A stunning selloff of high-tech stocks pushed the broad market lower Wednesday, briefly piercing what has been a key level of support for stock prices since late February.
The Dow Jones industrial average tumbled 21.47 points to close at 2,865.38, a 0.7% loss. At one point late in the session, the Dow was off more than 40 points.
Smaller stocks were even harder hit: The NASDAQ composite index had one of its worst days this year, losing 10.71 points, or 2.2%, to close at 478.08.
The catalyst for Wednesday's plunge was a collapse in the share price of Compaq Computer. The stock plummeted 13 1/4 to 36, a drop of 27%, after the company disclosed that it may earn less than 25 cents a share in the current quarter, versus $1.18 a year ago. Compaq said its problems stem from slumping sales and the strong dollar overseas.
The Compaq selloff dragged down most other major tech stocks, even though the company's problems are viewed as specific to its situation rather than indicative of widespread computer-industry troubles. (Story, D3.)
To many tech investors, Compaq's announcement was the last straw in a string of bad sales and earnings news from tech firms this spring. The stocks had held up on expectations that computer equipment sales would buck the trend of the weak economy. But now, "the Compaq news indicates that the heartbeat of the American economy is still quite weak," said Eugene Peroni, technical analyst at Janney Montgomery Scott.
The news "definitely reminds people that with all the talk of an economic recovery, we're certainly not out of the woods yet," said Peter Davies, analyst at Nomura Securities.
Investors' urge to sell showed in New York Stock Exchange volume, which totaled a fairly heavy 193.11 million shares, though down from 207.91 million Tuesday.
But while declining issues outnumbered gains by 1,074 to 567 on the Big Board, that was considerably less severe than the 4-to-1 losers-to-winners ratio on Tuesday, when the Dow fell 37.57 points.
From its peak of 3,004.46 April 17, the Dow now has lost 4.6%. Some analysts were encouraged that the Dow rebounded from a 40-point loss to close above the 2,850 level Wednesday. The 2,850 level has been the point at which bargain hunters have rushed in four times since late February, sparking rallies.
"I think stocks are getting oversold," said Gene Seagle, technical analyst at Gruntal & Co. "We've got a lot of fear-induced selling."
Paul Rabbitt, analyst with Oppenheimer & Co. in Los Angeles, said he sees the market once again "at the bottom of its trading range," rather than on the verge of a major break downward.
Analysts noted that the Dow utilities index gained for the day, rising 0.56 points to 209.38. So pockets of strength continue in the market, which suggests that there is no wholesale desire to bail out.
Among the market highlights:
* Major tech losers included IBM, off 3 1/4 to 102 3/4; Intel, down 4 to 49 1/4, and AST Research, off 2 5/8 to 22 1/8. (Tech stock chart, D3.)
Many smaller Southland tech issues fell in sympathy. Teradata dropped 1 1/4 to 15 1/2, International Rectifier slumped 3 to 20, Tekelec lost 1 to 19, Rainbow Technologies fell 1 to 10 3/4 and Micropolis dropped 1 3/8 to 13 1/2.
* Many of the worst-hit stocks were those in which investors have large paper profits so far this year from strong rallies. Among health-care stocks, losers included Syntex, down 2 1/8 to 38 3/4; U.S. Healthcare, off 2 7/8 to 28 3/4; Sunrise Medical, down 1 1/4 to 26, and Syncor, which fell 1 1/4 to 14 1/4.
Biotech stocks were singled out by sellers. Immunex fell 3 to 37 3/4, Genzyme lost 2 3/4 to 32 1/4 and Amgen dropped 1 3/4 to 116.
* Chatsworth-based Leslie's Poolmart plunged 2 3/4 to 8 1/4. The retailer of swimming-pool supplies said its second-quarter results would be hurt by a $1.8-million onetime charge and by lower-than-normal temperatures that have hurt sales. Leslie's just went public at $11 a share on April 18. The underwriter, Montgomery Securities, cut earnings estimates and said it was "painfully aware" that it didn't foresee Leslie's problems.
* Dick Clark Productions soared 2 to 5 1/2 after reporting quarterly earnings up 167%.
In overseas trading, London's Financial Times 100-share average slipped 4.3 points to 2,459.4. In Frankfurt, the DAX average fell 8.15 points to 1,590.35.
In Tokyo, the Nikkei average lost 207.61 points to 25,822.47.
Treasury bond prices ended little changed as concerns about oversupply continued to lend a negative tone to the market.
The Treasury's 30-year bond rose 3/32 point, or 94 cents per $1,000. Its yield eased to 8.32% from 8.33% Tuesday.
Traders said the market remained concerned about its ability to absorb a record $37-billion flood of securities sold by the Treasury last week. "From a technical point of view and a supply point of view, there's still a lot of problems to be worked through," said Mike Casey, economist at Ramirez Capital.
Corporate junk bonds, meanwhile, sank for the second straight day, with many bonds losing $5 to $7.50 per $1,000 face value. Junk bonds tend to trade in line with stocks. Also, there are rising fears about the potential for oversupply in the market if regulators begin selling off the junk bonds of troubled insurance firms First Executive and First Capital.
The federal funds rate, the interest on overnight loans between banks, was quoted at 6%, up from 5.81% late Tuesday.
The dollar fell against major currencies in trading dominated by active buying of German marks.
The mark showed continued strength despite newspaper reports that Karl Otto Poehl may resign as president of Bundesbank. Traders say even if Poehl steps down, the German central bank probably won't change its tight monetary policy and loosen interest rates.
"If Poehl comes or goes, the fact is they won't change their policy," said Robert Ryan, senior currency trader at Bank of New York. Ryan said that other central banks, including the U.S.'s, have lowered interest rates recently, and added that the Japanese face pressures to cut rates as well.
Traders bought marks on the prospect of the continued high German interest rates, a move that depressed the dollar and other currencies, analysts said.
In New York, the dollar settled at 1.684 marks, down from 1.696 on Tuesday. It also fell to 137.15 Japanese yen, from 137.97.
Robert Hatcher, corporate dealer for Barclays Bank PLC, said the trading session was dominated by technical factors in the absence of any fundamental economic news.
"The market seems to be dominated by interbank and speculative account trading," said Hatcher.
The technical trading also ignored reports showing that the U.S. recession may be slowing. Other analysts suggested that the dollar was weak because there are few signs that the U.S. economy is poised for a quick rebound from the 10-month-old recession.
Pork belly futures prices leaped the daily limit of 2 cents a pound on the Chicago Mercantile Exchange amid rumors of new South Korean purchases.
Pork bellies settled 2 cents higher across the board, with the contract for delivery in May at 62.75 cents a pound.
Gold edged lower on the Comex, but silver advanced on strong overseas buying. Gold ended 20 cents lower, with June at $359.90 an ounce; silver was 6.3 cents higher, with May at $4.10.
Energy futures seesawed in uncertain trading on the New York Mercantile Exchange. Light sweet crude oil settled 29 cents higher, with June at $20.92 a barrel.
Market Roundup, D6