Market Sells Tech Stocks

123jump.com Staff
18 Jan, 2006
New York City

CPI for the December 2005 fell by 0.1% but market ignored the drop in inflation. Tech heavy index NASDAQ dropped 1% and led the decline in Dow and S&P 500 indexes. Oil, gasoline, heating oil and natural declined. Banks have reported so far mixed earnings and tech stocks have not met market projection of earnings.

U.S. MARKET AVERAGES

Tech stocks sold-off for the second day this week this time it was earnings. December fall in CPI index of 0.1% was better than market expectation of rise of 0.2% in inflation. However, on a day of earnings from several large companies, market ignored fall in inflation. Beige Book report also indicted that despite rising wage pressures in the select markets core inflation is under control. Several Fed governors have been indicating that Fed may be near the end of the rate hike cycle. At close all three averages closed lower led by 1% decline in Nasdaq.

Computer hardware and Internet stocks sold-off as Intel and Yahoo missed earnings estimates of traders. Financial services stocks specifically bank stocks were mixed as companies reported mixed earnings picture. J P Morgan reported better than expected earnings but Wells Fargo and Fifth Third Bancorp disappointed market.

After-the-close Apple Computer reported earnings of 65 cents vs. 35 cents a year ago on revenue of $5.75 billion. The company also reported that it shipped 1,254,000 Macintosh computers and 14,043,000 iPods during the quarter, representing 20 percent growth in Macs and 207 percent growth in iPods over the year-ago quarter. However, company stock sold-off 6% in the after-market trading.

EBay reported earnings of 20 cents vs. 15 cents for the fourth quarter earnings on revenue growth of 42% to $1.33 billion. The company stock dropped 5% in the after-market trading.

Dow component Intel Corp., ((INTC)) the world''s top chipmaker, reported Q4 results below expectations on weak demand for the processors used in desktop computers. Piper Jaffray downgraded its rating on the company and cut its price target. Yahoo Inc., the world''s largest Internet media company, also posted quarterly earnings that fell short of Wall Street expectations.

International Business Machines Corp., ((IBM)) the world''s biggest computer company, said quarterly profit rose higher than expected. Consequently, J. P. Morgan maintained its ''neutral'' rating on IBM.

Yet most of the U.S. market''s losses could be blamed almost entirely on tech-sector selling, with other stocks generally holding firm after the Labor Department reported better-than-expected retail inflation data.

Technology stocks were the most conspicuous decliners in the morning session. Energy stocks also posted weakness on profit-taking from the recent run up. The oil sector dropped 1.3%.

The airline sector bounced back, recovering from a week-long slide that took it to a 2-month low. The HMO sector climbed during the morning to erase some recent losses. The sector rose about 1.7%, led by greater-than-3% gains in Aetna and Humana.

Ethan Allen ((ETH)) jumped to a new 52-week high on strong earnings and upbeat guidance. Exelon added to a recent advance to set a fresh peak. Archer-Daniels-Midland ((ADM)) also pushed to a fresh peak.

Dana Corp. added to its earnings-related decline, extending its 52-week low. Impac Mortgage and Apollo Group also extended their lows.

In midday trading, the tech-focused Nasdaq composite index fell 26.99, or 1.17%. The Dow Jones industrial average dropped 53.15, or 0.49%, and the Standard & Poor''s 500 index lost 7.27, or 0.57%.

Bonds were little changed, with the yield on the 10-year Treasury note steady at 4.33% from late Tuesday.

ECONOMIC NEWS

Consumer prices unexpectedly showed a modest decline in December, according to a report from the Department of Labor. The drop in prices was largely due to a continued decrease in energy prices.

The Labor Dept. said that its consumer price index fell 0.1 percent in December following a 0.6 percent decrease in November. Economists had been expecting prices to increase by about 0.1 percent.

The decrease in prices was due in large part to a 2.2 percent drop in energy prices, which continued lower after falling 8.0 percent in November. Prices for transportation and apparel also fell in December.

The core CPI, which excludes food and energy prices, rose 0.2 percent in December, matching the increase seen in the two previous months. The modest increase came in line with economist estimates.

The report also showed that the CPI rose 3.4 percent for the 12 months ended in December compared to a 3.3 percent increase in 2004. At the same time, the core CPI rose 2.2 for 2005, unchanged from the previous year.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks closed Wednesday deeply in the red, hurt by heavy selling pressure. The Nikkei ended down for a second straight session, dropping 2.94% to 15,314.18. Tokyo Stock Exchange finished 20 min earlier as the number of orders and executions has increased so sharply that threatened to exceed the systems’ 4 million-order capacity. South Korea’s Kospi tumbled 2.64%, Taiwan’s Weighted index slid 3.16%.

