- The Washington Times - Wednesday, February 4, 2004

NEW YORK (AP) — A tentative business-spending forecast by Cisco Systems Inc. hit the technology sector hard yesterday, with the Nasdaq Composite Index falling to its lowest level since Jan. 2. The sell-off dragged the rest of the market downward in volatile trading.

Cautious investors moved to defensive positions, with blue-chip shares showing greater strength than more speculative tech and small-cap stocks. As earnings season winds down, some analysts say the market might be headed for a pause, but despite yesterday’s tech selling, investors don’t seem ready to pull out in large numbers yet.

“Today, there’s a lot of indecision. This market is as wimpy as I’ve seen in a long time,” said Brian Belski, market strategist at Piper Jaffray. “But there’s a lot of pent up of buying demand, lots of inflow into the market, so I tend to think it’s too early to jump on the correction bandwagon.”

The Dow Jones Industrial Average finished down 34.44, or 0.3 percent, at 10,470.74.

The broader gauges also were lower. The Nasdaq tumbled 52.07, or 2.5 percent, to 2,014.14. The Standard & Poor’s 500 Index lost 9.51, or 0.8 percent, to 1,126.52.

The fact that the tech-heavy Nasdaq slumped because of Cisco’s less-than-stellar forecast underscores that “a lot of good news is priced in, and any sort of disappointment can affect prices disproportionately,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland.

“Broadly speaking, I still feel pretty good; the economy is clearly growing at this point,” Mr. Pears said, adding that he would be keeping an eye on the government payroll report expected tomorrow. “I think the market’s going to hold its breath until we get those numbers.”

Corporate earnings have beaten forecasts overall, and economic numbers have been consistently strong. A better-than-expected rise in factory orders for December, reported yesterday by the Commerce Department, offered further evidence that the recovery remains on track.

Cisco Systems dropped $2.33, or 8.8 percent, to $24.08, although its earnings beat Wall Street’s expectations. Industry observers had watched the results for signs that businesses were investing more in technology, but the networking-equipment company indicated that any rebound in spending remains uncertain.

Another significant decliner in the Nasdaq was Ciena Corp., which plummeted $1.30, or 18 percent, to $5.99, after the telecommunications equipment maker warned investors that its first-quarter revenue was likely to drop below forecasts. The company blamed the shortfall on the timing of a single order.

Tech stocks on the Dow also fell. Hewlett-Packard Co. skidded 72 cents to $23.19, while Intel Corp. dropped $1.34 to $30.02 and Microsoft Corp. fell 28 cents to $27.01.

McDonald’s Corp. rose 26 cents to $26.41 after Smith Barney raised its price target for the fast-food retailer, citing a franchisee survey that points to strong sales momentum.

General Mills Inc. lost 74 cents to $44.91 a day after the cereal maker disclosed that federal investigators had made a preliminary decision to recommend civil action against it over its sales practices. Food-industry experts say the case probably centers on incentives and fees paid to retailers for prominent product placement on store shelves.

China Life Insurance Co. was down $2.13, or 7.4 percent, at $26.67, after it failed to release details about a recent investigation by China’s National Audit Office. The company, which controls nearly half of mainland China”s insurance market, debuted on the global market in December with a $3 billion initial public offering.

Decliners outnumbered advancers by more than 3 to 1 on the New York Stock Exchange. Volume was 1.62 billion shares, compared with 1.48 billion shares traded at the same point Tuesday.

The Russell 2000 index, which tracks smaller company stocks, was down 15.12, or 2.6 percent, at 564.03.

Overseas, Japan’s Nikkei stock average sank 1.8 percent yesterday. In Europe, France’s CAC-40 closed down 0.8 percent, Britain’s FTSE 100 finished 0.2 percent higher, and Germany’s DAX index finished 0.7 percent lower.

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