Small-Stock Indexes Near Recent Lows; Dow Off 43
Stocks resumed their downward trend on Monday, with key small-stock and technology share indexes nearing their recent lows or breaking through them.
That could portend another sharp market sell-off ahead, some analysts say.
The Dow Jones industrials eased 43.34 points to 6,660.21, taking back nearly all of Friday’s gain.
But the Dow remains 4.2% above its low of 6,391.69 set on April 11, thanks to last week’s strong rebound, which saw the blue-chip index climb a net 312 points, or nearly 5%.
Meanwhile, the Nasdaq composite index of mostly smaller stocks slumped 18.62 points, or 1.5%, to 1,203.95 on Monday, leaving it just slightly above its recent low of 1,201.00 set on April 2.
The Nasdaq market was again hit by broad selling of technology shares. The Morgan Stanley index of key tech stocks fell 2.4% to 343.99 on Monday, dropping through the recent low of 346.54 reached on April 2.
“It doesn’t look like we’ve completed the downside action in the market, given what’s happening with tech stocks,” said Ed Nicoski, technical-market analyst at brokerage Piper Jaffray in Minneapolis.
Scott Marcoullier, technical analyst at A.G. Edwards & Sons in St. Louis, said the fresh weakness in smaller stocks, after the Nasdaq index rebounded to 1,257.37 on April 8, is likely to generate more selling that could drive the index to 1,150 soon--another 4% decline.
Monday’s market activity was relatively light, which analysts attributed to the start of the Jewish Passover holidays. Volume on the New York Stock Exchange totaled just 394 million shares. Still, losers topped winners by 17 to 9 on the NYSE and by 25 to 15 on Nasdaq.
Some analysts said blue-chip stocks’ weakness Monday was triggered by Federal Reserve Board Vice Chairman Alice Rivlin’s warning that persistent strength in consumer demand could aggravate inflationary pressures at the nation’s factories.
Her comments helped push bond yields up modestly. The 30-year Treasury bond yield ended at 7.09%, up from 7.05% Friday.
But the continued erosion of small-stock prices has little to do with interest rates anymore, many analysts say. Instead, just as smaller stocks tend to be driven by “momentum” investors on the upside, when they turn decisively lower they gather a downside momentum that is difficult to stop.
Of 3,049 Nasdaq stocks trading for more than $5 a share, the average stock has already declined 38% from its 52-week high, Marcoullier said.
“I definitely think we’ve had a bear market in Nasdaq,” he said.
But many analysts don’t think it’s over. “My strongest message is, don’t try to be a hero here,” said Richard Eakle, head of market analysis firm Eakle Associates in Fair Haven, N.J.
Among Monday’s highlights:
* From a fundamental viewpoint, investors can’t seem to shake the idea that there’s something very wrong with many tech companies’ earnings outlooks.
That sentiment was reinforced Monday after Intel took new steps into the computer networking business with a line of cheap new products. The move sent many beaten-up networking stocks lower again, on competitive concerns. 3Com plunged 2 7/8 to 26 3/8, Cabletron Systems lost 1 1/4 to 30 1/8 and Ascend Communications fell 2 to 38 1/4. Intel added 1 1/4 to 138 3/8.
* Other tech stocks falling sharply included Cadence Design, down 2 1/4 to 26 3/4; IBM, down 2 3/8 to 137 3/8; and Seagate, down 1 3/4 to 43.
* A fresh plunge in biotechnology shares also weighed on the Nasdaq market. (Investor Spotlight, D14.)
* Earnings reports pushed AT&T; down 5/8 to 33 and Qualcomm down 2 3/4 to 45 1/2. But Eli Lilly added 1/8 to 85 1/8 on its report.
In currency trading the dollar dropped to a two-week low against the German mark as investors dumped most European currencies in favor of the relative safety of the mark, on new doubts about European monetary union.
Market Roundup, D12
