No Love for Stocks After Intel, Bernanke News
Investors courted stocks for three straight days, but by Valentine's Day, they just weren't that into stocks.
The Dow Jones Industrial Average closed down nearly 200 points, marking the index's 20th triple-digit move of the year. (Out of a possible 31 sessions.) The S&P 500 index and Nasdaq also finished down more than 1 percent.
Congressional testimony from Federal Reserve Chairman Ben Bernanke and an analyst warning on Intel were blamed for the sell-off, but really, it was just keeping with the recent pattern of the market -- up one day, down the next, said David Twibell, president of wealth management at Colorado Capital Bank. Trade on whatever news you can get your hands on.
“I don’t think the market is in a place where it can just keep going up and up and up,” Twibell said. “I don’t think [Bernanke’s] comments themselves were particularly negative,” but the market needed a reason and latched on to the Fed chairman’s comments, he said. “Maybe three weeks ago, those comments might have ignited a rally.”
Twibell said he thinks we’re headed into the bottom of this downturn, but, it’s not going to be the normal touch bottom, move higher cycle investors are used to. “I think we’re headed to a sort of rolling bottom, a U-shaped bottom,” Twibell said. “Let’s call it a ‘bottom in process.’ ”
"There certainly is a great deal of nervousness" in the market, Abby Joseph Cohen of Goldman Sachs told CNBC. "We have many investing clients who literally are making decisions day by day." Still, Cohen said, "we are seeing a great deal of cash on the sidelines."
On Capitol Hill, Bernanke told lawmakers that economic growth would be "sluggish" at best in the near term and signaled that the Fed is prepared to keep cutting rates. He said new hiring has slowed and that consumers, pinched by soaring energy prices and sagging home values, are likely to tighten their belts further, though growth should pick up later in the year. (Read the full text of Bernanke's prepared remarks.)
Techs were among the hardest hit but Twibell said that was likely due to the fact that the sector had a strong rally in the previous session. Intel provided a convenient excuse to sell.
Intel led Dow decliners after Goldman Sachs removed the chip maker from its "conviction buy list," according to Thomson Financial. Goldman Analyst James Covello was quoted as saying that, of all the tech companies he covers, Intel is the most exposed to slowing demand from the economic slowdown. Still, Covello kept his "buy" rating on the stock with a six-month price target of $30.
Techs also led the decline on the Nasdaq, with Nvidia down more than 16 percent after the graphics chip maker reported the first weakening of gross margin in 13 quarters, stirring concerns about competition from AMD-owned rival ATI and Intel.
"The revenue guidance was better than expected, but the issue is operating expenses are going to be much higher than expected,'' said Stiefel Nichlas analyst Blake Fischer, who has a "sell" rating on Nvidia stock. "The company has been in the past very adamant on their ability to leverage gross margin, and Nvidia has now started to back away from that a bit.''
Two brokerage firms cut their price targets for Nvidia stock -- Needham lowered its target to $39 and BMO dropped its target to $33.50.
On the S&P, Liz Claiborne led decliners after the retail chain and clothing manufacturer said fourth-quarter earnings will be well below forecasts due to the consumer-spending slowdown. The company also said it will delay reporting earnings due to its current restructuring effort.
Financial stocks came under pressure after Swiss banking giant UBS reported a quarterly loss of more than $11 billion and revealed $26.6 billion in exposure to risky U.S. mortgagesthat don't include subprime loans. The company also warned of a difficult year in 2008.
J.P. Morgan and Bear Stearns were among the hardest hit in the sector. The New York Stock Exchange financial index shed nearly 2 percent.
Shares of bond insurers MBIA and Ambac advanced after executives from both companies told lawmakers that a bailout of bond insurers isn't necessary during a hearing on Capitol Hill. Ambac's CEO went so far as to say that Warren Buffet's offer to reinsure the muni side was "laughable."Earlier, MBIA announced a $1 billion common-stock offering.
Network Appliance shares skidded after the data-storage company forecast lower-than-expected revenue due to banks cutting orders and Citigroup cut its rating on the stock to "hold" from "buy." Jefferies and RBC cut their price targets on the stock.
Goodyear Tire & Rubber shares moved higher after the company posted a better-than-expected profit due to higher tire prices and a focus on more expensive brands of tires. The number of tires sold actually declined. Still, revenue climbed 11 percent.
Top cable operator Comcast reported its profit shot up 54 percent and subscribers increased across its digital video, broadband and phone divisions. The company also said all the things investors wanted to hear: that it will resume annual dividend payments and set a 2009 target to complete its $7 billion stock-buyback plan in order to boost the sagging share price.
New York Times shares rose after the media company announced plans to cut 100 newsroom jobs to counter declining ad revenue.
Marriott reported a 20 percent drop in its quarterly profit and issued a weaker-than-expected forecast as the economic slowdown is affecting the hotel industry.
Earlier, a pair of reports delivered a mixed bag of economic news. The Labor Department reported that first-time claims for unemployment benefits fell more than expected, but the four-week moving average rose to its highest level in more than two years. The U.S. trade deficit narrowed more sharply than expected, while the annual trade deficit shrunk for the first time in six years.