Dead-heat election saps energy from stock market

A nip-and-tuck presidential election and mixed reviews from the technology sector push the markets into a nearly catatonic state.

5 min read
A nip-and-tuck presidential election, combined with mixed reviews from the technology sector, pushed the markets into a nearly catatonic state Tuesday.

The Nasdaq composite index edged down 0.42 to 3,415.79, and the Standard & Poor's 500 index dipped 0.32 to 1,431.87.

The Dow Jones industrial average fell 25.03 to 10,952.18, led by General Motors, which lost $3.94 to $57.

About 10 stocks declined for every nine that advanced on the Nasdaq, which generated a moderate volume of 1.7 billion shares. Trading on the New York Stock Exchange was on the light side with nearly 874 million shares exchanging hands, while 15 stocks gained for every 13 that lost.

One obvious cause for the market mediocrity: Presidential candidates are in a dead heat with only hours to go before polls close. According to sketchy exit polls reported at Inside.com, Texas Gov. George W. Bush is leading the popular vote over Vice President Al Gore, 48 percent to 47 percent.

The election results are likely to skew the markets, but it's impossible to predict exactly how. By some counts, the ascension of a new president in and of itself is enough to boost the markets.

Since 1972, the prospect of a new commander in chief has lifted the Nasdaq an average of 0.4 percent in October and 2.8 percent in November, according to the 2001 Stock Trader's Almanac. By contrast, the Nasdaq in non-presidential election years has averaged a 0.6 percent drop in October and a 1.8 percent gain in November.

The Almanac also shows the market has an obvious preference for Republican presidents. Since 1900, 10 of the 13 times a Republican president has won, the market has risen the next day an average of 0.9 percent. By contrast, the market rose on only four of the 12 occasions that a Democrat won--down an average of 0.54 percent.

Fueling the markets' ambivalence on Tuesday: Cisco reported first-quarter earnings Monday that exceeded analyst expectations by 1 cent per share, as sales jumped 66 percent. The networking giant also upped forecasts for its second quarter and 2001 fiscal year.

But Wall Street greeted the news with only mild enthusiasm. At the end of regular trading, shares of Cisco rose $1.63 to $56.75 on a volume of more than 97 million shares, making it the most actively traded stock on the Nasdaq.

Although more than a half-dozen investment firms issued favorable reports on Cisco on Tuesday, praise was not universal. Sanford C. Bernstein analyst Paul Sagawa explained that Cisco's numbers suggest a slowing in its carrier business of sales to telecommunications companies.

"In a sense, we've climbed the mountain with Cisco and now we're at the pinnacle looking down," Sagawa said.

Experts continue to debate whether the broader tech sector's best days are finished. Many Wall Street analysts are worried that tech companies cannot sustain the blistering growth rates of the late '90s and early 2000, and that Old Economy stalwarts have slowed purchases of technology products and services.

Byran Piskorowski, a market strategist at Prudential Securities, thinks that the fading fortune of stocks in the Nasdaq 100 index has generally made the tech sector more stable. Tech stocks "have moved back to a more reasonable valuation," he said. "Expectations are a lot more rational than they were."

Despite the fact that many tech companies have forecast slower revenue and earnings growth rates for the next several quarters, many experts fear that tech bellwethers in the Nasdaq 100 continue to command high price-to-earnings ratios. That may make them ripe for a downturn.

"Business spending on technology capital goods and software seems to be slowing," said Doug Kliggott, chief U.S. equity strategist at J.P. Morgan. "There's still more risk to the downside."

The CNET tech index rose 7.31 to 2,697.20. Advancers led decliners, with 51 of the 97 stocks in the index rising, 45 falling and one remaining unchanged.

Of the 18 sectors tracked by CNET Investor, wireless companies and makers of computer data storage equipment were the day's largest gainers, climbing 3 percent each. Makers of semiconductors and semiconductor equipment posted the sharpest drops, falling 3 percent each.

The Cisco news caused other chip stocks to fall on suspicion that the company may buy fewer chips after inventory swelled in the fiscal first quarter. The Philadelphia semiconductor index fell 30.19, or 4 percent, to 715.58.

Broadcom fell $42.38, or 19 percent, to $176.63, and PMC-Sierra dropped $25.94, or nearly 17 percent, to $127.88. Applied Micro Circuits slipped $7.50, or almost 10 percent, to $68.88, and Altera stumbled $2.88, or about 9 percent, to $30.44.

GlobeSpan was the second-largest loser on the Nasdaq in percentage terms. The maker of chips for high-speed, or broadband, Internet access over phone lines dropped $17.56, or about 26 percent, to $50.25.

Cisco told investors its inventory of raw materials, which includes chips, more than quadrupled to $631 million in the quarter ended Oct. 28 from $145 million in the fourth quarter. Cisco probably will look to reduce this buildup within the next two quarters, suggesting fewer orders will be placed with its semiconductor vendors, analysts said.

Broadcom was downgraded to "buy" from "strong buy" by WR Hambrecht. PMC-Sierra was left at "strong buy" by Banc of America Securities, but the company's 12-month price target was cut to $225 from $325.

Some high-profile wireless stocks made headway. Sprint PCS rose $1.06 to $28; Vodafone AirTouch gained $1.75 to $36.50; and Qualcomm climbed $3.19 to $73.75.

Network Appliance was the most active stock in the computer data storage sector, rising $10.38, or 9 percent, to $121. Sandisk gained $7.13, or about 13 percent, to $64.13, while Advanced Digital Information climbed $2.25, or 15 percent, to $17.25.

Advanced Digital announced Monday after the markets closed that it would make its revenue target of $75 million for the fourth quarter ended Oct. 31.

The initial public offering of Transmeta, a designer of chips for notebooks and Internet devices, was the biggest percentage gainer on the Nasdaq. The shares jumped $24.25, or 115 percent, to $45.25. Volume topped 26 million shares.

Another big gainer was SierraCities.com, which rose $1.61, or nearly 38 percent, to $5.86. VerticalNet agreed to buy the provider of online financing for businesses for $7 a share in stock. VerticalNet fell $1.69 to $27.81.