The Market Story
Chip Selloff Mauls Market
By Robert Holmes
TheStreet.com Staff Reporter
10/27/2006 4:48 PM EDT
URL: http://www.thestreet.com/markets/marketstory/10318050.html

Updated from 4:10 p.m. EDTA pullback in the semiconductor sector and a weaker-than-expected reading on third-quarter gross domestic product sent stocks reeling to a lower close Friday. Hardest hit was the Nasdaq Composite. The index sank 28.48 points, or 1.2%, to 2350.62 after word spread that Goldman Sachs made negative comments on motherboard shipments. The firm said shipments have fallen sharply in October, leading it to lower its monthly estimates. The Philadelphia Semiconductor Sector index tumbled 1.9%. The networking sector dropped 1.6%, and the computer hardware group was off 1.3%. Among individual chip names, National Semiconductor (NSM) plunged 4.9%, Micron (MU) slumped 3.9%, and Intel (INTC) fell 3.1%. PC makers also tumbled, with Dell (DELL) falling 1.1%, Hewlett-Packard (HPQ) sinking 1.8%, and Gateway (GTW) shedding 4%. Meanwhile, the Dow Jones Industrial Average fell for the first time this week, declining 73.40 points, or 0.6%, to 12,090.26. Only three of the index's 30 components posted gains. The S&P 500 was off 11.74 points, or 0.85%, to 1377.34. Even before the tech selloff, traders were already disappointed by a government report revealing that U.S. economic growth slowed dramatically during the third quarter. The Commerce Department said its advance reading on GDP showed a 1.6% annual expansion rate, below economists' expectations for a 2% increase. The growth rate fell from the second quarter's 2.6% pace. In addition, the core personal consumption expenditure price index, which excludes food and energy costs, rose at a 2.3% rate, down from 2.7% in the second quarter. "Overall, [the GDP report is] clearly soft," said Ian Shepherdson, chief economist with High Frequency Economics. "But the markets are already split between a rebound or further softness in the fourth quarter." Though stocks finished uniformly lower, the major indices recorded gains for the week. The Dow, which had four straight record closes, ended up 88 points, or 0.7%, for the five sessions. The S&P 500 added 8.5 points, or 0.6%, and the Nasdaq was higher by 8 points, or 0.3%. About 2.49 billion shares changed hands on the New York Stock Exchange, and volume on the Nasdaq was roughly 2.26 billion shares. Losers outpaced winners 2 to 1. "The performance today should not be a surprise to most," said Michael Sheldon, chief market strategist with Spencer Clarke LLC. "An overbought market and a weak GDP report led to some well-deserved profit-taking." Elsewhere, the University of Michigan's consumer sentiment index rose to a revised October reading of 93.6 from 92.3 earlier in the month. The index finished September at 85.4. Following the data, the 10-year Treasury rallied 11/32 in price to yield 4.67%. The dollar tumbled against the yen and euro. "So far, 58% of companies have reported, and the year-over-year level of growth has been 18.9%, much higher than thought," said Sheldon. "However, questions about the outlook of the economy have been raised for the months ahead. Earnings growth has been strong, but with GDP likely to slow, it's just a matter of time before earnings growth decelerates." Though the bears probably didn't need the aid, lending support to their cause was Microsoft (MSFT) . After the close of trading Thursday, Microsoft beat analysts' expectations for revenue and earnings, but the software giant said second-quarter profits will probably be on the light side. Microsoft dipped by a penny to $28.34. Closing out a busy week for earnings, Chevron (CVX) said it had a third-quarter profit of $5.02 billion, or $2.29 a share, rising nearly 40% from a year ago. Analysts were anticipating $2.03 a share, according to Thomson First Call. However, revenue slipped to $54.21 billion, down slightly from $54.46 billion a year earlier. Still, Chevron tacked on 18 cents, or 0.3%, to close at $67.68. Alltel (AT) posted third-quarter earnings of 60 cents a share, excluding items, missing the Wall Street average estimate of 64 cents a share. Revenue climbed 12% to $2.01 billion. Alltel sank $4.19, or 7.2%, to $53.99. Industrial manufacturer Ingersoll Rand (IR) said third-quarter net income fell to $243.8 million, or 76 cents a share, down 4% from the year-ago quarter. Revenue increased 6% to $2.77 billion. Analysts were looking for EPS of 86 cents on revenue of $2.85 billion, and the stock ended down $1.45, or 3.7%, to $37.45. Meanwhile, oil prices edged higher. The benchmark December crude contract gained 39 cents to finish at $60.75 a barrel. Gold rose $1.20 to close at $601 an ounce, and silver slipped 15 cents to $12.09 an ounce. Overseas, equities were mostly lower. In Asia, Japan's Nikkei fell 0.9% overnight to 16,669, while Hong Kong's Hang Seng lost 0.3% to 18,297. In Europe, London's FTSE 100 gave back 0.4% to 6161, and Germany's Xetra DAX ticked down 0.3% to 6262. The earnings parade continues to roll on Monday, with reports expected from Verizon (VZ) , Humana (HUM) and MetLife (MET) , among others.