After a choppy session, stocks ended Wednesday's session mixed. Technology shares finished mostly weaker, while blue-chips closed with mild gains. The markets' positive reaction to a cautiously optimistic read on the economy by Federal Reserve Chairman Alan Greenspan faded after a negative analyst report on widely held tech concern Cisco Systems (CSCO ).
The Dow Jones industrial average gained 12.32 points, or 0.12%, to 10,127.58. The tech-heavy Nasdaq composite index finished down 14.99 points, or 0.85%, to 1,751.87. The broader Standard & Poor's 500 index inched up 0.51 point, or 0.05%, to 1,109.89.
Networking gear makers led tech stocks lower after Wachovia Securities reduced its earnings and revenues outlook for Cisco's April quarter as well as for fiscal 2002 and 2003. The report said that many large customers appear hesitant to move forward with large projects and many of Cisco's smaller customers are still folding.
For most of the session, investors were rallying around Greenspan's semi-annual testimony on monetary policy before Congress. He said the economy is close to a turning point, but that "unique" risks may dampen the speed of the recovery. Unemployment is likely to restrain consumer spending. And a rebound in business spending may only be moderate. However, he does see evidence of high-tech investment picking up.
To Wall Street's relief, the central bank head did not signal that policymakers will soon reverse some of the interest rate cuts implemented over 2001. Greenspan expects "underlying inflationary cost pressures should remain contained." In other words, he doesn't foresee a quick rebound in inflation that could make the Fed begin tightening, says S&P's economic research unit MMS.
Greenspan also commented on the collapse of Enron and the questions that its demise has sparked in corporate accounting. Once past the immediate crisis in confidence, the market's reaction suggests that market discipline will force "much greater transparency and increased clarity and completeness in accounting treatment of derivatives," according to the Fed chief.
The latest manufacturing data helped lift stocks early Wednesday. A report on January durable goods orders showed a higher than expected rise of 2.6%, after a downwardly revised 0.9% gain in December. Shipments climbed 2.9%, after an upwardly revised 0.8% gain in December. The data are consistent with signs of stabilization in manufacturing, MMS says. Looking forward, plenty of other factors should keep stocks volatile. Investors are fretting over recent accounting concerns and the depth of a rebound in profits. A report Tuesday that showed consumer confidence dipped in February resulted in choppy trading and a lower finish for stocks.
More data on the economy are due over the rest of the week. On Thursday, the markets will get a revision to gross domestic product. Analysts are predicting a rise to around 0.8%, up from the 0.2% initially reported. On Friday, the latest read on a key manufacturing index, the ISM index, will be released. Analysts expect the index will indicate growth for the first time since July 2000.
Discount chain Target (TGT ) will report earnings on Thursday.
On Wednesday, Hewlett-Packard (HWP ) said it could take merger charges of up to $1.4 billion if it completes its combination with Compaq Computer (CPQ ). H-P forecasted 2003 fiscal year earnings per share for the combined companies would be $1.51 a share, which is up from analysts' earnings estimates of $1.35 a share for H-P without Compaq.
In earnings news, troubled clothing retailer Gap Stores (GPS ) posted its first back-to-back quarterly losses. The company said it was forced to markdown heavily and warned that February sales are falling below its expectations.
In other company news, shares of biotech outfit ImClone Systems (IMCL ) jumped on news that the company may get its drug Erbitux reviewed by the FDA after all. In the last two months, the company has seen its stock tumble after an initial FDA decision not to consider its colorectal cancer drug for approval.
U.S. Treasuries finished with strong price gains Wednesday afternoon after equities reversed course. Earlier Greenspan's optimistic, but tempered, testimony before Congress, helped Treasury bill prices modestly higher.
Other economic data took a backseat to Greenspan's comments. New homes sales in January fell 14.8% to 823,000, much lower than the expected 936,000 reading. The decline was the steepest in eight years. The data come on the heels of record high existing home sales for January.
European stock markets finished higher on optimism that improved business confidence will result in a stronger European business climate. Greenspan's testimony in the U.S. also helped sentiment. In London, the FTSE 100 index finished up 39.40 points, or 0.77%, to 5,178.40. In Germany, the DAX index rose 62.47 points, or 1.28%, to 4,960.22. In France, the CAC 40 ended up 83.85 points, or 1.83%, to 4,987.21.
Asian markets ended higher. In Japan, the Nikkei soared 370.46 points, or 3.63%, to 10,573.09 after Prime Minister Koizumi unveiled a new plan designed to wipe out bad debt, shore up the stock market, boost credit to small businesses, and encourage consumer spending -- all to help pull Japan out of its third recession in a decade, according to news wires. The plan also promises stricter regulations on stock short-selling, which may have been the primary impetus for the Nikkei's rally.
In Hong Kong, the Hang Seng gained 101.58 points, or 0.96%, to 10,648.71.