Chip Stock Upgrades Boost Tech Sector
Technology buyers returned to Wall Street on Wednesday, sending the sector higher after a series of ratings upgrades of semiconductor stocks by brokerage Merrill Lynch pointed to expectations that business is about to improve.
Meanwhile, Treasury bond yields were flat or slightly higher even as downbeat news on the manufacturing sector appeared to boost the chances for another Federal Reserve interest rate cut.
The stock market overall rallied despite the economic data. The tech-dominated Nasdaq composite rose 41.25 points, or 2%, to 2,068.38, though it pulled back from a high of 2,078.
The Dow industrials eased 12.80 points, or 0.1%, to 10,510.01, but winners topped losers by nearly 3 to 2 on the New York Stock Exchange and by 22 to 15 on Nasdaq in active trading.
Merrill’s upgrade of a dozen chip stocks sent the SOX index of chip shares up 5%.
“Although the semiconductor industry continues to struggle with a combination of overcapacity and weak demand, we believe that the worst of the downturn is now behind us,” Merrill told clients.
Merrill boosted such names as Texas Instruments, up $2.13 to $36.63, and chip-manufacturing-equipment maker Applied Materials, up $2.44 to $48.30.
Bullish comments from influential analyst Abby Joseph Cohen added to the buying. Cohen, Goldman Sachs’ chief investment strategist, reaffirmed her lofty year-end targets for the market, saying the Dow will rise to 12,500, about a 19% increase from its current level, and the Standard & Poor’s 500 will reach 1,550, up 27% from Wednesday’s close of 1,215.93.
“It’s an excellent time to look at technology,” Cohen told CNBC on Wednesday, adding that she also likes consumer cyclicals, including home builders and retailers, that tend to do better in stronger economies. She also recommended financial services firms.
Cohen’s comments and Merrill Lynch’s upgrades helped investors take in stride two disappointing economic readings on manufacturing and construction. The National Assn. of Purchasing Management reported that activity in the nation’s factories declined for the 12th consecutive month in July.
Outside of technology the market was mixed, which analysts attributed to the fact that the overall economy remains weak. Home Depot fell 59 cents to $49.78 and General Motors declined 93 cents to $62.67.
In the bond market, the yield on the 2-year Treasury note edged up to 3.81% from 3.80% Tuesday, which was near an eight-year low.
The 10-year T-note yield rose to 5.07% from 5.05%.
Traders took profits Wednesday in the wake of the bond market’s sharp rally of recent weeks, which has dragged yields lower.
Despite the latest manufacturing-sector data, “We might be at the very beginning of a rebound” in the economy, said Anthony Chan, chief economist at Banc One Investment Advisors in Columbus, Ohio.
That would argue against lower interest rates.
In foreign trading, Japanese stocks continued to rebound from 16-year lows. The Nikkei-225 index gained 0.8% to 11,959.
In commodity trading, gasoline futures prices rose after a larger-than-expected decline in U.S. inventories signaled strong demand from vacationing motorists.
Gasoline for September delivery rose 1.22 cents to 74.51 cents a gallon on the New York Mercantile Exchange.
But natural gas futures prices fell more than 6%, the biggest drop in a month, after an industry report showed a larger-than-normal increase in U.S. inventories last week.
Market Roundup, C7-8
