Technology Shares Fall Sharply; Nasdaq Off 2%
Technology shares took another sharp hit Tuesday, leading the broad market lower on concerns about second-quarter corporate earnings.
The Nasdaq composite index of mostly smaller stocks--heavily weighted with tech issues--tumbled 24.56 points, or 2%, to 1,183.08.
Blue-chip stocks, however, held up fairly well. The Dow Jones industrials eased 24.75 points to 5,628.03.
Analysts said profit taking in the high-flying Nasdaq market was overdue. The Nasdaq index still is up 12.5% year-to-date, even though it has lost 5.3% since peaking at 1,249.15 on June 5.
Technology stocks, hammered last winter only to rebound in the spring, have been sinking again in recent weeks on fears that demand for computers and other electronic products isn’t strong enough to translate into healthy second-quarter earnings.
Those fears were magnified Tuesday, when Lattice Semiconductor became the latest firm to warn that sales and profit will be below expectations in the current quarter. Lattice shares plummeted 8 7/8 to 25 3/8.
Warnings also were made by In Focus Systems, a computer projection screen maker, and Meridian Data, which makes devices that retrieve data from CD-ROM disks. In Focus shares plunged 4 1/8 to 29 3/4; Meridian dropped 5 3/8 to 8 5/8.
Analysts noted that the last two weeks of the quarter typically are dominated by announcements from firms that expect results to fall short. That isn’t necessarily indicative of results for the entire universe of companies.
“All we’re going to get is problems now,” said Arnold Owen, head of equities at Kaufman Brothers. “We are in the period in late June of companies pre-reporting bad news; companies are cutting [expectations] themselves. You have to wait until July for better news.”
Still, the stock market has increasingly become vulnerable to profit-taking as bond yields have jumped, responding to the U.S. economy’s surprising strength.
Bond yields initially dipped on Tuesday, but turned higher late in the day despite news that housing starts fell in May.
The bellwether 30-year Treasury bond yield ended at 7.10%, up from 7.06% on Monday.
Once selling accelerated in the Nasdaq market, it took down many individual small issues. Losers swamped winners by 2 to 1.
In contrast, losers had only a slim lead over winners on the New York Stock Exchange, home of most big stocks. Trading volume was moderate.
“The market’s wallowing in indecision and lack of conviction and rapidly shifting opinions,” said Eric Miller, chief strategist at Donaldson, Lufkin & Jenrette Securities in San Francisco.
That could translate into more selling in coming weeks to lock in this year’s gains, some pros warn.
Among Tuesday’s highlights:
* Tech stocks falling sharply included Iomega, off 10 1/4 to 26 3/4; Intel, down 1 5/8 to 70 3/8; Netscape, off 4 5/8 to 56 3/4; Cisco Systems, down 1 1/2 to 52 7/8; Microsoft, off 2 1/4 to 122 3/8; and PairGain Technologies, down 3 5/8 to 54 5/8.
* Some biotech shares also were hit. Biochem Pharma dropped 6 to 36 1/2, Gilead Sciences lost 2 to 21 3/4 and Idexx Labs lost 2 1/2 to 41 3/4.
* Some of the Nasdaq issues that had surged the most in recent months continued to plummet. Optical Cable fell 7 to 41 and Presstek dropped 14 to 56. The latter announced it will restate first-quarter earnings.
* On the upside, many airline stocks rose on prospects for improved business after discount competitor ValuJet agreed to temporarily halt operations. ValuJet shares tumbled 3 1/2 to 6 1/2, but among competitors, Delta soared 3 3/8 to 83 5/8 and USAir gained 3/4 to 18 3/4.
* H.J. Heinz, a maker of catsup and other foods, fell 1 3/8 to 31 1/8 as investors were disappointed by the company’s earnings of 45 cents a share for the fiscal fourth quarter, 2 cents above the same quarter last year.
