Data Takes Sting Out of Downgrades

N E W  Y O R K, Aug. 7, 2001 -- Stocks rose modestly today, as a surprisingly strong rise in U.S. workers'productivity during the spring buoyed Wall Street, butsemiconductor stocks fell amid increasing pessimism about arebound in the depressed industry.

Track Your Stocks | Check Your Portfolio | Productivity

A surge in productivity in the April-June period, a quarterin which the economy had its weakest performance since 1993,lifted hopes that greater worker efficiency can allow theeconomy to grow faster without inflation.

"You've started to see some signs in the economic data thatthings are going to be looking a bit better, but until some ofthat data starts showing up in company reports, the market isprobably going to trade a little listlessly," said RichardNash, chief investment strategist at Key Asset Management inCleveland.

But semiconductor and chip-manufacturing equipment stocksfell for the the third straight session. Faring the worst inthe group were KLA-Tencor Corp. , which sank 5.8percent, or $3.38, to $54.57, and Novellus Systems Inc. dropped 4.7 percent, or $2.47, to $49.81.

"Investors are still concerned the economy is too weak,"said Guy Truicko, portfolio manager at Unity Management."Investors are waiting for a catalyst — some sign that theeconomy has bottomed, and we haven't gotten it yet … There isa tremendous lack of confidence in this market, in thiseconomy, in this Fed."

The Dow Jones industrial average ended up 57.43points, or 0.55 percent, at 10,458.74, according to the latestdata, while the Nasdaq composite index slipped 6.47points, or 0.32 percent, to 2,027.79. The Standard & Poor's 500index rose 3.92 points, or 0.33 percent, to 1,204.40.

Firms Continue Cutting Outlooks

CSFB cut its investment rating on a slew of U.S. andinternational semiconductor chip and chip-production equipmentstocks, adding fuel to an already inflamed debate amonginvestors about how long the downturn will last.

"Is it a two- or three- or four-quarter turnaround?" saidKeith Gertsen, head of Nasdaq trading for Deutsche Banc Alex.Brown.

Traders also said the time was ripe to sell these stocksafter strong gains last week.

CSFB said it now expects personal computer shipments todrop this year, revising downward its previous forecast for flat shipments. CSFB cut its forecast for 2002 PC shipmentgrowth to 10 percent from 17 percent.

The brokerage house cut its rating on the semiconductorcapital equipment industry to "market underweight" from"neutral" or "market weight." Semiconductor equipment includessilicon wafer, advanced circuit design and testing machines.

CSFB cut seven stocks in the sector to "hold" from "buy,"including the dominant player, Applied Materials, down $2.27 at$46.46, and KLA-Tencor, which dropped $3.55 to $54.40.

It also slashed its ratings on communications chip makerssuch as Applied Micro Circuit which fell 67 cents to$18.27.

"No one's going to stick their hand up and say, 'Now is thegood time to buy.' We need some good news first," said MikeMurphy, head of trading at First Union Securities Inc. inBaltimore.

Surprising Rise in Productivity

Productivity at U.S. businesses posted its best showing ina year. The Labor Department's nonfarm report showedproductivity — the amount of goods and services a worker cancreate per hour — rose at a larger-than-expected 2.5 percentannual rate in the second quarter. That was up substantiallyfrom a 0.1 annual pace seen in the January-March quarter.

At the same time, unit labor costs moved lower in thequarter.

"Longer term, the productivity number bodes well for thestock market, because it shows businesses have been able totake the work force down, but keep productivity up," said MitchStapley, portfolio manager at Fifth Third Investment Advisors,which oversees $32 billion.

Monday’s Markets

U.S. stocks fell across the board Monday in one of theyear's most lackluster sessions, as investors worried thatcomputer price wars will hurt the earnings prospects for chipgiant Intel.

Intel led both the high-tech sector and blue-chip sharesinto negative territory, but the selling was also widespreadamid persistent worries about a sluggish U.S. economy and dourprospects for corporate profits.

The Associated Press and Reuters contributed to this report-->