NEW YORK (CNN/Money) -
Intel dealt stocks a surprise blow late Thursday, warning that its third-quarter revenue and gross margins won't meet expectations.
The news sent the stock reeling after-hours and pushed stock market futures into negative territory. Futures point to a weak opening Friday, when fair value is taken into account, making Thursday's rally a likely one-hit wonder.
What could either temper the Intel impact Friday or make it a whole lot worse is Friday's monthly jobs report, due shortly before the open.
"Intel's numbers were clearly disappointing, as is reflected in the futures," said Michael Sheldon, chief market strategist at Spencer Clarke. "The one thing is that you never know what will happen to the market given that the monthly jobs report comes out before the bell."
"Intel's news is going to hurt techs tomorrow," Sheldon added. "I think if the payroll numbers are disappointing, too, you're going to see a broader sell-off."
After the bell, Intel (INTC: Research, Estimates) cut its third-quarter sales forecast and warned that gross margins, a key measure of profitability, would fall below earlier estimates. The chip leader also said gross margins for the year would miss estimates. (For a detailed look at Intel's midquarter update, click here.)
A variety of technology shares fell after-hours as investors took Intel's news as confirmation that the demand for tech products has dropped.
Stocks surged Thursday, in a late-session rally, as oil prices gave back gains and investors awaited Intel's news and Friday's jobs report. But the rally itself may have been setting stocks up for a pullback.
"This is the worst thing you want to see before major events," said Donald Selkin, director of research at Joseph Stevens, referring to Thursday's run-up. "A huge rally that was really not based on anything substantial, ahead of two major events, is the market setting itself up for disappointment."
The sudden upturn in the afternoon was "largely technical," said Katie Townshend, a market technician at MKM Partners, citing the S&P 500's move above its previous short-term trading range. It was "intensified by light volume, anticipation going into tomorrow's monthly jobs report and ahead of the three-day weekend," she added.
Financial markets are closed Monday for Labor Day.
Bush speech, jobs report on tap
The four-day Republican National Convention in New York City winds down tonight with President Bush set to accept his party's nomination. Some market watchers speculate that if Bush should allude to a recovering labor market, that might be a hint that Friday's jobs number will come in better than expected.
Due before the open Friday is the Big Kahuna of economic news for the week, and the month: Friday's unemployment and payrolls data.
Employers probably added 150,000 jobs to payrolls, according to economists' forecasts, after adding a small 32,000 in July. The unemployment report is expected to hold steady at 5.5 percent.
A payrolls number under 100,000 would be seen as disappointing, said Spencer Clarke's Sheldon. A number between 100,000 and 200,000 would be seen as neutral to positive. Anything more than 200,000 would be positive.
"I think the number is likely to be below the median estimate," Sheldon said.
If the number is at least 100,000, that would mute the impact of Intel's news and we'll just see a moderate sell-off, said Joseph Stevens' Selkin.
"But if we get another disaster like last month, we could really get hit tomorrow."
However, with volume so light, stocks may not show a strong reaction one way or the other until next week, when many Wall Street professionals and individual investors return from vacation.
After a strong early-2004 pickup in jobs, hiring has slowed of late, along with other signs of a slowdown in the economic data. Investors will be looking to the jobs report to offer clarity on the health of the labor market, as well as to provide hints about what the Federal Reserve may do with interest rates at the next meeting.
The report will also be significant in terms of the presidential election.
Although likely to be less market-moving than the payrolls number, President Bush's speech tonight could be supportive to stocks tomorrow in the short-term, should he stress market-friendly policies, particularly anything related to tax cuts.
Thursday's market
The Dow Jones industrial average (up 121.82 to 10,290.28, Charts) and the Nasdaq composite (unchanged at 1,873.43, Charts) both zoomed 1.2 percent.
The Standard & Poor's 500 (up 12.40 to 1,118.31, Charts) index rose 1.1 percent
Gains were broad based, with 29 out of 30 blue chips on the Dow gaining.
A variety of the Nasdaq's most heavily weighted tech issued gained, including Oracle (ORCL: up $0.24 to $10.29, Research, Estimates) and Yahoo! (YHOO: up $0.83 to $29.84, Research, Estimates) gained 2.5 percent.
Dow winners included General Motors (GM: up $1.69 to $42.90, Research, Estimates) and Home Depot (HD: up $1.05 to $37.93, Research, Estimates).
Oil prices rose through the early afternoon, before turning around at the same time that stocks began to rally. U.S. light crude for October delivery settled at $44.06 a barrel on the New York Mercantile Exchange, a gain of 6 cents.
COMEX gold fell $2.80 to settle at $408 an ounce.
The day's economic news was mixed.
Thursday's weekly jobless claims report showed a jump to 362,000 people filing new claims for unemployment last week, up from 343,000 the previous week. Economists expected claims to fall to 340,000.
Worker productivity grew in the second quarter at the slowest pace since late 2002, a separate report said. The growth rate was slower than initially reported and short of economists' expectations.
On the upside, factory orders for July -- released about 30 minutes after the market opened -- rose 1.3 percent after rising an upwardly revised 0.7 percent in June. Economists surveyed by Briefing.com expected orders to rise 1.1 percent.
What moved?
Retailers were fairly strong on the session, even after reporting mixed sales for August. Big chains were generally weak, while some specialty chains posted surprising gains.
Leading retailer Wal-Mart Stores (WMT: up $0.39 to $53.02, Research, Estimates) said sales at stores open a year or more rose just 0.5 percent, due to the impact of Hurricane Charley, among other factors.
The Dow component also said it now expects third-quarter earnings near the low end of its forecast of 52 cents to 54 cents a share. Analysts are currently betting on earnings of 53 cents per share. Following the news, Goldman Sachs trimmed its forecast for third-quarter and fiscal 2005 estimates.
Gap (GPS: up $1.08 to $20.08, Research, Estimates) jumped 5.7 percent in active New York Stock Exchange trade, after reporting that same-store sales fell 1 percent. Analysts surveyed by Thomson First Call thought sales would fall 2.5 percent.
Teen apparel retailers did well, including American Eagle Outfitters (AEOS: up $2.30 to $36.46, Research, Estimates), which popped in active Nasdaq trade after reporting that August sales at stores open a year or more soared 23.9 percent.
Market breadth was positive. On the New York Stock Exchange, advancers led decliners by more than eleven to five as 1.11 billion shares changed hands. On the Nasdaq, winners beat losers by two to one on volume of 1.19 billion shares.
Treasury prices slumped, pushing the yield on the 10-year note up to 4.21 percent from 4.11 percent late Wednesday. Bond prices and yields move in the opposite direction.
In currency trading, the dollar gained versus the euro and declined versus the yen.
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