goods turned lower in September, according to a report from the Department of Commerce. The decrease exceeded economist estimates, adding to recent concerns about the outlook for the economy.

The report showed that new orders for goods meant to last at least three years fell 2.1 percent in September following an upwardly revised 3.8 percent increase in August. Economists had expected a more modest decline of about 1.0 percent compared to the 3.4 percent increase originally reported for August

The decrease in new orders was partly due to a 4.7 percent decline in new orders for transportation equipment, which have fallen in three of the last four months. Excluding transportation equipment, new orders decreased 1.0 percent.

Notable declines were also shown by new orders for computers and electronic products as well as electrical equipment, appliances, and components.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed mostly weak. The Nikkei ended up 0.2%, erasing earlier gains, pressured by concerns over General Motor’s financial stability. The index was helped by Toyota Motor, but gains were limited by weak Advantest Corp. Among the other regional markets, South Korea’s Kospi was the most notable loser, down 1.1%, Hong Kong’s Hang Seng declined 0.3%, and Taipei’s Weighted index fell 0.7%.

European markets fell deeply in the red, extending earlier losses. The sharp decline is due to lowered outlooks by France Telecom and Alcatel, General Motors worries, as well as weaker Wall Street trading The German DAX 30 led the decliners, falling by 1.9%, followed by the French CAC 40 which slipped 1.7%, and London’s FTSE 100 down 0.9%%.

ENERGY, METALS, CURRENCIES

Crude oil futures advanced on winter weather forecast. Light sweet crude December contract rose 49 cents to $61.15 a barrel on the Nymex. Heating oil climbed 2 cents to $1.8815 a gallon. Gasoline added 2 cents to $1.6050. Natural gas lost 12 cents to $13.918 per 1,000 cubic feet. London Brent gained 51 cents to $59.38.

Gold futures continued their advance in European trading as the dollar weakened. In London gold closed at $472.80 per troy ounce, up from $471.80. In Zurich it traded at $473.15, up from $472.90. In Hong Kong the precious metal rose $1.30 to close at $473.65. Silver closed at $7.80, down from $7.83.

In European trading the U.S. dollar fell against its major counterparts. The euro was quoted at $1.2143, up from $1.2072. The dollar changed hands at 115.21 yen, down from 115.84. The British pound was trading at $1.7831, up from $1.7739.

EARNINGS NEWS

GlaxoSmithKline, pharmaceutical manufacturer, advanced 1.9% after raising 2005 earnings guidance, reporting Q3 pre-tax profit growth of 21% to 21.3 pence a share, compared the prior year result on a 11% rise in revenue. Glaxo announced Advair asthma sales advanced 20% in the latest quarter, Avandia/Avandamet diabetes sales increased 22% and vaccine sales increased 20%. The company said that it's working out a plan to convert more of its manufacturing capabilities to make a pandemic flu vaccine if required and is looking to find partners to produce more of the Relenza anti-viral.

PotashCorp. ((POT)), industrial and feed products producer, reported Q3 net income of $1.17 per share, 72% up from 68 cents per share in the year-ago period on the continuing growth in prices for potash, phosphate and nitrogen. Total income for Q3 was $130.3 million, a 73 % increase from the $75.2 million in the comparable period last year. Gross margin of $279.5 million was advanced 48 % from last year's third quarter and raised year-to-date gross margin to $882.8 million, surpassing gross margin of $681.4 million for all of 2004. Cash flow from operations rose by 87 % quarter over quarter. A portion of the funds was used to complete the repurchase of 5.5 million outstanding common shares by September 1, 2005, and to begin the purchase of up to 4 million additional shares.

Alcatel SA ((ALA)), French telecommunication equipment maker, announced Q3 net profit advanced 36% to19 euro cents a share on 8.8% revenue growth. The latest quarter's results included 7 euro cents a share in one-time capital gains. If not for one-time items, the company would have gained 12 cents a share, missing analysts’ forecasts of 14 euro cents a share.

Baidu.com Inc. ((BIDU)), Internet portal, reported Q1 earnings of 8.5 million yuan ($1.06 million), nearly triple the net income of 2.9 million yuan in the year-ago period, but the results fell short of investors’ expectations of faster growth for company in the booming Chinese market. Excluding compensation expenses, Baidu.com would have earned 0.59 yuan (7 cents) per share, a penny above the analyst estimate.

AirTran Holdings Inc ((AAI)), transportation services company, posted Q3 net loss that amounted nil on a per-share basis, narrower than the previous year's loss of 11 cents per share despite 52.5% revenue growth. Load factor for Q3 improved by more than 6 %, to 76.3%, as capacity grew by 31.1%. AirTran managed to narrow its quarterly loss even as operating costs including fuel rose by 10.5%, to 9.56 cents.

Canon Inc. ((CA)), maker of printers and cameras, announced that its net profit dropped 1.1 % in July-September quarter from the year-ago period. The company reported a profit of 100.62 billion yen ($869 million) for latest quarter, down vs. 101.78 billion yen the same quarter last year, when its earnings gained from the return of pension funds. Sales for the quarter rose 4.8 % to 878.50 billion yen ($7.6 billion) from 838.30 billion yen.

IHOP Corp. ((IHP)), restaurant chain, announced that Q3 net profit advanced 56% to 62 cents a share from the year-ago quarter on reduced expenses. The company announced as well that system-wide same-store sales increased 4.5%. IHOP raised its earnings outlook for the year to the range of $2.15 to $2.20 from an earlier estimate of between $2.02 and $2.15 a share.

ImClone Systems ((IMCL)), therapeutic products manufacturer, posted Q3 earnings of 35 cents a share, down from 44 cents a share in the year-ago period despite 9% revenue growth, beating analyst estimate of 29 cents a share.

ITT Industries ((ITT)) diversified industrial and technology company, posted Q3 earnings of $2 a share, up vs. $1.16 a share in the same period last year on revenue growth. If not for non-recurring items, the company would have earned $1.37 a share, beating analyst estimate of $1.35 a share.

Raytheon Co. ((RTN)), defense systems producer, reported Q3 net income of 50 cents a share, up from 34 cents a share a year ago in line with analyst expectations. Q3 included a 1 cent a share after-tax loss in discontinued operations vs. a 7 cents a share after-tax loss in the year-ago period.

Trammell Crow ((TCC)), diversified commercial real estate services provider, reported Q3 earnings of 40 cents a share, up from 15 cents a share on 20% revenue growth, beating analyst estimate of 34 cents a share.

CORPORATE NEWS

General Motors ((GM)), the world’s largest carmaker, announced that it has received subpoenas from the SEC, dealing with the financial reporting of several issues, recovery of recall costs from suppliers and other obligations. The subpoenas are related to an investigation into pension and other post-employment benefits and certain transactions with Delphi.