Cautious comments from Merrill Lynch sent chip stocks into a 2% tailspin on Tuesday.
Merrill analyst Joe Osha said the chip sector lacks the elements for a sustained advance, and he predicted that the Philadelphia Semiconductor Indexwill remain range-bound for the rest of the year.
“A real upturn in the semiconductor business requires a real profit cycle — that means product shortages, pricing leverage, rising manufacturing utilization levels, higher margins and sharply higher earnings estimates,” Osha wrote. “We don’t see any of those elements in place.”
Osha said he expects the chip index to remain range-bound between 380 and 450 the rest of the year. The SOX shed 9 points on the day to 421.
Also weighing on chip stocks were comments from Bear Stearns, which said it sees “no positive surprises” from Applied Materialswhen the chip equipment giant hosts an analyst meeting next week.
The broader market fell as oil prices and inflation concerns once again took center stage.
The Nasdaq fell 16 to 2034, the S&P 500 lost 9 to 1197, and the Dow dropped 59 to 10,745. Volume rose to 1.51 billion shares on the NYSE, and 1.84 billion on the Nasdaq. Decliners led 22-11 on the NYSE, and 19-11 on the Nasdaq. Downside volume was 73% on the NYSE, and 67% on the Nasdaq. New highs-new lows were 111-32 on the NYSE, and 77-73 on the Nasdaq.
TiVosoared 75% on a deal with Comcast.
Comverserose 8% on its earnings report, while Ulticomfell 15% on its results.