Stock Indexes Slide to Six-Month Lows
U.S. stock indexes fell Tuesday to their lowest levels in almost six months as computer industry shares slumped on concern that the pace of business will slow as the year wears on.
The Nasdaq composite index, filled with computer, software and semiconductor issues, tumbled 32.34 points to 1,049.05. The index is down more than 16% from its intra-day record of 1,254.12 on June 6. The Standard & Poor’s 500 index fell 6.09 points to 626.87 after rising as much as 3.93 points earlier in the day. Major indexes ended at their lowest since Jan. 29.
“Techs are death now. Nasdaq and small caps are in a real bear market,” said David Shulman, chief equity strategist at Salomon Bros.
“It’s been fairly evident for the last three to five months that things are slowing down,” said Martin Yokosawa, a money manager at Oberweis Asset Management. “All the good news that could be out there is out there.”
The Dow Jones industrial average fell 44.39 points to 5,346.55 after rising as much as 43.28 points earlier.
The retreat was fueled by pessimistic comments from Elaine Garzarelli, a former Lehman Bros. strategist best known for calling the 1987 stock market crash, when the Dow industrials fell 508 points in one day.
She told clients that a proprietary model she uses to assess the health of the U.S. stock market was “thrown into a sell zone,” according to David Rolfe, chief investment officer at Wedgewood Partners Inc. Garzarelli, who wasn’t available for comment, said stocks could fall as much as 25% from their recent highs, which would send the Dow down to about 4,350.
A strong profit report after Monday’s close by software giant Microsoft apparently still triggered selling because of company comments that were cautious about the future.
“This market is still shaky, so once a stock starts to slide, buyers just step away and let the stock fall to whatever level will bring in some bargain hunters,” said Robert Streed, senior investment advisor at Northern Trust in Chicago. “Microsoft was just an excuse to sell other things.”
Microsoft’s 52% jump in profit, reported after Monday’s trading, came in just above analyst forecasts, but the company’s shares plunged 7 5/8, or more than 6%, to 112 1/8, spurring another wave of selling in the battered technology sector.
Some traders felt the recent barrage of negative earnings news from computer-related businesses would eventually catch up with Microsoft. Others said the disappointment was no surprise no matter how good the report.
“It was spectacular growth for a company that size. It just didn’t measure up to some people’s expectations,” Streed said, attributing some of the disappointment to the overly optimistic chatter that builds before a major earnings report. “People sometimes go around whispering that it might be a couple of cents better than consensus. It’s a crazy thing.”
The stock market’s decline aided an afternoon rally in bonds as investors began favoring less risky investments.
The yield on the 30-year Treasury bond--a key determinant of corporate and consumer borrowing costs--fell below 7% for the second time in a week, but this time it failed to spur the usual stock rally. It ended at 6.97%. The interest rate drop was helped by a weak report on July store sales and relief that Federal Reserve Board Chairman Alan Greenspan did not sound especially harsh on inflation in remarks to Congress.
At its monthly auction of two-year notes, the Treasury sold $18.75 billion in securities at an average yield of 6.288%. The Treasury has scheduled a sale of $12.5 billion in five-year notes for today.
Dealers said bidding in the two-year note auction Tuesday was somewhat subdued--not unexpectedly, however, since bidding closed just an hour before Greenspan was set to testify.
Among Tuesday’s highlights:
* Although much of the selling focused on technology, few sectors were left unscathed. Among the biggest losers in the Dow industrials, for example, were Boeing, down 2 3/8 at 84; Texaco, down 2 1/8 at 84 3/8; Sears, down 1 7/8 at 40 5/8; and Merck, down 2 at 63 5/8.
* Hershey Foods rose 4 1/2 to 77 1/8 and AlliedSignal rose 1 7/8 to 57 3/4 on stronger-than-expected results.
* Stratus Computer lost 5 7/8 to 18 7/8 on disappointing earnings. Other stocks falling on earnings disappointments or warnings included Gulf South Medical, off 10 7/8 to 17 5/8; Scientific Games, off 9 5/8 to 19 5/8; Cidco, off 6 15/16 to 18 7/8; IMP, off 2 1/8 to 5 7/8; and La Quinta Inns, off 3 1/2 to 17 1/4.
* Universal Outdoor, an outdoor advertising company, rose 2 5/8 to 17 1/8 in its first day of trading.
* Xylan rose 1 1/2 to 36 1/4 on news of a partnership with IBM on high-speed local area network switches. Dow component IBM fell 1 3/4 to 90 1/2.
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Rise and Fall
The technology-heavy Nasdaq Composite index fell Tuesday below its level at the start of the year, leading the overall market lower.
Tuesday: 1,049.05
Source: Bloomberg Business News
