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Four-week low on Nasdaq
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February 7, 2001: 4:29 p.m. ET
Disappointing guidance from Cisco unnerves investors, and techs tumble
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - The Nasdaq composite index fell to a four-week low Wednesday as investors sold technology stocks, led by disappointing quarterly results from sector bellwether Cisco Systems.
Cisco's guidance, rather than its actual earnings, had a larger impact on activity . Many analysts had anticipated Cisco's second fiscal quarter could slow, but they did not count on the company saying the rest of the year didn't look as rosy as previously anticipated.
"Cisco's story was that inventory concerns and demand driven problems are not fixable as early as Wall Street expected," said Barry Hyman, chief investment strategist with Weatherly Securities. "People are understanding the impact of what Cisco said. Wall Street wants to believe things are rosy in that sector and they're just not."
 That renewed concerns that corporate profitability may be hurt beyond the first quarter of the year as the economy continues to paint a murky picture and prompted investors to become cautious on the tech sector.
With little else but Cisco to drive the action, Patrick Boyle, head financial trader with Credit Suisse First Boston, told CNNfn's market coverage that the broad tech sell-off was compounded by a lack of a catalyst to prompt buying. (355K WAV) (355K AIFF)
But the Nasdaq came back from triple-digit losses as bargain hunters emerged in the last hour of trading. And investors looking to cash in on blue chip issues helped keep a lid on the Dow's losses for the day.
The Nasdaq composite index tumbled 56.55, or more than 2 percent, to 2,607.94. The Dow Jones industrial average fell 10.70 to 10,946.72. The S&P 500 declined 11.35 to 1,340.91.
 Market breadth was mixed. On the New York Stock Exchange, advancers topped decliners 1,626 to 1,462, as more than 1.14 billion shares were traded. Losers outpaced winners on the Nasdaq 2,228 to 1,487, as more than 2 billion shares changed hands.
In other markets, Treasury securities edged lower. The dollar was little changed against the euro, but strengthened versus the yen.
Techs feel pain of Cisco
Cisco Systems (CSCO: Research, Estimates) disappointed investors and analysts with its fiscal second-quarter results released late Tuesday. In a rare miss, the network equipment maker fell short of earnings targets by a penny a share and told analysts to be "more conservative" about their growth estimates in the future.
Shares of Cisco plunged $4.69 to $31.06, with more than 280 million shares changing hands – making it the second most heavily traded stock in a single day. The record of 308 million shares was set last Sept. 22 by Intel.
Other networking stocks tumbled. Juniper Networks (JNPR: Research, Estimates) fell $7.81 to $94.38 and JDS Uniphase (JDSU: Research, Estimates) shed $3.63 to $48.19.
Telecom issues also took a hit on Cisco's news because they account for roughly 40 percent of the company's business. Ciena (CIEN: Research, Estimates) shed 97 cents to $82.03.
And the semiconductor sector wasn't helped by cautionary comments from Lehman Brothers' semiconductor analyst Dan Niles. In a note to clients, he wrote, " We believe the semiconductor environment will get significantly more difficult once Cisco starts reducing inventory, but Cisco doesn't expect to be able to do that for two-to-three quarters."
In the chip sector, Intel (INTC: Research, Estimates) fell 50 cents to $34.94 and Applied Materials (AMAT: Research, Estimates) shed $1.13 to $44.75.
Meanwhile, Sun Microsystems (SUNW: Research, Estimates) fell $1.44 to $26.56 after Prudential Securities cut its 2001 revenue and earnings-per-share forecast in anticipation of the company officially doing the same.
 And the weakness from Cisco spilled into the broader market, taking some of the cyclical issues on the Dow lower.
"The market story today is essentially Cisco. It's pulling lots of other stocks down," said Alan Ackerman, market strategist with Fahnestock & Co.
General Motors (GM: Research, Estimates) fell $1.97 to $56.15, SBC (SBC: Research, Estimates) slid $1.10 to $48.65, and Merck (MRK: Research, Estimates) shed $2.51 to $81.85.
But there were still some pockets of buying helping temper the Dow's losses. Procter & Gamble (PG: Research, Estimates) gained $1.07 to $75.19, Johnson & Johnson (JNJ: Research, Estimates) rose $1.48 to $94.90 and IBM (IBM: Research, Estimates) rose $2.72 to $116.91.
Economy still a worry
Concern about the slowing economy and its effect on corporate profits also kept investors nervous, especially in light of Cisco's guidance.
"The reflection of what Cisco says is an absolute reflection of the economy," said Weatherly's Hyman. "If Cisco is giving this forward look beyond the first quarter, then the suspicion of a possibility for a second half upturn may not be as evident."
But Abbey Joseph Cohen, U.S. chief investment strategist with Goldman Sachs, told CNNfn's Street Sweep that the economy will reaccelerate in the second half of the year as the inventory correction cycle abates. (758K WAV) (758K AIFF)
In the day's economic news, U.S. productivity, which measures worker output per hour, grew at an annual rate of 2.4 percent in the fourth quarter, according to the Labor Department. But unit labor costs, a key gauge of inflationary pressures in the economy, rose at a 4.1 percent annual rate in the quarter.
But the data also offered further credence to underlying investor optimism that the Federal Reserve would continue to be aggressive with its interest rate policy.
In corporate news, News Corp. (NWS: Research, Estimates) gained $1.23 to $38.73 after reporting fiscal second-quarter earnings that surpassed both the year-earlier quarter and analysts' estimates. The results came as the Financial Times reported the media conglomerate plans to buy the DirecTV satellite television business from Hughes Electronics (GMH: Research, Estimates), a General Motors (GM: Research, Estimates) unit, to create a $70 billion satellite company. 
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