Wall Street stocks were mixed on Friday after Cognizant's upbeat earnings guidance provided a boost to the technology sector but as credit market and economic jitters continued to unsettle wary investors.
Less than an hour after the opening bell, the S&P 500 was flat at 1,337.17. The Dow Jones Industrial Average gave up 0.1 per cent to 12,236.52 but the tech-heavy Nasdaq Composite rose 0.8 per cent to 2,311.10.
Shares in Cognizant Technology Solutions soared 19.1 per cent to $32.50 after the technology outsourcing company issued a first quarter profit forecast that beat expectations and its full-year outlook pleased investors. Third quarter net income rose 39 per cent to $96.3m.
The upbeat guidance helped alleviate some of Wall Street's concerns about growth prospects in the technology sector. Cisco's weak third quarter sales outlook prompted traders to sell large-cap technology stocks on Thursday, but many of these rebounded on Friday. Hewlett Packard rose 1.5 per cent and Microsoft gained 1 per cent.
In telecoms, Alcatel (NYSE:ALA)-Lucent was in focus after it gave a cautious outlook for 2008 and cancelled its dividend. The French company posted a EU2.58bn ($3.74bn) fourth quarter net loss after taking a big impairment charge company. However, Alcatel also reported stronger-than-expected quarterly sales.
The troubled retail sector was also a high priority for investors after Tiffany, the luxury jeweller, said forecast 2008 earnings well above analysts' estimates. The shares gained 7.9 per cent to $41.20.
Consumer stocks drifted in early trade Thursday after Wal-Mart's January same-store sales disappointed analysts. However, retailers rallied during the session after JC Penney and Gap issued earnings guidance which reassured investors.
Index futures came under early pressure after a Fed official said a US recession could not be ruled out this year. San Francisco Federal Reserve president Janet Yellen said she was "not confident" a recession could be avoided. Although an extended spell of slow-growth was the most likely outcome, she said there were "still reasonable odds of recession".
Providing further evidence of a slowing US economy wholesale inventories rose 1.1 per cent in December, more than three times the increase forecast by economists, as sales fell sharply.
Unsold wholesale goods totalled $411.6bn, the Commerce Department said, while sales fell 0.7 per cent to a seasonally adjusted $376.65bn.
The major indices rallied on Thursday as traders finally called a halt to a three-day losing streak.
However, a decline of more than 4 per cent this week has left the S&P500 reeling near its January low.
"Part of making a [market] bottom is time. Even if the market doesn't make a new low it's going to go sideways for a while," Jim Moffett, lead portfolio manager at UMB Scout Fund International said.
One of the main factors driving market skittishness has been the uncertain fate of monoline insurers. Investors fear a possible downgrade of a key bond insurer could trigger big losses at US banks.
On Thursday, Moody's cut bond insurer Security Capital Assurance's triple-A rating, meaning $160bn of securities it guarantees will also face downgrades.
MBIA, a larger bond insurer, fell 0.4 per cent to $14.15 after it sold $1bn in shares at a 14 per cent discount to its $14.20 closing price to raise much needed capital.
The price of protecting European corporate debt against default rose to a record high on Friday amid rumours that a complex credit derivative, possibly a collateralized debt obligation, was being unwound in the market.
According to Standard & Poors the number of CDOs to have triggered "events of default" has now risen to 80 - worth around $97bn, an increase of $13bn in the past week. Rumours abound that more liquidations at firesale prices are expected.
Investors sold shares in financial companies on Friday. Citigroup fell 1.1 per cent to $26.40 and Morgan Stanley fell 1.9 per cent to $44.02.
Credit fears pushed bond prices higher early on Friday. The yield on the two-year Treasury note retreated 6bp to 1.99 per cent while the 10-year Treasury note yield was down 5bp at 3.71 per cent. Treasuries fell sharply on Thursday after a sale of 30-year bonds met a weak reception.
European stocks were little changed ahead of the open on Wall Street. The FTSE Eurofirst 300 index up 0.1 per cent, the FTSE 100 also rose 0.1 per cent while the Dax rose 0.4 per cent in Germany. Asian equity markets closed mainly lower, led by a 1.4 per cent fall on the Nikkei.
The dollar pared early losses rising 0.05 per cent against the euro to $1.4479 and 0.1 per cent against the pound to $1.9442. The dollar rose sharply against both currencies on Thursday after the Bank of England cut interest rates and ECB president Jean-Claude Trichet hinted the bank's tightening bias may be at an end.
Gold traded 0.6 per cent higher at $915.20 an ounce while WTI crude oil futures climbed 1.2 per cent to $89.17.
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