Analysts hope stockNEW YORK >> The stock market suffered this past week from something quite small: computer chips.
rebound is in the chips
The semiconductor industry is
seen as the catalyst for a recovery
By Amy Baldwin
The semiconductor industry, seen as the leading edge of the high-tech business, has come to represent the health and outlook of the nation's economy. So when semiconductor stocks were downgraded by brokerage houses during the week, investors saw only bad times ahead, and began selling chip stocks and most other issues as well.
"They seem to be the straw that stirs the drink in technology and technology is what drives the stock market," said Larry Wachtel, market analyst at Prudential Securities.
Chips were the catalyst for much of Wall Street's weakness over the week, leading the market lower Monday and Tuesday and contributing to the Nasdaq composite index ending the week below 2,000.
The chip-inspired selling began Monday with downgrades of Intel and a warning from Lehman Brothers that the chip maker will slash prices on its Pentium 4 processor.
Then, on Tuesday, Credit Suisse First Boston downgraded several semiconductor makers, saying they will continue to work off excess inventory through 2002 and that demand will remain low.
The bad news about chips rattled investors, who are anxiously awaiting word that business is improving and believe that chips -- the heart of the tech revolution -- will signal the next bull market.
"It's hard to imagine a bull market without these technology stocks leading," said Hugh Johnson, chief investment officer at First Albany. "We have all asked ourselves the question: Without technology can we have a bull market? The answer is 'yes' in theory, but nobody instinctively believes it."
But there is reason to believe that chips are poised for recovery, boding well for a market recovery sooner rather than later, Johnson said.
"Despite all the dismal news about earnings from the world of technology, there is some belief and there are some signs that spending on technology is stabilizing," he said.
Among those believers are Merrill Lynch, which upgraded much of the semiconductor industry the week before and Intel, which issued bullish statements about the future of the chip business. Wall Street rallied on both developments before turning lower this past week. Many analysts believe technology and the overall market have more upside potential in the near term, saying that time is on Wall Street's side.
Meanwhile, the Dow Jones industrial average ended the week down 96.53 or 0.9 percent, despite rising 117.69 to 10,416.25 yesterday. The Nasdaq composite index ended down 109.86, a loss of 5.3 percent, after slipping 6.85 yesterday to 1,956.47. The Standard & Poor's 500 index lost 24.19, or 2.0 percent, after rising 6.73 yesterday to 1,190.16.