MARKET REPORT
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Resurgent earnings concerns and a slowing economy pushed small cap stocks
lower Tuesday and sent the Nasdaq Composite Index to its lowest level this
year.
Small cap stock indexes ended uniformly lower, with the Russell 2000
leading index of small cap stocks slipping 12.68, or 2.7%, to 459.02, while
the Wilshire 1750 lost 24.26, or 3.2%, to 739.39. The S&P 600 lost 6.54
points, or 3.14%, to 201.92.
The tech-laden Nasdaq Composite Index dropped 145.51 points, or 5.1%, to
2734.98, a level not seen since October 1999. Chip stocks, represented by
the Philadelphia Semiconductor Index also plunged, adding to yesterday's
near 6% loss by losing 50.96 points, or 8.1%, to 577.12.
"The technology end clearly took most of the damage," said Chief Economist
David Blitzer of Standard & Poor's. Software, semiconductors and
communications-equipment stocks were all hit in the tech sell down.
Blitzer noted that while Nasdaq stocks took the brunt of the damage, there
wasn't any one villain to point to. Continuing earnings woes, a slowing
economy, uncertainty over the U.S. presidential election and rising energy
prices all contributed, if not in equal proportion.
"It's all earnings anxiety more than anything else," Blitzer added.
Earlier Tuesday, the Census Bureau reported orders for durable goods, those
designed to last three years or longer, tumbled 5.5% in October, mostly on
a drop in aircraft orders.
"Believe it or not, this is the reason for the Nasdaq sell-off," said
Richard Yamarone, director of economic research at Argus Research.
In general, old-economy stocks are thought to be most affected by the
report. But Yamarone said the report doesn't just affect manufacturers of
autos and refrigerators anymore, noting a 9.9% drop in electronic and other
electrical equipment orders, which are new economy related.
The drop in long-lasting-goods orders was greater than analyst expectations
of a 1.3% decrease. The decline was blamed on higher interest rates and
fewer exports and was the first such fall in three months. The government
also revised September's increase in durable goods downward to a gain of
2.4% from a previously reported 3% rise.
Investors saw the corollary between the drop in electronic orders and how
that affects stocks such as telecommunications, Yamarone said. Also,
tighter loan standards, a high real federal funds rate and high prime rates
currently at 9.5% are attacking capital spending and business investment.
"Investment spending is really fueling the slowdown. Unless the Fed changes
policy," Yamarone said, "we're not going to see any alleviation in this.
Things would get worse before they get better."
Yamarone added he expects the Fed will relax its tightening bias and move
to a more neutral stance at its Dec. 19 meeting, while keeping an eye on
inflation.
Several small cap stocks moved on news of a shuffling in the S&P 600 Small
Cap Index. Bell Microproducts Inc. (NASDAQ: BELM), a computer-products
distributor, will replace Talk.com Inc. (NASDAQ: TALK) in the index,
Standard & Poor's said, while Radiant Systems Inc. (NASDAQ: RADM), a
software maker, will replace MascoTech Inc. (NYSE: MSX).
Talk.com Inc. (NASDAQ: TALK) was also among the losers after S&P said the
online Web telephone long distance company would be bumped from the S&P 600
index. Shares fell in excess of 60% to 9/16.
Small cap aerospace and defense stocks were hurt by the report but
recovered some ground in afternoon trading. Satellite-manufacturer Orbital
Sciences Corp. (NYSE: ORB) fell 5/16, or 5.2%, to 5 3/4, while Heico Corp.
(NYSE: HEI) fell 5/16, or 2%, to 15 1/8. Esterline Technologies Inc. (NYSE:
ESL), Triumph Group Inc. (NYSE: TGI) and Newport News Shipbuilding Inc.
(NYSE: NNS) also fell.
Blue chip stocks resumed their positive position after heading lower at
midday. The Dow Jones Industrial Average slipped 38.49, or 0.36%, to
10,507.58, and the S&P 500 dropped 12.88 points, or 1%, to 1336.09.
Also this morning, the not-for-profit business group, the Conference Board,
reported consumer confidence fell in November to 133.5, falling short of
analyst expectations of 136.
The unexpected decline suggests consumers' faith in the U.S. economy has
slipped and the Federal Reserve may have raised interest rates too much.
The Conference Board noted a week ago that it expects a robust Christmas
sales season nearly on par with last year's sales.
"All the numbers are stronger than they were last year at this time," noted
Argus' Yamarone. "Consumer confidence is higher, unemployment is lower, and
spending and incomes are all higher than they were in 1999."
In Canadian trading, the Toronto Stock Exchange erased all of Monday's
gains and then some, dropping over 2000 points, or 2.2%, to 8925.20, while
the Canadian Venture Exchange fell 57.6, or 1.9%, to 2977.8, after giving
up 36.47 points Monday.
In currency markets, the Canadian dollar slipped 0.1% to US$0.6510 from
US$0.6515, while in late New York trading, the euro advanced to US$0.8564.
In commodities news, energy futures slipped after several days of milder
weather in the Northeast. January crude oil futures tumbled $1.16, or 3.3%,
to $34.22, while December natural gas lost 35 cents, or 5.5%, to $6.02.
December gold dropped 50 cents, or 0.2%, to $269.80.
