Tech retreat trips Wall St.
As investors wait for key report on unemployment, many cash in on gains
NEW YORK (CNNfn) - The Nasdaq composite index fell for the first time in a week as investors cashed in on recent gains in U.S. technology stocks Thursday, aided by renewed concerns that the economy may be in for a bumpy ride.|
Analysts said that, after several strong sessions, the market retreat was a normal part of the bottoming-out process. A government report showing a rise in jobless claims spurred selling, but wasn't the sole cause, they noted.
"It looks like more of a digestive day rather than anything (else)," Arthur Cashin, director of floor trading with UBS PaineWebber, told CNNfn's The Money Gang. "The data that have come out has shown the economy is still weakening but we're not falling off a cliff."
Analysts also said investors are concerned about what Friday's report on April employment will look like if the job market is deteriorating. But they aren't in a frenzy.
"This has been a good time for investors to take profits and there's some hesitation ahead of tomorrow's (Friday's) report," said Charles Payne, head analyst with Wall Street Strategies. "There is a general sense that if we're not at the worst, we're almost at the worst -- but you have to expect the market to pull back occasionally."
The Nasdaq fell 74.40 points, or more than 3 percent, to 2,146.20. The losses come after four straight sessions of gains for the tech-heavy index, and the Nasdaq still is up 31 percent from its April 4 low of 1,638.
Selling wasn't confined to technology stocks, with consumer cyclical issues pulling the Dow Jones industrial average lower.
The Dow shed 80.03 points to 10,796.65, while the Standard & Poor's 500 slipped 18.84 to 1,248.59.
But by the end of the trading session, the major indexes were all off the day's lows. Analysts said this is another encouraging sign because it points to investors' desire to buy rather than sell stocks.
"The re-emergence of the 'buy on the dips' crowd is something I believe is happening," Payne said. "We really see buying meeting selling and investors are sifting through the ashes to find reliable companies."
Government figures on initial jobless claims that showed further weakness in the job market rekindled modest concerns about the economy, which added to the pullback.
A weaker job market could lead to less consumer spending and undermine the recent signs of economic strength. The selloff was not causing analysts or investors to panic.
"Part of it (the selloff) was the economic news, and we've had a really good run on the Nasdaq," said Mark Donohoe, institutional equity sales trader with U.S. Bancorp Piper Jaffray. "You don't feel like it's any kind of a panic situation – you've got some profit-taking but it's not like anyone is selling into this."
In other markets, Treasury securities rose. The dollar gained against the euro but was little changed versus the yen.
Trying to chart the economic course
While some recent reports have signaled underlying economic strength, not all the data were convincing investors that a turnaround is taking place. Therefore, investors remain skittish, especially with the Federal Reserve's monetary policy meeting -- and the decision about whether or not there will be a fifth 2001 interest rate cut -- just 12 days away.
"It (the data) gave people a reason to sell and sometimes that's all it takes," said Piper Jaffray's Donahoe. "I still think the Fed is going to cut again and I think it will be half a (percentage) point."
New jobless claims rose by 9,000 to 421,000 last week, while the four-week average of new claims rose above 400,000, according to the U.S. Labor Department. The data pointed to more weakness than expected in the job market -- Wall Street analysts had forecast new claims of 390,000.
"We've had a few good days and the only economic number we had today was the jobless claims," said Art Hogan, chief market analyst with Jefferies & Co. "People are starting to get nervous -- if the jobless claims look like that, what will the unemployment rate look like, and that's the driver."
Economists surveyed by Briefing.com expect the Labor Department's unemployment rate to edge up to 4.4 percent from 4.3 percent in March.
"If the unemployment rate is weak, look for the Fed to cut interest rates by a full 50 basis points (half a percentage point), " William Sullivan, money market economist with Morgan Stanley, told CNNfn's Street Sweep.
Down but not out on Wall Street
Analysts said it was normal for investors to cash in on the recent strength, especially ahead of key economic news.
"I think this is more of a hesitation day ahead of the look at unemployment tomorrow," Gregory Nie, technical analyst with First Union Securities, told CNNfn's Market Call.
Not only are investors hesitating, but they're also cashing in on the recent gains. In the tech sector, broad selling was led by Cisco Systems (CSCO: down $1.34 to $18.66, Research, Estimates), Yahoo! (YHOO: down $2.09 to $20.83, Research, Estimates), Dell Computer (DELL: down $1.80 to $24.93, Research, Estimates), and IBM (IBM: down $1.70 to $113.70, Research, Estimates).
Outside of technology, consumer cyclical stocks such as Johnson & Johnson (JNJ: down $0.74 to $96.76, Research, Estimates), SBC (SBC: down $0.57 to $41.80, Research, Estimates), Coca-Cola (KO: down $0.82 to $46.75, Research, Estimates), and International Paper (IP: down $0.97 to $38.00, Research, Estimates) weighed on the Dow.
While market breadth was negative, analysts were encouraged by the modest volume. "On down days it's been light, and on up days it's been huge, so that's a sign that investors want to buy this market," Wall Street Strategies' Payne said.
Losers beat winners on the Nasdaq 2,345 to 1,455 as more than 1.98 billion shares were traded. On the New York Stock Exchange decliners outpaced advancers 1,830 to 1,223 as more than 1.10 billion shares changed hands.
Corporate results and news
Most leading companies already have posted quarterly results for the period ended March 31, and market participants already are starting to look toward the next reporting period. But some March quarterly results are still trickling in.
"It's hard to figure out whether the Street wants bad news, which means additional rate cuts, or whether the Street wants good news, which means corporate earnings will rebound sooner rather than later," Wall Street Strategies' Payne said. "We're in a really interesting space between both of those."
Royal Dutch/Shell (RD: down $0.87 to $57.78, Research, Estimates) said its profit rose 23 percent on higher gas prices and improved earnings from refining. Shell, posting its fifth-consecutive record quarter, has seen its growth plans stall after U.S. Barrett Resources rejected its takeover bid and the Australian government blocked its move to take control of Woodside Petroleum.
Cosmetics maker Revlon (REV: unchanged at $7.00, Research, Estimates) reported a wider first-quarter loss that was smaller than expected, as its sales sagged and it took a charge for restructuring.
After the bell, insurer John Hancock Financial Services (JHF: down $0.15 to $36.80, Research, Estimates) is one of the bigger names due to report. The company is expected to post earnings of 60 cents a share, down from 65 cents a year earlier.
In other news and deals, the U.S. Department of Justice agreed in principle Wednesday to approve the $42 billion merger between General Electric (GE: down $0.60 to $48.50, Research, Estimates) and Honeywell (HON: down $0.65 to $48.40, Research, Estimates), provided Honeywell divests its helicopter engine business.
Communications chipmaker Vitesse Semiconductor (VTSS: down $3.38 to $34.39, Research, Estimates) announced plans late Wednesday to reduce its work force by around 12 percent in the quarter ending June 30.
Other semiconductors that followed Vitesse lower included Intel (INTC: down $1.54 to $30.40, Research, Estimates), Applied Materials (AMAT: down $2.09 to $52.60, Research, Estimates) and Altera (ALTR: down $0.84 to $26.64, Research, Estimates).