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Stocks back off of lows
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October 1, 2001: 5:30 p.m. ET
U.S. equity indexes back off early lows, look to Tuesday's Fed move
By Staff Writer Alexandra Twin
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NEW YORK (CNNfn) - U.S. equity markets closed down, but well off their lows Monday, as stock investors looked up from the economic and corporate pessimism that had mired the indexes all day and instead attempted to stabilize ahead of what many assume will be another Federal Reserve interest-rate cut on Tuesday.
Investors will look to Tuesday's Federal Reserve Board meeting to determine the direction of interest rates. The Fed is expected to reduce rates by at least one-quarter percentage point, if not a half-percentage point.
"Clearly people are anxious," said Ned Riley, chief investment strategist, State Street Global Advisors. "Psychologically, the market is prepared to rally, but it needs clear evidence of a positive trend to do so, particularly on the first day of the (fourth) quarter."
The Dow Jones industrial average closed down 10.73 to 8,836.83; the blue-chip measure was down as much as 115 points earlier in the session. The Nasdaq composite index fell 18.38 to 1,480.42. The S&P 500 dipped 2.39 to 1,038.55.
While the markets managed to rally last week, with the Dow rising 7 percent and the Nasdaq up more than five percent, markets were also drastically down for the third quarter that ended Friday – with the losses exacerbated by the Sept. 11 terrorist attack that resulted in a selloff once markets resumed trading after a four-day shutdown.
"Investors had to decide this (Monday) morning whether last week's rally was real or just a knee-jerk reaction to the previous week's losses," said Brett Gallagher, head of U.S. equities, Julius Baer.
Gallagher said a lot of people went into last week thinking that certain stocks were oversold, particularly airlines, hotels and anything travel-related, as well as General Electric and other "old economy" stalwarts. And so people bought, spurring the rally.
Other analysts indicated that the end of the quarter led to increased activity on the part of institutional investors and fund managers. Since blue chips rose so much last week, they were vulnerable Monday, Gallagher said.
"We came in today a lot more sober with buyers at the sidelines for the most part," Brian Finnerty, head of Nasdaq stock trading, C.E. Unterberg, Towbin told CNNfn's The Money Gang.
Techs fought for control of the Nasdaq. Chips and storage stocks showed marked weakness, computer hardware and telecommunication names see-sawed, and the biotechs continued to show strength.
In the Dow, a cut in Dell's earnings estimates initially pushed the index down. But shares of the computer maker ended the day a notch above where they started. Negative market breadth was the Dow's main culprit, although the same conservative defensive plays that helped last week's rally saved the average from closing down farther.
After the close of trade, the U.S. Commerce Department said aerospace maker Boeing (BA: down $1.10 to $32.40, Research, Estimates) will sign a "major purchase agreement" on Tuesday with China, while Compaq Computer (CPQ: up $0.02 to $8.33, Research, Estimates) said it expects third-quarter revenue and earnings to be lower than initial forecasts.
Tokyo's Nikkei index finished Monday with a 2 percent gain, but European markets closed lower, hit hard by energy and tech stocks. Latin American markets were also pressured. Treasury prices rose. The dollar was stronger against the yen but weaker versus the euro.
Market breadth was negative. On the Nasdaq composite, losers topped winners by a 2-to-1 margin as 1.48 billion shares were traded. On the New York Stock Exchange, decliners beat advancers 5-to-3 as 1.16 billion shares changed hands.
Analysts weigh in on Intel, Dell
Analyst estimate cuts and corporate-results warnings heralded the start of the new quarter.
Tech stocks dragged down the Nasdaq on some specific company and sector weakness, while the Dow suffered from the blue-chip blues.
Merrill Lynch cut its fourth-quarter earnings estimates on Intel (INTC: down $0.43 to $20.01, Research, Estimates) the same day that the world's No. 1 chipmaker was expected to introduce 12 new processors with enhanced power-saving and performance features used in mobile computers.
Xilinx (XLNX: down $0.55 to $22.98, Research, Estimates) got an upgrade from Morgan Stanley, but couldn't use it to overcome the effect of the pressure on Intel.
Brocade (BRCD: down $1.13 to $12.90, Research, Estimates) and Network Appliance (NTAP: down $0.26 to $6.54, Research, Estimates) led the storage sector down after Banc of America Securities cut the stocks' ratings and issued negative comments on the sector overall.
Communications equipment maker Proxim (PROX: down $1.38 to $8.37, Research, Estimates) warned that its third-quarter results would fall short of expectations.
Electronic security company RSA Security (RSAS: down $2.56 to $10.90, Research, Estimates) warned of a loss in the third quarter. But sector mate Internet Security Systems (ISSX: up $2.97 to $12.08, Research, Estimates) said it is comfortable with previous third-quarter guidance.
However, the tech sector was not all doom and gloom. Biotech and select telecom names proved resilient. And early weakness in the computer hardware sector – stemming from the earnings-estimate cut for Dell – eased up.
U.S. Bancorp Piper Jaffrey cut its earnings estimates on computer hardware maker Dell Computer (MLNM: up $0.53 to $18.29, Research, Estimates). Deutsche Bank Alex. Brown upgraded fellow biotech Neurocrine Biosciences (NBIX: up $0.81 to $32.83, Research, Estimates).
Handheld device maker Palm (PALM: up $0.02 to $1.48, Research, Estimates) benefited from news that business software maker Siebel Systems (SEBL: up $0.04 to $13.05, Research, Estimates) will use its operating system for a new product.
ABN Amro made some positive comments on such airline stocks as AMR (AMR: up $0.76 to $19.90, Research, Estimates) and Northwest Airlines (NWAC: up $1.33 to $12.74, Research, Estimates).
Some retailers were strong. Chico's FAS (CHS: up $2.13 to $25.68, Research, Estimates) said same-store sales dropped 27 percent during the week ended Sept. 15 but have since improved on a weekly basis. Dollar General (DG: up $0.70 to $12.40, Research, Estimates) was also up and Wal-Mart (WMT: up $0.26 to $49.76, Research, Estimates) gave a boost to the Dow.
In the banking sector, Credit Suisse First Boston upgraded Citibank (C: up $1.25 to $41.75, Research, Estimates), giving the Dow one of its bright spots and lifting other names in the sector, such as Bank of America (BAC: up $0.55 to $58.95, Research, Estimates).
Negative market breadth more than any specific stock pulled down the Dow, with 3M (MMM: down $1.54 to $96.86, Research, Estimates) and Boeing (BA: down $1.10 to $32.40, Research, Estimates) the only substantial losers. Safe defensive plays like Philip Morris (MO: up $1.08 to $49.37, Research, Estimates), Merck (MRK: up $1.72 to $68.32, Research, Estimates) and IBM (IBM: up $0.99 to $92.71, Research, Estimates) were among the average's biggest gainers.
Investors shrug off economic data
The day's economic reports had little effect on investor mood.
Manufacturing activity came in better than expected, according to the National Association of Purchasing Management's index, which measured a time period that included the Sept. 11 attacks against the United States. The index fell to 47.0 in September from 47.9 in August, a smaller drop than economists had predicted, according to Briefing.com.
But some who participated in the survey said it was too soon to assess how severely the attacks damaged the nation's economy.
The government reported that consumer spending – which fuels two-thirds of the nation's economy – rose 0.2 percent in August, following a 0.2 percent gain in July and below economists' estimates. U.S. income was unchanged for August following a rise of 0.5 percent in July, missing economists' expectations as well. 
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