Market Rally Short-Lived; Crude Prices Drop Again

The interest-rate optimism that sparked a powerful stock rally Thursday dissipated Friday, leaving the broad market sharply lower for the day and the week.

But some hot pockets within Nasdaq--including initial public offerings--suggested that speculators are once again operating in their own special world, paying little attention to general market worries.

Meanwhile, oil prices slid for a third day as commodity traders focused on signs that more Saudi Arabian crude is on its way to refineries in the U.S. and elsewhere.

On Wall Street, the Nasdaq composite index ended another volatile week with a 90.11 point, or 2.2%, loss Friday to 4,094.45, amid heavy selling of semiconductor stocks and other tech issues.

The Dow industrials also slumped, losing 110.31 points, or 1%, to 10,733.56.

On Thursday, investors drove the Nasdaq index up 3.2% in the wake of Federal Reserve Chairman Alan Greenspan’s testimony before a Senate panel. Greenspan strongly hinted that the central bank may be finished with its yearlong campaign to tighten credit, assuming the economy is indeed slowing.

His comments triggered a wave of buying in the bond market Thursday, pulling Treasury yields sharply lower. But yields dipped only slightly Friday, indicating caution on the part of some bond traders as to whether the Fed is indeed done raising rates.

The yield on the 10-year Treasury note ended Friday at 6.00%, down from 6.01% on Thursday and 6.17% on Wednesday, but about the same as a week ago.

The yield on the 2-year T-note was unchanged at 6.33% on Friday. That yield was around 5.50% a year ago.

In theory, bond yields should tumble if Wall Street begins to believe that the economy is slowing significantly. Investors would want to lock in yields on the assumption that they may not see these rates again for some time.

Continuing worries about inflation, however, have helped keep yields up. In particular, many investors have been wary of soaring oil prices this year.

On Friday, however, near-term oil futures in New York slid $1.21 to $28.56 a barrel, the third-consecutive decline and the lowest price since mid-May.

Bridge News reported that Saudi Arabia has told customers in Asia and the U.S. to expect an additional 250,000 barrels per day of crude, even though other members of the Organization of Petroleum Exporting Countries have been unwilling to go along with output hikes.

In the stock market, this week brought the first torrent of second-quarter corporate earnings reports, and the numbers were mixed, as usual. Even though most companies have beaten analysts’ official estimates--not a difficult feat, given how the earnings-expectation game is played on Wall Street--some high-profile tech company profit disappointments have rocked the market.

On Friday, test- and measurement-equipment giant Agilent Technologies plunged $5.31 to $48.06 after warning Thursday that earnings will be down in the current quarter because parts shortages are keeping the company from meeting demand.

Another tech titan, Lucent Technologies, slumped $10.31 on Thursday and fell $3.06 to $51.13 on Friday in the wake of its warning that earnings will be depressed through the end of the year because of weaker-than-expected sales.

Lexmark International, a leading maker of laser printers, fell $16 to $48 Friday after it said intensified competition will crimp profits near term. That news dragged down rival Hewlett-Packard, which fell $6 to $124.

Investors also hammered one of this year’s hottest tech groups: semiconductor-related stocks. A report showing slowing demand for chip-manufacturing equipment in June pulled equipment leader Applied Materials down $5.06 to $78.13 and chip giant Texas Instruments down $4.25 to $63.50.

Overall, losers swamped winners by nearly 2 to 1 on Nasdaq on Friday. Though volume was moderate, traders who’ve been expecting the market advance to broaden were disappointed by the number of losers.

For the week, the Nasdaq composite fell 3.6% after surging 5.5% the previous week. The Dow lost 0.7% for the week.

But even in a down market overall, action in some pockets demonstrated that speculators are alive and well.

Variagenics (ticker symbol: VGNX), a genomics-technology developer, soared $10.50 to $24.50 in its trading debut Friday. And the biotech sector in general rallied, despite selling in other tech shares.

Also, networking software firm Talarian (TALR) soared to $22.75 from an IPO price of $16 in its trading debut.

The comeback in the new-issues market in recent weeks is expected to lure scores of private companies to launch their IPOs in coming weeks--assuming investor demand remains strong.

Market Roundup: C4-5