Chip Stocks Rock

Chip stocks led the market to new highs on Monday on news that chip sales surged 17% in September.

Combined with first-of-the-month inflows and better than expected manufacturing and construction reports, the major indexes hit new highs for the year.

The Semiconductor Industry Association said that “demand in the global semiconductor market is rising briskly. … Performance is strong in all major market sectors.” The group will issue its three-year forecast on Wednesday, the same day Cisco reports earnings.

The semiconductor index rose almost 4% on the day, led by 5-6% gains in chip equipment stocks Applied Materials and Novellus .

Intel , meanwhile, which likely accounted for much of the gain in chip sales, gained only 3%. And with Intel’s capital spending budget running at half its 2000 peak, chip equipment stocks are seeing less of the pie than they have in the past.

Investors are clearly betting that as earnings improve, Intel and other chip giants will spend more on equipment. AMAT and NVLS investors better hope that assumption turns out to be correct.

The Nasdaq surged 35 to 1967, the S&P 500 rose 8 to 1059, and the Dow climbed 57 to 9858. Volume declined to 1.35 billion shares on the NYSE, but rose to 2.1 billion on the Nasdaq. Advancers led 22-9 on the NYSE, and 21-10 on the Nasdaq. Upside volume was 76% on the NYSE, and 74% on the Nasdaq. New highs-new lows were 526-0 on the NYSE, and 508-12 on the Nasdaq.

Amazon rose 4% as it began a holiday promotion.

J2 Global surged 10% on positive company comments.

Conexant and GlobespanVirata fell on merger plans.

Homestore rose 8% on speculation that it could be the latest Net company to be acquired by InterActiveCorp .

RSA gained 6% on a deal with Microsoft .

Sonus rose 5% on Asian expansion plans.

AskJeeves climbed 3% on a new CEO.

Redback lost 18% on a restructuring plan. Be careful; it is rare that common stock is worth anything when a company emerges from bankruptcy. There’s a reason Warren Buffett bought telecom bonds instead of stocks – debt holders are always first in line in a bankruptcy.

And MCI will emerge from bankruptcy, shedding $35 billion in debt after thumbing its nose at investors. What a country. Did we mention that Warren Buffett bought telecom bonds?

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