With Intel Corp. (INTC ), the world's largest chipmaker, set to post its quarterly profits after the close, few investors wanted to take any chances. Instead, Wall Street fell back into a familiar pattern on Tuesday, shifting money into old-line blue chips from now-chastened technology names such as Intel.
"It looks like there was rotation back into some safety stocks," said Guy Truicko, a portfolio manager at Unity Management in Garden City, N.Y. "People stayed on the sidelines because of Intel. They want to see what Intel has to say first."
Many on Wall Street believe that tech shares, which have withered since their spring highs last year, may still be overvalued given current economic conditions.
Intel, a Nasdaq-listed component of the Dow Jones industrial average, closed off 3/4 at 31-1/2. It was the top mover on the Nasdaq. The company was expected to earn $0.37 per share in the fourth quarter, according to the consensus estimate provided by First Call/Thomson Financial.
"We're in a bear cub market, or a bear market that runs fast," Bruce Bent, president of Reserve Funds, told Standard & Poor's Advisor Insight. The market decline is generally good because it leads to realistic pricing, according to Bent.
He thinks "the lower valuations will scare away people who shouldn't be in the markets."
The top mover on the New York Stock Exchange was the U.S.-based pet food company Ralston Purina Co. (RAL ), which gained 6-7/8 to 31-1/2 after Nestle said it would buy the company in a $10.3 billion deal excluding debt assumption.
In the Dow, financial services giant Citigroup Inc. (C ) advanced 1-9/16 to 54-11/16 after posting expectation-topping results.
Rival Bank of America (BAC ) was up 1-7/8 at 50-15/16 after despite saying its quarterly profits dropped because of loan and investment losses. The financial services giant had pre-announced earlier.
Under pressure in the energy sector was Edison International (EIX ) whose regulated utility, Southern California Edison, said it would temporarily suspend at least $596 million of payments to creditors. The stock was off 5/8 to 9-9/16.
The Dow gained 127.3 points to 10,652.6. The broader Standard & Poor's 500 Index was higher by 8.10 points at 1326.65. The tech-heavy Nasdaq Composite Index was down 7.97 points at 2,618.53.
Treasuries closed higher after a report showing U.S. business inventories rose 0.5% in November after a revised 0.7% gain in October. The inventory data are a little stronger than expected.
The fixed income market is bracing for more reports on the inflation front. The rate-setting committee of the Federal Reserve meets at the end of this month.
Stocks in the News
Network access company Xircom (XIRC ) agreed to be bought by chipmaker Intel for $25 per share. The company posted first quarter earnings of $0.01 a share compared with $0.55 on 3% lower sales.
Health care products company Abbott Labs (ABT ) posted fourth quarter earnings per share of $0.48 compared with $0.43 on 6.8% higher worldwide sales.
European markets closed lower. The London Financial Times-Stock Exchange 100 index was off 87 points, or 1.41%, at 6083.30 on the wobbliness in the U.S. market. In Germany, the DAX Index shed 11.83 points, or 0.18%, at 6,511.04 amid reports that German construction builders are to shed 50,000 jobs because construction spending easing. Meanwhile, France's CAC 40 was down 71.71 points, or 1.23%, at 5761.67.
The Asian markets finished higher. Japan's Nikkei ended up 78.22 points, up 0.58%, at 13,584.45 helped by gains in automaker Toyota on hopes that the expected unwinding of its shares by major banks will not go through. Hong Kong's Hang Seng Index finished up 69.39 points, or 0.45%, at 15,363.15.
By Eric Wahlgren in New York