Dow Sinks 216; Internet Stocks Take a Drubbing
Led by steep drops in shares of Internet-related companies, the stock market suffered its worst drubbing in two months Monday as investors took profits after recent sharp price gains.
The Dow Jones industrial average fell 216.53 points, or 2.3%, to 9,116.55--its biggest hit since a 2.7% drop on Oct. 1. The Nasdaq was pummeled harder, losing 66.90 points, or 3.3%, to 1,949.54 as technology stocks were thrashed.
Experts said that while nothing has changed with the fundamental economy, stocks were due for a setback after the recent rally. The Dow has risen in seven of the last eight weeks and even with Monday’s loss is still up 23% from its Sept. 1 low.
Internet stocks led the fall after huge climbs last week, a surge fueled in part by high expectations for Net retailers in the holiday shopping season. But as investors rush into the stocks when they rise, they scramble to get out when prices begin to fall, thus amplifying moves in both directions. Analysts had expected the shares to reverse course because of the dramatic gains and the fact that many of the companies have little or no earnings.
“It’s just a little rationality coming into the world,” said BancBoston Robertson Stephens analyst Lauren Cooks Levitan.
While most analysts say the fears that dominated the market through early autumn were exaggerated, some also worry that Wall Street’s recovery will prove too exuberant with a weak global economy still pressuring company profits.
“They were due. They were way overdue,” said Charles Pradilla, chief investment strategist at SG Cowen Securities, noting the “rampant speculation” among relatively unknown companies selling their wares on the Internet.
“Even the real [Internet] companies like Yahoo and Amazon.com were going up 20 points a day.”
Experts also said investors have again become spooked about the outlook for fourth-quarter profits. Large technology stocks fell between 2% and 5%.
“Earnings expectations for 1999 are too high,” and “sobriety” is returning to the market after its surge to records last week, said Henry Herrmann, president and chief investment officer at Waddell & Reed Financial Inc.
U.S. bond prices posted their biggest gain in three weeks as slumping stocks and expectations for benign inflation boosted the allure of Treasuries. The yield on the benchmark 30-year bond fell to 5.06% from 5.16% on Friday, the lowest since Oct. 29.
The dollar had its biggest drop against the German mark in more than six weeks after European Central Bank President Wim Duisenberg doused expectations for imminent interest-rate cuts.
The U.S. currency fell to 1.69 marks from 1.71 Friday in New York, its largest decline since Oct. 15. It also fell more than 1% against the French, Swiss and Belgian francs, the Italian lire and the Dutch guilder. The U.S. currency was little changed at 123.26 yen from 123.07, supported by speculation that Japan won’t soon emerge from a seven-year economic slump.
Analysts expect earnings of companies in the S&P; 500 to increase 5.7% in the fourth quarter, down from the 9% projection at the beginning of October, according to First Call Corp.
“Investors are selling some of the biggest gainers” in the recent rise, said Scotty George, chief investment strategist at Corinthian Partners Asset Management.
Drug companies fell, led by Merck, on concern they will face increased competition from Rhone-Poulenc and Hoechst. France’s and Germany’s biggest drug makers agreed to pool their drug, seed and pesticide units into a jointly controlled company, said people familiar with the accord. Aventis, the new company, would be the world’s No. 2 drug maker behind Merck, which fell $3.75 to $155.13. Pfizer fell $2.06 to $111.94.
Bank stocks fell broadly. Bank One fell $2.13 to $51.50, U.S. Bancorp slipped $1.13 to $37, and Wells Fargo dipped $1.19 to $36.13.
“Banks ran up a great deal and people are now looking to see whether prices are justified by earnings,” said Richard Caro, a portfolio manager at Summit Bank in New Jersey. “Earnings for banks and brokerages in 1999 are likely to slow and be somewhat less than we have been accustomed to in the last few years.”
The S&P; major regional bank index has gained as much as 30%, and the S&P; financial miscellaneous index as much as 46% since Oct. 8. Citigroup fell $2.63 to $50.25, while American Express slid $3.19 to $100.25.
