Stocks Retreat Broadly, Led by Fresh Plunge in Tech Issues
Stock prices do go down, after all, many investors are painfully discovering.
In a continuing slide that is reminding analysts of last summer’s sharp pullback, stocks closed broadly lower Wednesday, led by another drop in technology issues.
The tech-heavy Nasdaq composite index tumbled 20.05 points, or 1.6%, to 1,249.29, its lowest close since December.
Blue-chip shares, which were at record highs as recently as last week, continued to hold up reasonably well Wednesday: The Dow industrials lost 18.88 points to 6,877.68, recovering from a 70-point drop.
But the selling in the broad market told a story of growing investor gloom. Losers outnumbered winners by 15 to 10 on the New York Stock Exchange and by more than 2 to 1 on Nasdaq.
The Nasdaq composite index has now dropped 10% from its recent record high, and tech-stock indexes have fallen even further, reflecting the heavy selling in that group. (Investor Spotlight, D8.)
Among individual stocks, some tech issues are off as much as 77% from their 52-week-high prices.
“Tech stocks are foremost on people’s minds,” said Bob Dickey, analyst at Dain Bosworth in Minneapolis. “There have been some rumblings by analysts that possibly we’re beginning to see an earnings slowdown for the group.”
The selling momentum appeared to gain as the day wore on, hitting a wide variety of tech stocks. Computer-networking, semiconductor and computer-making firms all finished with heavy losses.
“What you’ve got today is some panic selling,” said Ned Brines of Roger Engemann & Associates in Pasadena.
“I think we’re bottoming for a bounce, but that said, I don’t know how well we’re going to bounce,” said Gary Kaltbaum, director of technical research at J.W. Charles Securities Inc.
The tech sector’s woes began early in the year when computer-networking firms such as 3Com warned that they may post slower sales and earnings growth in the near term, as some customers delay upgrading technology systems.
“People are realizing that 30% growth rates in earnings for these companies can’t go on forever,” said John Niedenberger, a money manager at Advanced Investment Management, which oversees $3.5 billion. “People who got in and paid premium prices are stampeding to get out.”
Meanwhile, the broad market has been pressured in recent weeks by rising bond yields, as the economy’s strength has convinced many investors that the Federal Reserve Board will tighten credit when it meets Tuesday.
Bond yields inched up again Wednesday, in a delayed reaction to a less-than-reassuring report on consumer price inflation.
The 30-year Treasury bond yield rose to 6.98%, up from 6.96% on Tuesday and the highest since late September.
Rising inflation or interest rates hurt bonds by making their fixed payoff less attractive. Rising interest rates hurt stocks by slowing consumer spending, raising corporate borrowing costs and drawing investment dollars from equities to bonds.
But not all analysts believe a Fed rate hike is in store.
“The February [inflation] report won’t change any minds about what the Fed will do,” Bruce Steinberg, manager of Macroeconomics at Merrill Lynch, said in a research note. “We expect the Fed to leave policy unchanged, but we admit it is almost a 50-50 call at this point.”
Among Wednesday’s highlights:
* Leading the tech sell-off were Intel, down 3 3/8 to 133 3/8; Ascend Communications, off 2 3/8 to 45 3/4; IBM, down 1 1/2 to 137 7/8; and Microsoft, down 2 7/8 to 96 3/4.
Other tech issues declining included Compaq Computer, off 2 7/8 to 72; Texas Instruments, off 4 to 76; Dell Computer, down 1 7/8 to 62 7/8; and Sun Microsystems, off 1 1/2 to 26 5/8.
Bucking the trend in tech stocks was Adobe Systems, up 4 1/8 to 39 after reporting better-than-expected first-quarter earnings.
* The Dow’s weakest issues were consumer products shares: Philip Morris fell 3 3/8 to 122 and Procter & Gamble fell 2 to 122 1/4.
* Also hit hard were transportation stocks, which backtracked sharply from their recent rally. Among the losers was Burlington Northern Santa Fe, which fell 3 7/8 to 78 1/2 after the railroad company warned of weak first-quarter results.
Airlines also finished lower, hit by profit taking and rising fuel costs. Delta Air Lines fell 3 1/4 to 84 1/2 and United Airlines parent UAL shed 2 1/4 to 68 1/4. The Dow transports index sank 2.1% to 2,418.42.
* On the plus side, many bank stocks rallied after sharp losses in recent days. Citicorp gained 1/2 to 116 3/4, NationsBank rose 1 1/8 to 58 7/8 and Wells Fargo added 2 1/4 to 299 3/8.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Tech Stocks Get Hammered
Technology stocks have led the market lower in recent weeks, as investors have reacted to warnings of slower growth at some computer networking firms. Declines in key tech stocks and their price-to-earnings ratios based on estimated 1997 earnings:
*--*
52-week Wed. Decline 1997 Stock high-low close vs. high P/E* Xylan $76.00/$17.13 $18.00 --77% 27 3Com 81.38/30.63 32.19 --60 13 Sybase 27.88/13.50 13.75 --51 38 PairGain Tech. 43.25/15.50 23.25 --46 31 Motorola 69.75/44.13 54.88 --37 22 Sun Microsys. 35.13/20.25 26.63 --24 12 Intel 165.00/54.13 133.38 --19 15 IBM 170.13/89.13 137.88 --19 11 Lucent Tech. 60.63/29.75 49.38 --19 24 Compaq 87.88/35.88 72.00 --18 12 S&P; 500 816/627 785.77 --4% 18 Nasdaq compos. 1,388/1,042 1,249.29 --10% NA
*--*
NA: Not available
* Stock price-to-earnings ratios based on analysts’ mean estimates for 1997 earnings per share. 3Com and Sun Microsystems estimates are for fiscal years ending May and June 1998, respectively.
Sources: Bloomberg News, IBES Inc. (earnings estimates)
