Stocks Fall on Semiconductor Downgrade

07.12.2004
Forbes.com

An analyst downgrade of the semiconductor sector weighed heavily on technology shares Monday, pushing stocks lower as investors' enthusiasm for upcoming second quarter earnings waned.

Merrill Lynch cut its rating on the entire sector from "overweight" to "underweight," citing lower-than-expected demand for both personal computers and corporate hardware. The firm also downgraded Intel Corp. a day before it was due to release its earnings.

While some analysts still expect a strong second quarter, investors were spooked by the continuing stream of earnings warnings and analyst downgrades. That may diminish the chance of a strong bounce in stock prices even if earnings come in above average.

"The market isn't really responding to good earnings," said Todd Leone, managing director of equity trading at SG Cowen Securities. "Expectations have been lowered, so I suppose there's a chance we can see a little bit of a rally as earnings season moves forward, but I really don't know what to expect."

In early afternoon trading, the Dow Jones industrial average lost 37.46, or 0.4 percent, to 10,175.76.

Broader stock indicators fell. The technology-focused Nasdaq composite index fell 18.83, or 1 percent, to 1,927.50, while the Standard & Poor's 500 index was down 3.94, or 0.4 percent, to 1,108.87.

Trading was light in advance of major earnings reports later in the week, including announcements from Intel, Apple Computer Inc., Johnson & Johnson Co. and Bank of America.

The downgrades in semiconductors dragged on the entire technology sector. Intel slipped 64 cents to $25.93, while Novellus Systems, a microprocessor equipment provider, fell $1.29 to $29.76 despite beating Wall Street estimates by 3 cents per share.

The banking sector had a strong showing in its first earnings reports of the quarter. SunTrust Banks Inc. also beat expectations by 3 cents per share on gains in its investment, mortgage and wealth management businesses. SunTrust gained 93 cents to $65.31. M&T Bank Corp. surged $4.63 to $92.53 after it too beat Wall Street expectations by 8 cents per share.

NCR Corp. provided a rare positive outlook, saying its second quarter earnings could come in as high as 35 cents per share. Analysts had been expecting 18 cents per share. NCR was up $4.94 at $51.96.

Declining issues outnumbered advancers by nearly 3 to 2 on the New York Stock Exchange, where volume came to 542.96 million shares, compared with 645.12 million at the same point on Friday.

The Russell 2000 index of smaller companies was down 3.48, or 0.6 percent, at 560.25.

Overseas, Japan's Nikkei stock average rose 1.4 percent. In afternoon trading, Britain's FTSE 100 was down 0.8 percent, Germany's DAX index fell 0.8 percent, and France's CAC-40 dropped 0.5 percent.

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