Once again, blue-chip stocks were muscling their way deeper into record territory Wednesday, and tech shares were stumbling and fumbling and lagging way behind.
The Dow Jones Industrial Average rose 98.79 points to 10493.80 in mid-afternoon trading, with the financial services industry continuing to pump adrenalin into the index. JP Morgan set the pace after reporting that first-quarter income more than doubled to US$3.01 a share, crushing the expected $1.73. The result follows similarly glowing returns a day earlier from Merrill Lynch and Paine Webber Group.
While an upbeat forecast from Lucent Technologies helped to offset concerns about Intel's revenue growth, traders are struggling to renew their affection for the tech camp. The Wired Index slid 5.00 to 680.57, and the Nasdaq Composite Index was 10.12 lower at 2573.38. The S&P 500 eased 2.94 to 1346.88.
The market took its time digesting the mixed messages from Intel (INTC), which was down $2.38 at $58.13. On the one hand, the chipmaker topped expectations with quarterly income of 57 cents a diluted share. On the other, revenue came in at $7.1 billion, and analysts had been looking for roughly $7.3 billion. More significantly, Intel said its second-quarter revenue will be flat or slightly lower due to a seasonal dip in sales.
For many investors, the trick now is to connect the dots and compare Intel's showing with the big profit warning issued by Compaq Computer a few days ago. Just how bad are things for the technology industry?
"There's no problem in tech," answered James Meyer, research director for Janney Montgomery Scott. "Compaq is having a problem, but Compaq's problems are Compaq's problems. The fundamentals of the tech sector haven't changed."
That said, he believes investors are having trouble justifying sky-high price-earnings ratios for many tech stocks, and that this likely will remain the case until a major new product or breakthrough is announced. The upcoming release of Microsoft's Office 2000, followed eventually by Windows 2000, may be just what the market is looking for.
"It's hard to imagine someone with a brighter future," Meyer said of Microsoft. By extension, therefore, he sees no reason not to feel optimistic about other top PC players.
Emphasis on "top." While the likes of Microsoft, Intel, and Dell Computer should fare well over the long haul, second-tier outfits will find the going increasingly difficult. Case in point: Advanced Micro Devices (AMD), which slipped 19 cents to $14.81. The chipmaker is slated to report its quarterly results after the closing bell, and a loss of 71 cents a share -- or worse -- is anticipated. AMD has issued no fewer than three earnings warnings this quarter alone.
And what of Apple Computer (AAPL)? Its shares rose $1.88 to $36.50 amid hopes the company will beat estimates when it posts its quarterly returns after the market closes. Profit of 57 cents a share is expected, but traders are actually looking for Apple to blow past this number just as it did in the previous quarter. With iMac and G3 sales apparently going strong, it's just possible that this will be the case.
