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Markets & Stocks
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Stocks hit 1-mo. low
An abrupt surge in oil prices and a chip sector downgrade by Lehman Brothers unnerve investors.
July 6, 2004: 6:17 PM EDT

NEW YORK (CNN/Money) - U.S. stocks sank to a one-month low Tuesday as rising oil prices and a chip sector downgrade by Lehman Brothers undermined investors' faith in the economic recovery.

The tech-heavy Nasdaq composite (down 43.23 to 1,963.43, Charts) led the way down, falling 2.15 percent to its lowest close since June 3. The day's stock sell-off was broad based, with 22 of 30 Dow stocks veering into the red. Standard & Poor's 500 (down 9.17 to 1,116.21, Charts) retreated by nearly a percentage point and the Dow Jones industrial average (down 63.49 to 10,219.34, Charts) remained weak throughout the session. Both closed at their lowest levels in over a month.

Financial markets were closed Monday in observance of the Independence Day holiday.

Supply disruptions over the holiday weekend pushed the price of crude oil back above $39 a barrel, sending a chill down Wall Street. NYMEX light sweet crude contracts for August delivery rose $1.26 to $39.65 a barrel.

"Oil prices are one foot forward, one foot back. We are dancing around $40 a barrel," said Ram Kolluri, president and chief investment officer for Global Value Investors. "At the moment the oil prices are forming an equilibrium around $40 a barrel."

Additionally, Lehman's guarded take on the semiconductor sector was felt throughout the broader market, although the brunt of the warning weighed directly on chip stocks. Individual stocks mentioned in Lehman's downgrade note took a severe beating, with Vitesse Semiconductor (VTSS: down $0.61 to $3.90, Research, Estimates) down more than 13 percent.

Conexant Systems (CNXT: down $1.77 to $2.31, Research, Estimates), one of the stocks mentioned in the Lehman report, dove more than 43 percent after the Red Bank, New Jersey-based chipmaker slashed its third-quarter outlook. Broadcom (BRCM: down $3.75 to $39.40, Research, Estimates) and RF Micro Devices (RFMD: down $0.64 to $6.46, Research, Estimates) lost roughly 9 percent each in the wake of the news.

Semiconductor bellwethers were also injured. Intel (INTC: down $0.22 to $26.11, Research, Estimates) dipped by nearly a percent after Lehman trimmed its third-quarter earnings outlook for the world's No. 1 chipmaker and Advanced Micro Devices (AMD: down $0.46 to $14.81, Research, Estimates) sported losses of 3 percent. The Philadelphia Semiconductor Index, the Soxx, shed nearly 4 percent.

Veritas Software (VRTS: down $9.55 to $17.00, Research, Estimates) plummeted 36 percent after it said sluggish U.S. sales of its business software would lead to weaker-than-expected second-quarter earnings and revenue.

Separately, a ratings downgrade from Banc of America Securities knocked Lattice Semiconductor (LSCC: down $1.10 to $5.65, Research, Estimates) 15 percent lower.

"With technology stocks the watch-word is caution," Kolluri stated. "What's happening now is that their valuations are reaching their earnings. Until we have those earnings catch up, any disappointments are creating huge volatility in the sector."

Earnings warnings and news will likely dominate trading over the next few weeks as companies deliver their second quarter results. Donald Selkin, director of research at Joseph Stevens, says earnings are of particular importance right now as there isn't any major economic news until next week and the next Federal Reserve meeting is a month away.

"The only thing that will that will get us back to the upside is what happens on the earnings front," he reiterated.

Overall, the quarter is expected to have been a strong one for corporate America. Many market watchers believe a good earnings season is just what Wall Street needs to finally jolt it out of the broad trading range it has been in for most of the year.

More things to upset the market

News that Massachusetts senator and Democratic presidential contender John Kerry chose Senator John Edwards of North Carolina as his running mate weighed on the Street.

"If Kerry were to win his policies would be more restrictive on business," said Peter Green, a market analyst with MKM Partners, noting that the business community tends to be Republican-friendly.

The market received modest support from news that growth in the service sector of the economy is also beginning to cool off, following two reports last week suggesting the same is happening in the manufacturing corner.

The Institute for Supply Management's index of activity in the services sector came in at 59.9, which was below the number economists were looking for. The news added to beliefs on Wall Street that after last week's quarter-point interest rate increase, the Federal Reserve will be cautious and slow when it comes to more rate hikes.

Elsewhere, Microsoft (MSFT: down $0.55 to $28.02, Research, Estimates) slid nearly 2 percent despite news the European Union has set a July 27 court date to consider the company's request to suspend sanctions.

Delta Air Lines (DAL: down $0.25 to $6.59, Research, Estimates) fell 3.7 percent on a report in USA Today that the No. 3 U.S. carrier will ask its pilots for more than $1 billion a year in concessions when talks resume in the coming weeks.

AK Steel (AKS: Research, Estimates) said it expects to record a $55 million operating profit for the second-quarter, trumping analysts' expectations for a quarterly loss. Its shares soared nearly 10 percent.

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Market breadth was negative and trading volume was robust. On the New York Stock Exchange, where 1.28 billion shares traded, losers beat gainers by roughly five to three. On the Nasdaq, decliners outnumbered advancers by eleven to four as 1.91 billion shares changed hands.

Treasury prices pulled back as the 10-year note dipped 3/32 of a point in price to yield 4.48 percent, up from 4.46 percent late Friday afternoon. The dollar picked up some steam versus the yen but fell against the euro.

Among commodities markets, COMEX gold dropped $5.70 to $393.00 an ounce.

European markets closed near one-month lows and Japanese stocks finished weaker as well.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.