Dow makes triple-digit gains as Cisco news weighs on Nasdaq
Old-economy stocks make strong gains, while a pessimistic analyst report about Cisco Systems helps send shares of the networking giant lower and sends the Nasdaq down by about 3 percent.
The Nasdaq composite index dropped 86.96, or nearly 3 percent, to 3,191.40, and the Standard & Poor's 500 index climbed 19.08 to 1,398.66.
The Dow Jones industrial average rose 245.15 to 10,835.77, led by Alcoa, which gained $3.25, or 13 percent, to $28.25.
The Dow finished last week up almost 4 percent from the previous week's close, while the Nasdaq dropped nearly 6 percent, and the S&P lost 1 percent for the week.
The optical-networking sector was hit by a gloomy analyst call regarding Cisco. Analysts Timothy Luke and Mark Sue at Lehman Brothers maintained their "buy" rating but slashed their 12-month price target for Cisco to $60 to $65 from a bullish $90. Cisco fell $2.63 to $48.06. Volume topped 112 million shares, more than twice the stock's average daily volume of 52.2 million shares.
Luke and Sue conducted a broad study of capital expenditures for Cisco and other networking clients, including Deutsche Telekom, AT&T and Qwest Communications. They surmised that capital expenditures would slow from the 30 percent growth rates earlier this year, in part because of financial difficulties of Cisco's new-economy clients, including HarvardNet, Digital Broadband and Intermedia.
The analysts' pessimism for Cisco seemed to infect the broader market for tech stocks, especially networking stocks.
Sycamore Networks fell $9, or nearly 14 percent, to $56.13; Ciena dropped $13.69, or 13 percent, to $90.69; JDS Uniphase lost $5.94 to $71.31; Nortel Networks declined $2.56 to $40; and Corning stumbled $5 to $71.
"Investors are a little bit leery about tech stocks in general," said Kathy Taylor, vice president and assistant manager of Nasdaq trading at A.G. Edwards.
Carnage in the tech sector
Some see the carnage in the tech sector as a positive development. "Everyone has been waiting for the last shoe to drop (in the tech sector), and I think some of the storage and networking stocks are the last shoe," said Brian Belski, a fundamental market strategist at U.S. Bancorp Piper Jaffray.
Belski is optimistic for a rally in the tech sector if price-to-earnings valuations come down and investors lower their previously sky-high earnings growth expectations. He regards the Dow's gains as temporary once tech stocks return to more reasonable price levels and fund managers seek greater returns than old-economy stocks.
The CNET tech index fell 28.76 to 2,563.55. Decliners edged out advancers, with 50 of the 96 stocks in the index falling, 44 rising and two remaining unchanged.
Almost all of the 18 sectors tracked by CNET Investor fell into the red. Server software companies and computer data storage makers posted the sharpest drops, falling nearly 6 percent each. Computer-services providers were the day's largest gainers, climbing 2 percent.
Network Appliance led the storage sector down, dropping $16.81, or about 14 percent, to $106.19. EMC fell $4.38 to $84.44, and Brocade Communications Systems lost $18.58 to $207.92.
Among members of the CNET tech index, Amazon.com fell $2.75 to $32.88.
The online retailer was accused of misleading investors about the value of some revenue it receives from e-commerce partners, according to a Barron's report citing company filings. Fellow e-tailer eBay fell $2.13 to $49.25.
Globalstar Communications was the Nasdaq's largest loser in percentage terms, falling $3.63, or 60 percent, to $2.38 on a volume of 23.4 million shares, nearly 10 times more than the stock's average daily volume of 2.4 million shares.
The satellite phone service provider reported a wider third-quarter loss Monday that failed to meet Wall Street expectations, sending shares to a new 52-week low of $2 a share and renewing concerns about the company's viability. The stock once traded at $53.75 during the past 52-weeks.
About.com rose 31 cents to $24.19 after publisher Primedia agreed to buy the Internet media company for about $690 million in stock. Primedia will exchange 2.35 shares for each outstanding share of About.com. Primedia fell $3.81, or 25 percent, to $11.44.
Verizon Communications rose $2.31 to $55.38 after the telecommunications giant reported flat earnings Monday, saying an 18-day labor strike in August affected its revenue.
Verizon reported an adjusted net income of $2 billion, or 73 cents a share, compared with $2 billion, or 72 cents, a year ago. The results met the consensus estimate of analysts polled by First Call/Thomson Financial.
Meanwhile, chip stocks made some gains. The Philadelphia semiconductor index climbed 17.43, or nearly 3 percent, to 703.03 led by Micron Technology, which rose $2.44 to $32.69.