Cisco hampers Nasdaq
But Dow manages slight gain even as a Greenspan-induced rally fades.
February 27, 2002: 5:01 p.m. ET
By Staff Writer Jake Ulick
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NEW YORK (CNN/Money) - A big slide in Cisco Systems sent the Nasdaq composite index lower Wednesday as investors, re-evaluating comments from Federal Reserve Chairman Alan Greenspan, decided his economic outlook was not upbeat enough to sustain an early rally.
Greenspan, speaking to a House panel, said risks to a strong, quick recovery remain, even as he forecast modest growth. But as the Fed chief wrapped up his comments, an earlier market surge vanished.
"It's been happening all month where the market rallies to the top of the range and then falls off," David Briggs, head trader at Federated Investors, told CNNfn's Street Sweep.
The Nasdaq slipped 14.98 points, or nearly 1 percent, to 1,751.88, after being up nearly 27 points, while the Dow industrials gained 12.32, or 0.1 percent, to 10,127.58; it was up as much as 139 points. The Standard & Poor's index rose 0.51 to 1,109.89, giving back most of a 14-point advance.
"There's a lot of bi-polar disorder out there," Briggs continued. "There's one camp that says we're going to have another leg down; there's another camp that says the economy's improving."
The bond market showed more certainty, rallying amid hope that Greenspan's cautious economic outlook means interest rates won't go higher anytime soon.
As Greenspan spoke, the government released data showing that new home sales tumbled 14.8 percent in January. It was one of the first signs that the housing market -- which remained solid through the recent economic downturn -- may be starting to slip.
But Wednesday's other economic data showed that orders for long-lasting items rose for a second straight month in January, gaining 2.6 percent and topping forecasts by a wide mark.
Data on new weekly jobless claims and a revision of fourth-quarter gross domestic product could move stocks Thursday.
More stocks rose than fell Wednesday. On the New York Stock Exchange, advancing stocks topped declining ones 3-to-2 as 1.3 billion shares traded. Nasdaq winners edged losers as 1.8 billion shares changed hands.
In other markets, the dollar was little changed against the yen and euro. Oil and gold prices fell.
Cisco's slide
Nasdaq's most active stock, network equipment maker Cisco Systems (CSCO: down $1.26 to $14.24, Research, Estimates), saw its profit forecasts cut by Wachovia Securities, which lowered its fiscal year earnings estimate to 28 cents per share from 31 cents.
Investors also fled Dow stocks that have risen to near 52-week highs, including Philip Morris (MO: down $1.53 to $52.28, Research, Estimates) Home Depot (HD: down $0.59 to $50.92, Research, Estimates) and Procter & Gamble (PG: down $1.00 to $85.50, Research, Estimates).
But defense-related stocks, less sensitive to the business cycle, fortified the Dow, with Boeing (BA: up $0.75 to $45.90, Research, Estimates), Honeywell International (HON: up $1.04 to $37.15, Research, Estimates) and United Technologies (UTX: up $1.15 to $72.95, Research, Estimates) all rising.
Integrated Defense Technologies (IDE: up $3.00 to $25.00, Research, Estimates) picked a good day to go public. Shares of the defense electronics company rose as high as $26.75, up 26 percent from its pricing of $22 late Tuesday. Transportation stocks also rose, with the Dow Jones transportation index up nearly 2 percent.
As for Greenspan, he said he expects the economy to grow at a 2.5 percent to 3 percent rate this year, another sign that the Fed's year-long rate-cut work is done.
But mentioning the Sept. 11 terrorist attacks and the collapse of Enron, the Fed chief forecast that the growth pace may be "somewhat below the rates of growth typically seen early in previous expansions." He warned that unemployment may rise even as the economy stabilizes, dampening consumer spending.
"What that suggests is that the recovery in corporate profits may not be as strong as expected," William Sullivan, chief economist at Morgan Stanley, told Street Sweep.
Still, Wall Street found something to like, encouraged by Greenspan's take on modest recovery and heartened that borrowing costs may not go higher for a while.
"I think this testimony is much more confident," said John Lonski, economist at Moody's Investors Service, comparing these remarks to those made a month ago. "His worry that the improvement will not be sustained is less pronounced."
The Fed, Lonski said, "is in no hurry to go ahead and increase interest rates."
For the moment, Greenspan's remarks appeared to ease bond investors' worries that strong growth and rising inflation will erode the value of their fixed-income payments.
ImClone clears hurdle
One of the day's biggest gainers, ImClone Systems (IMCL: up $5.01 to $20.53, Research, Estimates), said the U.S. Food and Drug Administration will allow it to resubmit an application for its cancer medication Erbitux. The development could be a boon for the drugmaker, whose shares have tumbled amid worries about Erbitux's effectiveness. ImClone partner Bristol-Myers Squibb (BMY: up $1.98 to $47.49, Research, Estimates) also advanced.
Among other gainers, business-to-business software maker Ariba (ARBA: up $0.65 to $4.70, Research, Estimates) was upgraded by J.P. Morgan Hambrecht & Quist, which raised its rating to "long-term buy" from "market perform."
But the problems continued for apparel retailer Gap (GPS: down $1.15 to $12.40, Research, Estimates), the most actively traded NYSE stock. The company late Tuesday said it lost 4 cents a share in its fourth quarter, in line with forecasts but far weaker than the year-earlier profit.
Greenspan's testimony wasn't the only show on Capitol Hill Wednesday. Senators investigating Enron's collapse questioned Wall Street analysts, some of whom continued touting Enron's stock despite the behind-the-scenes problems that bankrupted the energy trader.
But the focus remained on Greenspan, whose balanced remarks recalled the so-called "Goldilocks economy" of the late 1990s, when the economy -- anything but cold -- was also not too hot to generate much inflation.
"We are going to see some recovery in the economy, but maybe not as much as some people expected," Andrew Wallace, managing director of R.J. O'Brien, told CNNfn's Halftime Report. 
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