Dow breaks winning streak

March 5, 2002 Posted: 2207 GMT

By Staff Writer Alexandra Twin

NEW YORK (CNN/Money) -- The Dow Jones industrial average fell Tuesday, as weakness in retail and defense teamed up with an unsurprising pullback after a strong rally to send the blue-chip indicator lower, while the Nasdaq clung to gains in chips and networking issues.

The Dow fell 153.41 to 10,433.41. But the Nasdaq composite index rose 6.98 to 1,866.30. The Standard & Poor's 500 slipped 7.70 to end the day at 1,146.14.

Markets got a short-lived jump early on, following a report showing strength in the services sector. But the positive report had been expected, analysts said, so the euphoria soon gave way among Dow issues, knocking the indicator lower on weakness in select names, notably in retail and aerospace.

A Morgan Stanley upgrade of Intel and a Credit Suisse First Boston note on Oracle were among the factors enabling chips and networking issues to keep the tech-heavy Nasdaq stable.

A.G. Edwards downgraded United Technologies (UTX: down $3.35 to $73.90, Research, Estimates) to "hold" from "buy." Sector mate Boeing (BA: down $0.92 to $48.21, Research, Estimates) also traded lower.

"The Dow has significantly outperformed the Nasdaq over the last six weeks, as well as the last few sessions, so a little pullback today (Tuesday) is no surprise," Brian Belski, market strategist at U.S. Bancorp Piper Jaffrey, told CNNfn's Halftime Report.

The Institute of Supply Management released its February report on activity in the services sector, showing a much stronger-than-expected rise to 58.7 from 49.6 in January. Economists were expecting a rise to 51.4. Any reading over 50 implies expansion in the sector.

The ISM report on manufacturing last Friday kicked off the two-day rally after it showed a surge in activity after an 18-month lull.

"If the economy has turned, as all these reports keep showing, the investment community needs to see earnings turn around too. There is still a lot of money on the sidelines," said Jack Baker, head of equities at Putnam Lovell Securities.

However, after a rise of nearly 500 points in two sessions, and close to 1,000 points in 10 sessions, a 150-point decline on the Dow Tuesday was seen as healthy by many analysts.

"Markets got a little ahead of themselves. It's not much of a pull back (Tuesday) after such a big gain, but there are a lot of mixed signals," Kari Bayer, senior U.S. strategist at Merrill Lynch told CNNfn's Street Sweep. "There is a war between the economy and profits. Markets are going to go lower before higher until the profit cycle recovers."

After the close of trade, a proxy advisory firm has recommended that its shareholders, which control 23 percent of Hewlett-Packard's (HWP: up $0.05 to $20.60, Research, Estimates) shares, vote in support of the company's $22 billion merger with Compaq Computer Corp. (CPQ: down $0.07 to $10.58, Research, Estimates). While this in no way assures the deal, a negative opinion by the firm might have meant the end to the deal.

Also after the close, Amazon.com (AMZN: down $0.51 to $15.97, Research, Estimates) said that the company's CFO will step down at the end of the year.

European bourses closed lower. Asian markets finished higher Tuesday, with the exception of Tokyo's Nikkei, which closed down almost 1 percent.

Treasury prices were little changed, with the 10-year note yield up to 5.01 percent from 4.99 percent Monday. The dollar was weaker versus the euro and flat versus the yen. Light crude oil futures rose 72 cents to $23.17 a barrel in New York. Gold was lower in Chicago.

Market breadth was positive in active trading. On the New York Stock Exchange, advancers edged decliners as 1.52 billion shares changed hands. On the Nasdaq, winners beat losers 9-to-8 as 2.04 billion shares traded.

Defense, retail derail Dow

Retailers and defense were among the names giving the Dow the most grief. Procter & Gamble (PG: down $1.92 to $85.06, Research, Estimates) and Eastman Kodak (EK: down $1.44 to $32.05, Research, Estimates) joined in as well.

Two reports on the retail sector painted a mixed picture. The Bank of Tokyo/Mitsubishi and UBS Warburg measure of U.S. chain store sales fell 0.8 percent last week, the biggest drop in two months. But the Redbook average of retail sales rose 0.7 percent in February.

No. 1 home improvement retailer and Dow component Home Depot (HD: down $2.40 to $47.50, Research, Estimates) still was feeling the impact of Monday's UBS Warburg downgrade to "buy" from "strong buy." Shares of Wal-Mart Stores (WMT: down $2.22 to $60.76, Research, Estimates) sold off in tandem.

Credit Suisse First Boston cut ratings on Abercrombie & Fitch (ANF: Research, Estimates), Dollar General (FDO: Research, Estimates), J.C. Penney (JCP: Research, Estimates), and Zale (ZLC: Research, Estimates).

But on an up note, Merrill Lynch raised its rating on clothing retailer Gap (GPS: up $0.48 to $12.86, Research, Estimates) to "strong buy" from "neutral," saying the company will see a return to profitability by the fall.

Chips boost Nasdaq

Helping the Nasdaq was news that Morgan Stanley raised its rating on chipmaker Intel (INTC: up $0.85 to $32.70, Research, Estimates), one of the composite's key components, to "strong buy" from "outperform."

Late Monday, computer chip maker Texas Instruments (TXN: unchanged at $33.99, Research, Estimates) reaffirmed guidance for its first quarter, saying it should post breakeven results, in line with estimates. The company also said orders received in the first two months of the quarter were strong compared with the same period three months earlier -- and, if this growth continues, the second quarter should grow sequentially.

Semiconductor sales experienced a typical, post-holiday season slump in January amid an otherwise strengthening industry, an industry trade group said Tuesday.

Credit Suisse First Boston again reiterated its "buy" rating on Oracle (ORCL: up $0.18 to $13.85, Research, Estimates), pushing the stock higher one day after the company lost 15 percent on a profit warning.

Sun Microsystems (SUNW: up $0.42 to $9.09, Research, Estimates) was active on a number of brokerage comments, including one from Robertson Stephens reiterating its "buy" rating on the largest marker of Unix servers. The company is due to give its mid-quarter update after the close of trade Thursday.

Brocade Communications (BRCD: down $0.43 to $26.31, Research, Estimates) was active after it said a preliminary injunction filed against it by data storage sector rival McData (MCDT: down $2.20 to $15.93, Research, Estimates) is without merit and won't impact the company's ability to ship products.

Airlines were weaker, thanks to a UBS Warburg note in which the firm downgraded Delta Air Lines (DAL: down $2.94 to $35.65, Research, Estimates) and Southwest Airlines (LUV: down $0.69 to $20.27, Research, Estimates), among others.

On an encouraging note, Salomon Smith Barney chief market strategist Tobias Levkovich raised his year-end target for the Dow industrials to 11,400, which would be a 7.7 percent gain from Monday's close.

Steel gets gov't support; joblessness seen rising

In other news, the United States will impose a 30 percent tariff on steel imports during the next three years in an effort to help the steel industry, the government said Tuesday. The steel industry had been asking for 10 percent more, but the move was seen nonetheless by many analysts as a step in the right direction in aiding the ailing industry.

On the labor front, outplacement firm Challenger Gray & Christmas said that job cut announcements in the United States fell 40 percent in February, implying the labor market may be recovering. However, businesses still announced 128,115 job cuts during the month.

Monthly unemployment data to be released Friday by the government are expected by a Briefing.com consensus to show the unemployment rate at 5.8 percent. That would be up from January's 5.6 percent, showing continued weakness in the labor market.


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