Tech stocks posted solid gains on strength in the semiconductor group, while blue-chip stocks suffered triple-digit losses, one day after Federal Reserve Chairman Alan Greenspan's remarks before the Senate Banking Committee on Tuesday.
Despite announcing a weak outlook for the current quarter, Applied Materials Inc. (AMAT), a manufacturer of gear for making computer chips, led semiconductors higher by about 7.8%. Applied Materials lowered expectations for the current quarter, citing a slowing economy and fewer orders.
"I think the watch word is to buy value," said Dan Veru, vice president, Palisade Capital. "Even with some sketchy outlooks, individual stocks within [the semiconductor] group did nicely today." And the strength is merited, Veru noted, as chipmakers are some of the best values around lately.
Though bargain hunters for tech stocks emerged late in the session, investors in Old Economy stocks that would benefit from further interest rate cutting were nervous after Greenspan's testimony. His remarks hinted the significant economic slowdown this year has a way to go, but expressed some optimism. To investors' disappointment, his wording suggested the Fed may not aggressively lower interest rates and help lift the cooling economy and ailing corporate profits.
"I think there's a good possibility the Fed will continue to ease rates this year, but probably not as aggressively as people expected before," John Dale, manager of Wells Fargo Funds:Large Company Growth told S&P's AdvisorInsight. "There is a confidence issue with the U.S. economy. Keep in mind that we have a great many investors, portfolio managers, analysts and businessmen who have never experienced an economic slowdown and so they're all frozen in their tracks right now So, we need to restore some confidence in the economy."
Adding to evidence the Fed would not make deep interest rate cuts, the conference board's chief economist Gail Fosler said a recession was "unlikely," according to Standard & Poor's economic research unit. Fosler said she sees first quarter GDP at 3.6%. The economy is already recovering and the Fed could well hike rates in the second half of the year, she said.
The Dow ended off 107.91 points, or 0.99%, to 10,795.41. Among the biggest Dow losers were AT&T Corp. (T) and Minnesota Mining & Manufacturing. (MMM). Drug and tobacco issues also took a beating.
The Nasdaq climbed 63.68 points, or 2.62%, to 2,491.39. Meanwhile, the S&P 500, a broader stocks gauge, finished off 3.03 points, or 0.23%, to 1,315.77. Oil futures and precious metals futures were mixed.
Treasuries ended lower a day after Greenspan's testimony. Wall Street also digested new economic data that confirmed a slowing economy.
The government reported U.S. business inventories rose 0.1% in December -- the smallest gain in inventories since January 1999. November inventories were revised lower to a 0.3% gain from a 0.5% gain. Additionally, sales were up 0.1% in December. Sales were revised lower in November to a 0.4% loss from a 0.3% loss. Although the data is expected to have little impact on bonds, the report could carry negative connotations in terms of an improved growth outlook later in the first and second quarters with less inventory subtraction from GDP likely.
Stocks in the News
Shares of ConAgra Foods Inc. (CAG), the largest U.S. food-service manufacturer and a major retail food supplier, fell one day after the company warned that higher energy costs and a slowing economy will dampen its near-term earnings outlook.
Goodyear Tire & Rubber Co. (GT) reported an operating loss of $65 million for the fourth quarter and announced it was eliminating 7,200 jobs, or nearly 7% of its work force, to reduce costs: Reuters
Microsoft Corp. (MSFT) shook up its executive ranks, naming newcomer and consumer-business chief Rick Belluzzo president and chief operating officer.
Campbell Soup Co. (CPB), the world's biggest soup maker, on Wednesday said its fiscal second-quarter profit fell 4% due to increased marketing costs and warned next quarter's earnings would be less than Wall Street estimates.
Publisher McGraw-Hill Cos. Inc. (CPB) reported a slight rise in fourth-quarter operating earnings in line with Wall Street estimates, but warned of sharply lower-than-expected first-quarter results in part because of a slowing advertising market. McGraw-Hill's operations include Business Week Online.
European markets finished lower. The London Financial Times-Stock Exchange 100 index closed down 52.30 points, or 0.84%, to 6,176.20. In Germany, the DAX Index ended off 78.06 points, or 1.65%, to 6,479.87. Meanwhile, France's CAC 40 Index ended down 94.80 points, or 1.65%, to 5,644.23.
In Asia, the markets ended higher. Japan's Nikkei 225 Index closed up 9.36 points, or 0.07%, to 13,284.06. Hong Kong's Hang Seng index, meanwhile, ended up 17.70 points, or 0.11%, to 15,860.42. By Amy Tsao and Heesun Wee in New York