Tech Shares Rally as Blue Chips Slump
Blue-chip stocks sagged Friday, hit by fresh worries about the slowing economy. But technology shares rallied as investors shook off an early gloom cast by poor growth forecasts from high-tech leaders.
“You’ve got the Federal Reserve easing because the economy is cooling,” said Larry Wachtel, market analyst at Prudential Securities Inc. “This cooling economy hurts corporate profits, and that’s the challenge.”
Wall Street had taken a hit early in the day after chip maker PMC-Sierra Inc. and Swedish telecom equipment maker Ericsson gave disappointing assessments of their near-term profit prospects, dragging the tech-dominated Nasdaq composite index down more than 2%.
But Nasdaq rebounded to close up 27.02 points, or 1%, at 2,781.30. Winners and losers were virtually even on volume of 2.2 billion shares. The index was up 0.4% for the week--capping its first three-week winning streak since summer--and is up 12.6% year to date.
“What we’ve been seeing for most of January is the ability to deflect bad news,” Wachtel said. “I think there’s encouragement about the resiliency.”
The blue-chip Dow Jones industrial average was done in by some of its “old-economy” stalwarts in the manufacturing and oil industries. It fell 69.54 points, or 0.7%, to 10,659.98. The Dow rose 0.7% for the week but is still down 1.2% for the year.
The broader Standard & Poor’s 500 index slipped 2.56 points, or 0.2%, to 1,354.95. Decliners led advancers 14 to 13 on the New York Stock Exchange in active trading. The S&P; 500 notched a weekly gain of 0.9% and is up 2.6% so far this year.
Diversified manufacturer Minnesota Mining & Manufacturing Co. fell $2.19 to $107.31, aerospace giant Boeing Co. dropped $1.19 to $58.06, and oil services heavyweight Exxon Mobil Corp. lost $1.50 to $81, putting a drag on the Dow.
But some of Dow’s marquee technology names were strong, limiting the index’s loss. IBM Corp. rose $3.44 to $114.19, and Microsoft Corp. gained $2.19 to $64.
Underpinning the market was speculation the Federal Reserve is ready to cut interest rates again at its next policy-setting meeting, less than a week away, analysts said.
The Fed is expected to lower interest rates by half a percentage point when it meets Tuesday and Wednesday in an effort aimed at keeping the economy from slowing too rapidly. All 25 primary dealers of U.S. government securities were unanimous in predicting the Fed’s rate-setting committee would cut rates by a half-point to 5.50%, according to a new Reuters poll.
Fed Chairman Alan Greenspan on Thursday warned that U.S. economic growth may have slowed nearly to a halt, and his comments heightened expectations for deep interest rate cuts.
Meanwhile, earnings jitters slapped the shares of individual companies.
PMC-Sierra plummeted $21.88 to $74 after it warned late Thursday that earnings would fall far short of forecasts because of bloated inventories among customers. Cisco Systems Inc., PMC-Sierra’s largest customer and the No. 1 computer network maker, lost 94 cents to $38.38.
Communications chip maker Applied Micro Circuits Corp. stumbled in the wake of PMC’s dour outlook, losing $1.81 to $76.19.
Ericsson, the world’s third-largest maker of mobile phones, fell $1.75 to $11.25 after it said it was pulling out of making its own mobile phones after reporting a loss of $155 million. The company said it would only break even in the first quarter and cut its forecast for global mobile phone demand.
But the broader shake-up did not appear to be lasting. Chip maker Broadcom Corp. erased early losses and climbed $6 to $110. Vitesse Semiconductor Corp. rose $2.75 to $72.50.
In other earnings news, JDS Uniphase Corp. gained $4.44 to $59.63 after it reported market-beating results and shaved its growth forecasts just a fraction. Its merger partner, SDL Inc., jumped $18.81 to $218.
Market Roundup, C4-5