European stocks closed sharply down on disappointing sales from Intel and a heavy sell-off in Asian and U.S. The German DAX 30 tumbled 1.2%, the French CAC 40 recovered from early losses to close down 0.7%, and London’s FTSE 100 dropped 0.6%.

OIL, METALS, CURRENCIES

Crude oil prices declined below $66 a barrel on unusually warm weather which curbed the demand for heating oil in the U.S. Light sweet crude for February delivery fell 58 cents to $65.73 a barrel. London Brent slipped 54 cents to $64.36. Natural gas declined 47 cents to $8.694 per MBTU.

European gold ((GLD)) declined on speculations of accelerating inflation, diminishing the metal’s appeal. In London gold traded at $547.30, down from $561.70. In Zurich the precious metal traded at $546.85, down from $557.15. In Hong Kong gold fell $13.10 to close at $544.70. Silver closed at $8.85, down from $9.12. In New York gold declined $9.80 per ounce to $544.50.

The U.S. dollar traded mixed against major currencies. The euro was quoted at $1.2106, up from $1.2095. The dollar bought 115.17 yen, down from 115.51. The British pound was quoted at $1.7681, up from $1.7664.

EARNINGS NEWS

IBM ((IBM)), computer company, reported that Q4 net profits rose 13 % to $1.99 per share, up from $1.67 per share in the year-ago period, despite unimpressive revenue, beating analysts'''' estimate of $1.94 per share. Cost cuts and the sell-off of IBM''s personal-computer business boosted profit margins, while positive trends in chips and mainframes helped the hardware division. The results were pulled down 10 cents per share by a $267 million charge stemming from IBM''s recent decision to freeze its pension plan for U.S. workers in 2008, and by 2 cents per share because of an accounting change.

Yahoo Inc. ((YHOO)), Internet company, reported Q4 net earnings of 46 cents per share, up 83% from 25 cents per share at the same time in 2004. The 2005 results incorporate a $310 million gain triggered by a complex deal that left Yahoo with a 40 % stake in Alibaba.com, China''s largest e-commerce company. Excluding the gain and other accounting items unrelated to its ongoing operations, Yahoo would have earned 16 cents per share. That figure falls a penny below the analyst estimate.

CIT Group Inc. ((CIT)), leasing company, posted Q4 net profit of $1.21 a share, up 21.8% from the year-ago period, beating analyst estimate of $1.04 a share. Q4 finance income, which excludes revenue from fees and sales of leasing equipment, advanced 23.5%. The company stated that Q4 included several items, including the sale of its micro-ticket leasing unit and a reduction in Q4 income tax expense, which resulted in 24 cents a share increase in earnings.

ASML ((ASML)), Dutch chip equipment maker, announced that Q4 net income fell to 51.6 million euros from 109 million euros, with sales down to 548 million euros from 785 million. Both profit and sales were higher than analysts’ forecasts. On a sequential basis, Q4 profit and sales advanced, and the company booked 55 systems compared to 46 systems in Q3.

SunTrust Bank Inc. ((STI)), bank company, reported that Q4 net profit advanced to $1.41 a share, up from the comparable period last year on tight cost controls and improving credit quality trends. Income excluding expenses from the acquisition of National Commerce Financial Corp. came to $1.43 a share, in line with the analysts’ forecasts. Revenue increased 7%.

Mellon Financial Corp ((MEL)), financial company, reported Q4 net income of 50 cents a share, up from 46 cents a share in the prior year on revenue growth, topping analyst estimate by a penny. Assets under management rose 11% to a record $781 billion.

J.P. Morgan Chase & Co ((JPM)), banking services, reported Q4 net income of 76 cents a share, up from 46 cents a share in the year-earlier period. Excluding non-operating items, earnings were 73 cents a share, beating on that basis analysts’ expectations by a penny. Investment banking fees continued to be strong; deposits and accounts in retail banking increased.

Southwest Airlines ((LUV)), airline, reported that Q4 net income advanced to 10 cents a share, up 53.6% from the year-ago period. If not for the effects of unsettled derivatives transactions, net income rose 44% to 12 cents a share. Operating revenue for the quarter increased 20.1%. The company missed analysts’ expectations for earnings of 13 cents a share.

State Street Corp ((STT)), provider of products and services for global investors, reported Q4 net income of 74 cents a share, up 35% from 55 cents a share in the year-ago period on revenue growth, beating analyst estimate by a penny. Return on stockholders'''' equity from continuing operations was 15.9% in Q4, up from 11.9%.

Ethan Allen Interiors Inc. ((ETH)), home furnishings retailer, reported that Q2 profit increased to 77 cents a share, up from 63 cents in the year-ago period. Sales for Q2 rose to $276 million from $245.3 million in last year''s Q2.

Northern Trust Corp ((NT)), commercial banking and investment management services company, reported Q4 earnings were 67 cents a share, compared with 60 cents a share in the year-ago period, a penny shy of analyst estimate of 68 cents a share.