Bankers Trust gained $1.44 to $87 after Deutsche Bank agreed to buy it for $10.1 billion, forming the world’s biggest financial services company, with $834 billion of assets. Deutsche Bank will pay $93 a share in the largest foreign takeover of a U.S. financial company. It plans to cut $1 billion in annual costs, mostly by eliminating 5,500 jobs, or 5.7% of total staff.
The NYSE composite index fell 11.50 to 571.50, and the American Stock Exchange composite index fell 10.34 to 663.58. The Russell 2,000 index of smaller companies fell 4.34 to 397.75.
Twice as many shares fell as rose on the New York Stock Exchange. But even as the market declined, 221 companies reached 52-week highs, while 163 fell to new lows in composite trading. More than 692 million shares changed hands on the Big Board, down from the three-month average of 763 million shares.
Among Monday’s highlights:
* Among big tech stocks, Dell Computer fell $3 to $60.81, EMC declined $2.50 to $72.50, and Apple Computer slumped $3.13 to $31.94. All three stocks have had big gains this year.
* Internet retailers were pounded. Onsale plunged $36.13 to $61.50, Amazon.com fell $24.63 to $192, Egghead Software sank $6.13 to $25.50, and EBay slipped $20.38 to $197.63.
Books-a-Million, a Birmingham, Ala.-based company whose stock rose more than tenfold after it unveiled an improved Web site, fell $9.44 to $29.50, after earlier touching a 52-week high of $47.
Online retailers’ shares had soared in the last week on expectations that more consumers will buy gifts over the Internet. Though online holiday sales are predicted to double to $2.3 billion this year, that’s only 1% of total holiday retail sales. An increase in fourth-quarter sales wouldn’t generate profits for money-losing companies such as Amazon.com.
“It’s just the natural sell-off,” said Volpe Brown Whelan & Co. analyst Derek Brown, who rates Amazon a “buy.”
* Internet search directories, which have unveiled holiday shopping guides with links to online merchants that give them a cut of sales, also declined. No. 1 Internet search directory Yahoo fell $24.94 to $192, while Lycos declined $6.25 to $59, and Excite fell $4.19 to $48.94.
Meanwhile, Latin American stock indices posted their biggest drops in more than eight weeks as earnings growth slows across the region. Brazil’s Bovespa index fell 5.1%, Mexico’s Bolsa fell 5.6%, and Argentina’s Merval fell 5.6%.
Overseas, Japan’s Nikkei stock average fell 1.2%, Germany’s DAX index fell 1.9%, Britain’s FTSE-100 fell 1.7%, and France’s CAC-40 fell 2.7%.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Net Profit-Taking
Despite Monday’s setback, the Interactive Week Internet index of 50 stocks is up 91.4% year to date. Daily closes since July 1:
Monday: 498.1
Source: Bloomberg News
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
World Wide Ebb
A sampling of Internet-related stocks hit hard Monday, with the day’s price change and year-to-date percentage change:
*--*
Ticker Monday Daily Year-to-date Stock symbol close change % change Amazon.com AMZN $192.00 -$24.63 +537.3% Yahoo YHOO 192.00 -24.94 +454.5 Books-a-Million BAMM 29.50 -9.44 +407.5 Network Solutions NSOL 65.63 -16.38 +400.0 BroadVision BVSN 26.63 -9.75 +309.6 Egghead.com EGGS 25.50 -6.13 +251.7 Onsale ONSL 61.50 -36.13 +241.7 Spyglass SPYG 23.50 -6.25 +212.0 DoubleClick DCLK 40.50 -12.88 +113.2* Cyberian Outpost COOL 25.50 -7.63 +41.7** CyberCash CYCH 16.61 -5.50 +31.0 Standard & Poor’s 500 SPX 1,163.63 -29.34 +19.9
*--*
*Feb. 19 initial public offering
**July 30 IPO
Source: Bloomberg News
*
Market Roundup, C12
