[BRIEFING.COM] What was shaping up overnight to be a healthy rebound in the wake of Thursday's broad-based pullback never even got off the ground, as more disappointments in the struggling tech sector overshadowed a batch of earnings reports that on balance were better than analysts anticipated.
Early futures indications were pointing to a slightly higher open after tech bellwether Microsoft (MSFT 23.87 +1.02) closed its fiscal year last night by beating estimates by a penny, boosting its FY07 outlook and rewarding shareholders with a $20 bln buyback. Google (GOOG 390.10 +2.98) more than doubling Q2 profits, and countering Yahoo's (YHOO 25.89 +0.62) recent disappointment, also had many thinking that stocks were poised for a bounce following yesterday's sell-off.
Dell (DELL 19.91 -2.19), though, changed the mood in a hurry with a warning that it was going to miss Wall Street's second quarter estimates. Dell's stock plunged 13% to a five-year low, and merely made matters worse for a Tech sector already reeling from concerns about growth prospects that continue to force analysts to lower their estimates for the second half of the year. At its lows, Dell was down 18%, losing nearly $9 bln off its market cap and, despite being only one fifth the size of Microsoft, which provides the software for its PCs, had the last word in driving the market and contributing to the tech-heavy Nasdaq closing lower for a third straight week.
Not even Dow component Caterpillar (CAT 68.33 -0.75) posting record earnings on 41% year/year growth, and raising FY06 revenue forecasts minutes later, was enough to offset renewed worries about the pace of a slowdown in economic growth. Tech also took a hit from Advanced Micro Devices (AMD 18.31 -3.34), which plummeted 15% to a 52-week low after its Q2 earnings merely matched downwardly revised estimates and the market viewed its relatively rosy forecast with some skepticism. AMD's loss helped push the PHLX Semiconductor Sector Index to its lowest point in 14 months. Aside from weakness throughout Technology, the absence of leadership from influential sectors like Financials, Industrials, and Consumer Discretionary also left buyers on the sidelines waiting for a short-term bottom to form before getting back into a market focused more on the negatives (i.e. moderating economic growth) than the positives (i.e. possible pause in Fed tightening).
Health Care, however, traded higher for a fifth straight session, getting a boost after Amgen (AMGN 66.15 +2.23) topped estimates and raised its FY06 EPS forecasts. However, modest interest in a number of defensive-oriented areas like Biotech and Pharmaceuticals merely underscored the market's sense of reserve to own more non-cyclical names over the weekend.
Separately, fed funds futures early in the day were pricing in as little as a 35% chance of a hike on August 8th and are now pricing in a 45% likelihood, which is still significantly dismissing the possibility of more tightening. Nonetheless, the expectations that slowing economic growth -- a catalyst for selling stocks over the last two sessions -- will keep inflation contained, typically a positive for Treasuries, were not realized Friday, as bond traders looked past growing uncertainty in the Middle East and also took some profits. Two consecutive days of gains had pushed the 10-year yield to a six-week low Thursday. NYSE Adv/Dec 1123/2129...Nasdaq Adv/Dec 815/2191
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