NEW YORK (CNN/Money) -
By the end of Wednesday's steep technology-led selloff, the Nasdaq composite had erased nearly all of its gains for 2004, a feat that the Dow industrials and the S&P 500 just narrowly managed to avoid.
The Nasdaq composite (down 52.07 to 2014.14, Charts) lost 2.5 percent, sinking to its lowest point since January 2, the first trading day of 2004.
This puts it at a key point that could have important ramifications for the rally in the next few months.
"The Nasdaq has erased its gains for the year and is at a critical technical juncture where it need to hold these levels or see a bounce in the next few sessions," said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "If it can't, you could see a much steeper selloff in February."
The Standard & Poor's 500 (down 9.51 to 1126.52, Charts) index also lost around 0.8 percent. The Dow Jones industrial average (down 34.44 to 10470.74, Charts) closed more modestly lower, down around 0.3 percent. Both are not far above where they ended last year.
"This correction is happening at an interesting time, coinciding with February's seasonal weakness and two events over the next few days that will be important both for interest rates and equity markets -- Friday's unemployment report and the G7 meeting this weekend," Mendelsohn added.
Disappointment over forecasts from Cisco and Ciena got the ball rolling Wednesday morning, but the selloff took on a life of its own in the early afternoon, with investors using the tech weakness to take substantial profits off the recent run, a pullback many analysts had been calling for over the past few weeks.
The major indexes enjoyed gains for the better part of eight consecutive weeks, before declining over the last two.
"We've come a long way and I think a selloff is overdue," said David Briggs, head of equity trading at Federated Investors. "We had a huge run up last year and we were also rallying one percent a week in early January, so you're seeing the market start to break down a little bit."
Jitters ahead of the key economic data due in the next few days added to the market's negative undertone, the analysts said.
Friday's monthly jobs report is forecast to show that the unemployment rate held steady at 5.7 percent in January. But of more interest to investors will be whether employers added a large number of jobs to their payrolls, as has been forecast, or whether they added much fewer jobs than expected, a disappointment similar to what happened last month.
Additionally, finance ministers from the Group of Seven industrialized nations will meet Friday and Saturday to discuss a variety of issues, including the weak U.S. dollar, a topic that Mendelsohn says is likely to be contentious.
A lot bodes on these numbers, the analysts said, in terms of whether the market continues to decline in February before recovering, or whether it can bounce back sooner.
Analysts surveyed by Briefing.com currently estimate that employers added around 175,000 jobs to their payrolls in January, after surprising economists by only adding 1,000 jobs in December. The December number will need to be revised upward and the January number will need to come in over 200,000, the analysts said, in order for it to have a positive impact on stocks next week.
What moved
Cisco Systems (CSCO: Research, Estimates) reported a fiscal second-quarter profit late Tuesday of 18 cents per share, up from 14 cents a year earlier and a penny more than what analysts surveyed by First Call had expected.
CEO John Chambers also said global business was improving, but said its customers remained cautious on spending and hiring. With some analysts and investors having hoped that Cisco would be even more aggressively bullish, the stock tumbled 8.8 percent and topped the Nasdaq's most-actives list.
"The news from Cisco was disappointing for tech investors," said Michael Sheldon, chief market strategist at Spencer Clarke. "The longer-term outlook was positive, but shorter term there were a few items in the report that unsettled." In addition to the comments by the CEO about spending, comments about how orders fell off in the last two weeks of January also bothered investors, Sheldon said.
However, the stock's almost 85 percent run up last year and run in early January also added to the temptation for investors to take profits. This speaks to a rotation that has been going on in the market recently, Sheldon said, with investors taking money out of some of the recent high-flying tech stocks and putting it into more predictable consumer staple and household names, like Procter & Gamble (PG: up $1.18 to $103.20, Research, Estimates) and Pfizer (PFE: up $0.56 to $38.27, Research, Estimates), both of which gained Wednesday.
Many analysts said the previous stage of the rally was in anticipation of the strong fourth-quarter earnings season and that, as a result, even very strong earnings reports are failing to inspire much in the way of new rallies.
Among other movers, Ciena (CIEN: down $1.30 to $5.99, Research, Estimates) plunged 17.8 percent after the telecom gear maker warned that revenue in the current quarter will miss forecasts due to the delay of a single, significant order.
Business software maker Oracle (ORCL: down $0.64 to $13.27, Research, Estimates) raised its hostile takeover big for rival PeopleSoft (PSFT: up $0.81 to $22.70, Research, Estimates) to $26 per share from its previous offer of $19.50 per share. Shares of Oracle fell 4.6 percent, while PeopleSoft rose 3.7 percent and was one of the few big cap tech gainers on the session.
Other big cap techs declined, including Intel (INTC: down $1.34 to $30.02, Research, Estimates), down around 4.3 percent and JDS Uniphase (JDSU: down $0.29 to $4.76, Research, Estimates), down 5.7 percent.
Market breadth was negative. On the New York Stock Exchange, where 1.61 billion shares traded, decliners outnumbered advancers by more than twelve to five. On the Nasdaq, losers beat gainers by more than three to one on volume of 2.23 billion shares.
Investors mostly shrugged off the strength in the day's two economic reports, both of which were released after the start of trading. The Institute for Supply Management's services sector index surged to 65.7 in January from 58 the previous month, a jump that was much bigger than had been expected.
Factory orders climbed a whopping 1.1 percent in December after falling 1.4 percent in November and against forecasts of a 0.2 percent increase.
The strong economic news drove Treasury prices lower. The 10-year note shed 6/32 of a point and its yield moved up to 4.12 percent from 4.09 percent late Tuesday. The dollar was slightly lower versus the yen but higher against the euro.
NYMEX light sweet crude oil futures fell $1 to settle at $33.10 a barrel. COMEX gold rose $1.80 to settle at $401.70 an ounce.
|
