H-P Boss, Tech Stocks Purged

It was obvious to Wall Street traders Wednesday even as they bid up Hewlett-Packard (HPQ) shares 7% following Carly Fiorina's forced resignation.

Cisco's (CSCO) boss kept his job, though he's had little luck restoring that stock to its dot-com glory days. Traders discounted the leading networker's shares a further 3% after its unsurprising and impressive quarterly results.

The major market averages took directions from Cisco rather than H-P. The Dow dropped 60 points to 10664, while the Nasdaq slumped 34 to 2052, a decline of nearly 2%. The S&P 500 retreated 10 to 1193.

Techs, industrials, and other sectors dependent on strong economic growth took it on the chin. Insurers proved to be a safer bet in the wake of strong results from AIG (AIG). Real-estate plays also held up well, while home builders sagged despite a backup in interest rates.

Fiorina led H-P into its controversial merger with rival Compaq, but had no answers for declining margins and market-share losses to the likes of Dell (DELL) and IBM (IBM). "I regret the board and I have differences about how to execute HP's strategy," she said in a statement. Her departure revived speculation about a separation of the company's lucrative printer business from its struggling PC and server lines, though the board continue to oppose this strategy. The stock had dropped 50% during Fiorina's five-year reign, 70% from its Y2K peak and 5% over the last two months.

H-P named Chief Financial Officer Robert Wayman, a longtime company veteran, the interim CEO pending a search for a new boss. The company is looking for a hands-on manager rather than an investment-banking type, though some on Wall Street still thought Tuesday's coup improved the long-term odds of a corporate breakup. Fiorina is expected to land on her feet thanks to a $21 million golden parachute.

Cisco's quarterly sales rose 12% in a year's time to $6.06 billion, but that was still $60 million below Wall Street's consensus estimate. Earnings per share rose mostly because the company bought up some 350 million shares over the last year, including 140 million in the latest quarter. Inventory piled up, indicating no significant acceleration in demand.

The company forecast a sequential revenue gain of no more than 2% in the current quarter, meaning Wall Street's current consensus now represents the best-case scenario. "You're beginning to see a slowly increasing degree of cautious optimism," CEO John Chambers told Reuters. "Time will tell if that translates into a higher degree of capital spending."

The bond market was not betting on a boom, lowering yields across the board even as a Federal Reserve governor warned that the Fed may soon grow less predictable. The 10-year Treasury yield fell to 3.98%, while the 30-year yield slipped to 4.36%, its lowest level in 18 months. "Face it, do you want a guaranteed 4.50% in the long bond or do you want to bet on stocks outperforming that," asked a trader quoted by Briefing.com.

AIG served as the Dow's second crutch alongside H-P, adding 2%. The insurance giant delivered an 11% profit gain that surpassed the Street's consensus operating estimate by four cents a share. The business weathered last year's string of costly hurricanes, as well as several regulatory tempests.

AIG has settled allegations that it helped some clients manipulate earnings with questionable accounting gambits. The share price has also been hit hard by the bid-rigging probe initiated by New York Attorney General Eliot Spitzer, though the company insists it is not that investigation's primary target. Two AIG executives have already pleaded guilty to charges of supplying rigged quotes to insurance brokers from Marsh & McLennan (MMC).

The same probe has forced another insurance broker, Aon (AOC), to swear off controversial sales inducements known as "contingent commissions," since these conflicted with its promise to offer customers the best available deal. Earnings were also hurt by a $50 million charge for settling with regulators. Earnings were down 12%, but still better than feared. The stock gained 9%.

Crude prices held above $45 a barrel after a surprising drop in inventories. The dollar slipped after its best bounce in months.