News Article
BusinessWeek.com
July 11, 2006
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Positive Tech News Lifts Stocks

Bullish comments from chip-gear outfit KLA-Tencor boosted sentiment. Traders looked past a revenue shortfall at Alcoa and blasts in India

Stocks finished higher Tuesday, recovering from early lows after upbeat comments from a semiconductor bellwether. Disappointing Alcoa (AA ) revenue and reduced guidance from Lucent Technologies (LU ) kept major indexes underwater for most of the session. Explosions on a commuter train in India added to worries, says Standard & Poor's Equity Research.

The Dow Jones industrial average rose 31.22 points, or 0.28%, to 11,134.77, paced by Hewlett-Packard (HPQ ) and Intel (INTC ). The broader Standard & Poor's 500 index added 5.18 points, or 0.41%, to 1,272.52. The tech-heavy Nasdaq composite climbed 11.93 points, or 0.56%, to 2,128.86.

NYSE breadth was positive, with 21 issues advancing for every 12 declining. NASDAQ breadth was 17-13 positive.

The afternoon resurgence could suggest upbeat sentiment toward earnings and the Federal Reserve's interest-rate policy, some analysts say. "You can never say for sure what turned everything around," says Joe Battipaglia, executive vice president and chief investment officer for Ryan Beck. Still, he says recent economic data "does give us reason to believe that the Fed is somewhere going to finish what they set out to do with rate tightening, and that corporate profits will be good once again for the second quarter."

On the other hand, the late rebound may represent merely short-covering ahead of the close, rather than the beginning of an extended uptrend, says Action Economics, noting that the gains drew little reaction from Treasuries.

The first companies reporting quarterly earnings are not necessarily a good predictor of overall earnings growth, others observe. "The bottom line is that attempting to draw conclusions about the earnings season too early can be misleading," notes Jeff Kleintop, chief investment strategist at PNC Wealth Management.

Second-quarter earnings season remained in focus Tuesday. Bullish remarks from KLA-Tencor (KLAC) helped lead the tech sector's bounce. The semiconductor company said its fiscal-fourth quarter bookings may come in higher than previously projected.

Aluminum producer Alcoa posted 62% higher profit after the closing bell Monday, but shares were lower Tuesday, as sales came in below some analyst expectations.

Traders were also digesting an earnings warning from Lucent Technologies. The telecommunications equipment maker said after Monday's close that its second-quarter profit and revenue will miss Street forecasts.

Fellow tech outfits EMC (EMC ) and Advanced Micro Devices (AMD ) also issued lower guidance recently. Merrill Lynch has made a bearish call on the sector.

Meanwhile, Pepsi Bottling Group (PBG ), which manufactures and distributes PepsiCo (PEP ) beverages, was up after reporting higher-than-expected second-quarter profit and raising its 2006 guidance.

Drugmaker Genentech (DNA ) was set to report earnings after the close. PepsiCo and General Electric (GE ), among others, are also set to unveil quarterly results this week.

Outside of earnings, Microsoft (MSFT ) was lower following a report that the European Commission will raise the cap on potential future fines against the software giant to $3.8 milllion a day. Separately, Microsoft Chairman Bill Gates reportedly said there was an 80% chance the company's new Vista operating system would be ready in January.

Airline shares were lower after Merrill Lynch lowered its ratings on American Airlines (AMR ), Continental Airlines (CAL ) and U.S. Airways (LCC ).

In other analyst calls, 1-800-Flowers.Com (FLWS ) was higher after Goldman Sachs upgraded the company from sell to neutral.

The economic calendar was relatively quiet Tuesday. Chain store sales rose 0.2% in the week ended July 8, the first increase in four weeks, according to a weekly survey released by the International Council of Shopping Centers (ICSC) and UBS. Data releases on tap later this week include June retail sales, May trade, June import and export prices, July preliminary consumer sentiment, and May business inventories.

In the energy markets Tuesday, August West Texas Intermediate crude oil futures rose 55 cents to $74.16 a barrel after Iran said it would stand firm on its nuclear program. A weekly inventory report is due Wednesday.

European markets finished lower. In London, the Financial Times-Stock Exchange 100 index shed 39.6 points, or 0.67%, to 5,857.3. Germany's DAX index slid 90.28 points, or 1.58%, to 5,616.04. In Paris, the CAC 40 index was down 68.09 points, or 1.37%, to 4,914.39.

Asian markets finished mostly lower. Japan's Nikkei 225 index declined 78.99 points, or 0.51%, to 15,473.82. In Hong Kong, the Hang Seng index lost 113.68 points, or 0.68%, to 16,490.13. Korea's Kospi index inched higher 1.15 points, or 0.09%, to 1,300.44.

Treasury Market

Treasury yields dipped following news of the India blasts. The 10-year note rose in price to 100-06/32 for a yield of 5.1%, while the 30-year bond climbed to 90-08/32 for a yield of 5.14%.