MarketView for October 6

Summary 

The shares of technology companies were hit broadside on Wednesday as concerns mounted over the ongoing demand for semiconductors and data storage. The Nasdaq was hit the worst as data system services provider Citrix Systems led the parade downward in sympathy with small-cap Equinix, which closed down 33.1 percent to $70.34 after the company issued a revenue warning late Tuesday. Equinix, a player in the rapidly growing business of cloud computing, said it had to lower prices to keep customers. Cloud computing is a term that describes the trend of tech companies supplying software, computing power and data storage online.

Equinix was among the 10 most heavily traded companies on the Nasdaq, putting it among much larger companies such as Intel and Cisco Systems. Equinix was also the Nasdaq's biggest percentage loser. More than 30 million shares changed hands, while the stock's 50-day average volume is 738,489.

Citrix ended the day down 14.1 percent to close at $60.15. At the same time, Morgan Stanley's downgraded Xilinx and Altera to "underweight" over worries that there will be a slowdown in Asian markets. Xilinx lost 2.4 percent to close at $25.71, while Altera fell 2.3 percent to close at $29.30.

The broader market, meanwhile, was hamstrung by a poor reading on private-sector employment and speculation about further quantitative easing from the Federal Reserve. The ADP Employer Services report said private payrolls fell by 39,000 in September, reinforcing the ongoing concerns over the labor market. The ADP report came ahead of Friday's larger employment report from the government. Non-farm payrolls are forecast to come in unchanged on Friday. At the same time, the  day’s trading activity was a positive factor for market players anticipating more efforts from the central bank to boost the economy.

Although it was a modest gain, the Dow Jones industrial average closed near its session high, which can sometimes be taken as a sign of strength in the market. The S&P 500 held well above the 1,150 level for a second day in a row, and is within sight of the 1,165 level, which is around its closing level on the day before the so-called "flash crash" in early May.

A sharp rise in the euro against the dollar at midday also put a cap on any declines, driving the front-month E-mini S&P futures contract higher, and pulling the cash market up with it. Futures traders have increasingly focused attention on the euro, given the high correlation between the currency and the equities markets.

On the earnings front, Yum Brands gained 1.2 percent to $47.36 after reporting adjusted third-quarter earnings that beat expectations by a penny. Alcoa will mark the unofficial start to earnings season on Thursday. Alcoa ended the day up 1.8 percent to close at $12.37.

Fed Getting Ready to Add to Liquidity

Private employers cut jobs unexpectedly in September, reinforcing the position held by many that the Federal Reserve will embark on another round of monetary policy stimulus to support the economic recovery, maybe as early as next month. One reason is that ADP's national employment report on Wednesday indicated that private employer payrolls fell by 39,000 jobs in September.

The Fed's decision on further quantitative easing, due at their early November policy meeting, will likely hinge on inflation and labor market developments and the monthly Labor Department report on employment on Friday.

The nonfarm payrolls report will likely show zero growth in September from August as a further unwinding of temporary Census jobs and layoffs at state and local governments offset a slight pickup in private hiring.

With more Fed easing expected, the dollar dropped to a fresh 15-year low against the yen, and the stock market pretty much traded flat, held back by the surprise ADP report. Benchmark 10-year Treasury debt prices gained.

Another report on Wednesday showed the number of planned layoffs rose slightly in September, though it was the second lowest level of the year, according to the report from consultants Challenger, Gray & Christmas Inc.

The Fed last month said it was ready to inject more money into the economy if needed to shore up a sluggish recovery from the worst downturn since the 1930s and prevent a damaging bout of deflation. The Fed, which has already injected $1.7 trillion into the economy by purchasing mortgage-related and government bonds, next meets on November 2-3.

The International Monetary Fund said on Wednesday U.S. economic growth will be much weaker this year and in 2011 than previously thought, dimming hopes for a drop in unemployment any time soon.

In a sober assessment of the outlook for the United States, the IMF cut its estimate for 2010 growth to 2.6 percent from the 3.3 percent it forecast in July and said gross domestic product will expand 2.3 percent in 2011 instead of 2.9 percent.

One bright spot on Wednesday offered hope for the hard-hit housing market. The Mortgage Bankers Association reported that mortgage applications for home purchasing rose for a second straight week, with demand at its highest level since early May as potential homeowners took advantage of record low interest rates. The housing market, however, remains highly vulnerable to setbacks and most economists believe a recovery will be elusive until the labor market improves.

A separate report from MasterCard Advisors' SpendingPulse showed caution remained the name of the game for consumers in September, but there was an upswing in spending on back-to-school supplies and less expensive electronics.