Technology Stocks Lead Steep Sell-Off
Stocks fell sharply Thursday amid a sell-off in technology shares and lingering pressure from this week’s warning by Federal Reserve Board Chairman Alan Greenspan over the market’s lofty levels.
The Dow Jones industrial average closed down 58.11 points at 6,925.07, for a two-day loss of more than 100 points.
But the Dow’s stiff losses paled in comparison to the technology-laden Nasdaq composite index’s fall of 27.89 points to 1,312.66. It was the steepest one-day decline in the Nasdaq since the July 23 drop of 32.32 points.
Other broad-market indexes also added to Wednesday’s pullback as rising interest rates in the bond market again posed a problem for stocks.
Bonds tumbled again, a day after Greenspan asserted that the resilient enthusiasm behind the market’s record-setting run could spur inflation.
The Fed chief warned that the central bank might need to forcibly temper investor confidence by raising its key lending rates, even without waiting for evidence of a rebound in inflation.
“Greenspan’s gone, but the memory lingers on,” said Larry Wachtel, market analyst at Prudential Securities, calling the Fed chairman’s remarks unusually direct. “There was no really bad news [Thursday]. This is simply sobriety catching up with the market. There’s a lot of people sitting with huge profits saying, ‘I’m not going to contemplate [whether the Fed will raise rates], I’m going to ring the old cash register.’ ”
Although recent reports have shown that inflation remains under control, a series of surprisingly robust economic readings has fanned worries that pressures such as rising production costs might flare up, forcing retail prices higher.
On Thursday, for example, the Commerce Department reported that orders to U.S. factories for big-ticket durable goods shot up 3.6% in January to $174.8 billion. It was the first advance in three months and the largest since September.
The Labor Department, meanwhile, reported that first-time claims for jobless benefits rose by a larger-than-expected 11,000 last week, but analysts said the total of 316,000 claims was still too low to indicate any significant weakness in the labor market.
As bond prices fell again, the yield on the 30-year Treasury rose to 6.80% from 6.78% on Wednesday and 6.66% on Tuesday.
The heightened sense of caution in the stock market was felt most heavily in the technology arena, where investors were clearly rethinking the group’s price levels.
“There is a fundamental valuation change occurring,” said Scott Bleier, chief investment strategist at Prime Charter Ltd. “The communications equipment makers in particular are being revalued, and the valuations are going down.”
The selling pressure on tech stocks--a group that has performed unimpressively in recent weeks--appeared to reach a flash point with news late Wednesday of the proposed mega-merger between network equipment makers U.S. Robotics and 3Com.
Declining issues outnumbered advancers by a 7-4 margin on the New York Stock Exchange in moderate trading.
The Standard & Poor’s 500-stock list fell 10.61 points, or 1.3%, to 795.07. The NYSE composite index fell 4.25 points to 417.89.
Despite the more guarded atmosphere on Wall Street, some analysts welcomed the market’s retreat.
“This is healthier than what we would have seen if the market had continued blindly higher,” said Peggy Farley, chief executive at Amas Securities. “The market has tended to get a little ahead of itself, and I think we’re seeing a reassessment, not a great big correction.”
* The sharp decline in computer-related shares came despite news of the $6.6-billion merger agreement between 3Com and U.S. Robotics. 3Com plunged 4 to 35 and U.S. Robotics fell 1 3/4 to 59 1/8.
The bearishness spread to other networking stocks. Ascend Communications lost 5 3/8 to 57, Cascade Communications fell 2 1/2 to 30 1/8 and Cisco Systems sank 3 1/16 to 55 1/16.
Other tech issues suffered. Dell Computer was down 5 5/8 to 70 1/8, Microsoft fell 4 1/8 to 96 1/8 and Intel lost 6 33/64 to 137 47/64. IBM slid 3 7/8 to 143.
* Interest-rate-sensitive issues fell. Chase Manhattan Bank lost 2 3/8 to 100 7/8, BankAmerica lost 3 1/2 to 115 7/8 and First Chicago NBD lost 1 1/4 to 60 1/8.
* McDonald’s fell 1 3/8 to 43 1/2. The company said its franchisees are expected to approve a proposal that would offer some of its popular sandwiches at steep discounts, analysts and franchisees said.
* Citrix Systems tumbled 15 5/8 to 10 5/8 after the company warned late Wednesday that it could face increased competition from Microsoft.
* Centennial Technologies plunged 11 1/4 to 3 1/2 after saying restatements to its earnings will show it lost money for the last three years.
Overseas, Tokyo’s Nikkei stock average rose 0.2%, Frankfurt’s DAX index rose 1.2% and London’s FTSE-100 rose 0.2%.
Market Roundup, D6
