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Cisco defuses Nasdaq
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August 10, 2000: 4:52 p.m. ET
Investors lack confidence in techs; Dow flounders, advancing on drug buying
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - The Nasdaq composite index fell nearly 100 points, or more than 2 percent Thursday as investors pulled money from technology stocks, such as Cisco Systems, and bought up selective "old economy" issues.
"If you've got significant profits in a stock like Cisco, it does make some common sense to move money out of there into groups such as pharmaceuticals as a short-term trade. This is more of a rotation rather than anything else," said Kevin Caron, associate strategist at Gruntal & Co. "Until the Fed registers its vote at the end of August, I think you just see more of the same - a lot of churning and going nowhere fast."
 The Nasdaq fell 93.51 points to 3,759.99. The tech-heavy index is now down 7.5 percent from the start of the year. Still, analysts say that the technology sector should continue seeing strong growth.
"When we get beyond the Fed's decision in August, it then opens up the opportunity for technology to assert itself because of its strong earnings growth and take the market to higher highs and higher lows," said Caron.
Meanwhile, the Dow Jones industrial average waffled, gaining moderately on buying in drug stocks, such as Johnson & Johnson and Merck.
 The Dow ended the day little changed, advancing a modest 2.93 to 10,908.76, while the S&P 500 shed 12.63 to 1,460.24.
Market breadth was negative. On the New York Stock Exchange, decliners outpaced advancers 1,489 to 1,343 as more than 938 million shares changed hands. On the Nasdaq, losers beat winners 2,380 to 1,571 as more than 1.3 billion shares traded.
In currencies, the dollar rose against the yen but slipped versus the euro.
Techs take a hit
Analysts said investors still were concerned about the growth prospects for the entire technology sector. A stronger-than-expected report from tech bellwether Cisco Systems sparked a rally Wednesday but, when it couldn't be sustained, investors became nervous.
"I think people are looking at Applied Materials and Cisco and hoping for a slightly different reaction," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum. "There's a little bit of a disappointment as to the reaction to the earnings, which brings to the forefront that there's still this nagging concern about second-half slower growth and how it will affect technology in general."
Cisco (CSCO: Research, Estimates) fell 4-7/16 to 63-3/8, but Dell Computer (DELL: Research, Estimates), which reported earnings that beat estimates by a penny after the market close Thursday, gained 1/16 to 41-3/4.
 Applied Materials (AMAT: Research, Estimates), the leading producer of chip making equipment, slid 2-7/8 to 69-1/4 after it reported better-than- expected earnings of 70 cents a share and said it sees continued strong demand for its products. That beat analysts' forecasts by 2 cents a share and was more than double the 31 cents a share it earned a year earlier.
In other company news, biotechnology concern Immunex (IMNX: Research, Estimates) plunged 6-3/8 to 47-1/16 after it announced late Wednesday that it plans to offer up to 70 million new shares of its stock, which would take American Home Products' (AHP: Research, Estimates) current 55 percent stake in the company down to 43 percent. American Home Products gained 3-5/16 to 59-3/16.
"In technology, it's just a lack of serious buying. The market needs to be convinced that the Fed will not raise (interest) rates for the remainder of the year," said Peter Cardillo, director of research at Westfalia Investments. "This is all part of the summer doldrums, but we see cyclical stocks doing a little better here."
Investors eyeing economic pace
Analysts said investors were keeping an eye out for any economic data that would further support the widely held notion that the Federal Reserve is finished with its interest rate tightening cycle.
Federal Reserve Bank of San Francisco President Robert Parry said Thursday America's robust economy may be able to sustain a 5 percent annual growth rate this year and next year with little inflation pressure.
The Fed's monetary policy-making body, the Federal Open Market Committee, meets Aug. 22. After six rate hikes since June 1999, incoming economic data have lent credence to the sentiment that the tightening cycle has reached its end.
"The market has two overhangs. It has the interest rate concern and it has the concern of whether a soft landing is achievable," said Ehrenkrantz's Hyman. "The interest rate concern is over but the soft landing is another question. We don't know if the economy is slowing enough or slowing too fast and that concern, as it relates to earnings, is weighing on the market a little."
Analysts said investors would wait to see what Friday's economic data show when the government reports on producer prices for July. Analysts expect the Labor Department to report a 0.1 percent rise in the producer price index (PPI), excluding volatile food and energy sectors.
Retail sales data for July also will be reported Friday. Analysts expect an increase of 0.4 percent.
"I think we go nowhere for the next three weeks in terms of a real move in the markets. What's going to carry us is reduced uncertainty relative to the Fed, very good numbers on the economy and very good earnings as we wind up the year," said Gruntal's Caron.
Drugs help Dow malaise
Buying in drug stocks lifted the Dow. Johnson & Johnson (JNJ: Research, Estimates) gained 2-5/8 to 97-7/16 and Merck (MRK: Research, Estimates) rose 15/16 to 71-1/2.
Pharmaceuticals took a hit late Wednesday in sympathy with news from New York Stock Exchange-listed Eli Lilly (LLY: Research, Estimates). Shares in the pharmaceutical firm took a beating after a court ruling stripped the company of patent protection for Prozac, a profitable antidepressant drug, sooner than expected. Eli Lilly shares slipped 3/4 to 76-1/8.
A trader at Bernard L. Madoff Securities in London said bargain hunting in that sector explains the stock's lift. Other analysts agreed, saying the late sell-off Wednesday was exacerbated and should not have affected the entire sector as it was stock-specific news.
 Still, analysts had mixed reactions to the news. Donaldson Lufkin & Jenrette, Credit Suisse First Boston, and PaineWebber cut earnings estimates on Lilly while Lehman Brothers and S.G. Cowen maintained "buy" ratings.
Another Dow gainer, 3M (MMM: Research, Estimates), rose 2-3/8 to 94-7/8 amid speculation that the company is ready to name a new CEO.
But Wal-Mart (WMT: Research, Estimates) took a second day of selling, falling 2-9/16 to 51-1/16 after the retailer reported earnings in line with expectations but warned accounting changes could hurt future revenue growth. 
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