Tech Stocks Retreat in Busy Trading
Hit by reports of disappointing future earnings and fears of slowing industry growth, technology stocks took a drubbing on Thursday while blue-chip issues declined on doubts about a breakthrough in federal budget talks.
The New York Stock Exchange posted its fourth heaviest trading day ever, with volume of 512 million shares, while Nasdaq posted record volume.
Bond yields, meanwhile, rose sharply, with the benchmark 30-year Treasury issue closing above 6% for the first time in more than a week after congressional Republicans raised the threat of impeachment proceedings against Treasury Secretary Robert Rubin for his handling of U.S. finances during the partial government shutdown.
Stocks in overseas markets were mixed, ending a strong two-day rally.
The technology-heavy Nasdaq composite index sank 16.44 points, or 1.57%, to 1,029.82, after several companies warned of weak fourth-quarter profits. The Nasdaq index is now off 2.1% in the three trading days of 1996.
The Dow Jones industrial average ended 20.23 points lower at 5,173.84. The index was up more than 30 points in early trading, but in the last hour of trading was off more than 50 points before cutting its losses.
In the bond market, the Treasury’s 30-year bond lost more than a full point and its yield soared to 6.03% from 5.96% percent on Wednesday.
Bond traders were rattled after Republicans threatened to support “impeachment proceedings” against Rubin on grounds that the Treasury secretary is circumventing the Constitution because, with Congress putting a clamp on further government borrowing, he has juggled trust funds to avoid the first-ever U.S. default.
In addition to the budget fight, the stock market was hit by program trading and a sell-off in high technology shares.
Contributing to the worries was mounting concern about weak economic data, including December chain store sales figures. Analysts said it was further evidence that the economy is slowing down enough to eat into corporate earnings.
Nasdaq posted record volume of 629.97 million shares, topping the previous record of 597 million shares on July 19, 1995.
High-technology stocks sold off after both FTP Software and Microdyne issued fourth-quarter profit warnings. FTP dropped 13 3/8 to 11 7/8 and Microdyne was off 8 1/4 at 7. Other high tech shares followed suit.
“The techs have been weak for a long time and this is one of those sectors where people wanted to look the other way and hoped it would correct itself,” said Chris Callies, analyst at Brown Bros. Harriman.
“What is at the heart of it is that the market got way too speculative last year and overran the fundamentals on the way up. It will do so on the way down too.”
Bob Dickey of Dain Bosworth said, “It’s another round of selling pressure. Investors are still questioning whether the growth story is still there.”
Among technology stocks, Dow Jones index component International Business Machines closed down 2 1/2 at 86 7/8.
Analysts said IBM shares broke key support on analysts’ charts and that further weakness could be seen.
Other big losers on the Big Board included LSI Logic, down 1 1/8 to 30; Digital Equipment, down 3 7/8 to 55 3/4; and Compaq, off 1/2 at 46 1/8. In over-the-counter trading, Intel lost 1/4 to 57 1/2, Sun Microsystems slipped 3/4 to 40 1/2 and Cisco Systems lost 2 3/4 to 70 5/8.
Not all technology stocks fared so badly, and analysts said the market lifted off its lows because of a bounce in several firms, including Micron Technology, which closed up 1 1/4 at 40 5/8 after falling as low as 37 3/4. Microsoft ended up 1/2 at 87 3/8 after dropping to 84 7/8.
Analysts said the Dow industrials’ early gains were generated by optimism about a breakthrough in the budget talks. But it later became doubtful that Washington would soon find a solution.
“What is going on in Washington is seeping into the minds of investors--that we have chaos and a paralyzed government,” said Michael Metz of Oppenheimer & Co.
Decliners led advancers by 8 to 5 on the New York Stock Exchange.
Overseas, European stock markets ended lower, with London’s FTSE-100 index dropping 1.5 points to 3,714.1 after touching a new trading high of 3,723.0. But the Nikkei index in Tokyo gained nearly 4% to its highest level in 16 months as the dollar advanced against the yen.
Mexico City stocks fell as investors took advantage of the prior two days’ 8% rally to sell shares seen as overpriced, traders and analysts said. The Bolsa index fell 2.15 points, or 0.07%, to 3002.63, after falling as much as 1.3% to 2965.15 earlier in the session.
Among the U.S. market highlights:
* Some retail stocks rallied on overall weak industry sales figures. The Gap rose 2 3/8 to 47 5/8, after the clothing retailer said December sales at stores open at least a year rose 6%.
But other retailers fell. Shares of The Limited, whose same-store sales declined 5%, dropped 5/8 to 16 3/4. Dayton Hudson lost 3/4 to 76 3/4, after the department store chain said its same-store sales advanced 3%.
Gymboree fell 2 5/8 to 14 7/8 after the children’s clothing retailer said weak December sales will push earnings below analysts estimates.
Musicland Stores Corp. fell 5/8 to 3 3/4 as the music and video retailer said fourth-quarter earnings would be disappointing because of weak December music sales.
* Banking stocks also buckled under profit-taking. In the Dow industrial index, J.P. Morgan lost 2 5/8 to 79. Citicorp lost 2 7/8 to 65 3/8.
* Callaway Golf fell 1 1/2 to 19 3/8. The Carlsbad-based. company cut prices on its “Big Bertha” golf clubs by 15%.
The dollar rose against most major currencies as traders in Japan, back from a holiday, sold the falling yen to purchase the U.S. currency that had been rising while they were away.
