Blue Chips End 8-Day Streak; Broad Market Closes Up
Highflying Internet issues ran into heavy profit-taking Wednesday amid warnings about the stocks’ heights, while blue chips’ winning streak was halted.
On the second-to-last trading day of the year, the Dow Jones industrial average slipped 46.34 points, or 0.5%, to 9,274.64, ending an eight-day run that was the longest since 1996.
The broad market, however, managed to finish higher, with winners topping losers by 16 to 14 on the New York Stock Exchange and by 22 to 21 on Nasdaq.
But the gains were concentrated in some of the year’s most beaten-down issues, while many of the year’s biggest gainers--including Net stocks--were hammered.
The Chicago Board Options Exchange index of 12 Net-related stocks slid 5.2% after losing 2.7% on Tuesday. The index, which includes such stocks as Yahoo and EarthLink Network, hit a record high Monday.
Pressure on tech stocks clipped 14.82 points, or 0.7%, off the Nasdaq composite index, which ended at 2,166.95.
Tech research firm International Data Corp. on Wednesday issued a report predicting that the era of gravity-defying Internet stock valuations will end in 1999.
“We’re taking a look at history,” Frank Gens, senior vice president of Internet research at IDC, said when asked why he thought universal exuberance about Net-related stocks could end next year.
“In the birth of the personal computer business 15 or 20 years ago, people were excited, billionaires would be created, but the number of companies that lived up to the big expectations were measured in handfuls, rather than thousands,” he noted.
It would take only a few negative announcements, such as earnings disappointments, to “let the air out of the [Internet] balloon,” Gens said.
Still, the best Internet companies will continue to command lofty prices, he said. These would include Amazon.com, brokerage E-Trade Group, Yahoo and America Online, he said.
Of course, Net investors have been warned many times this year that the bubble will burst. But even amid four sharp pullbacks in the sector since July, the stocks have continued to resurge.
Elsewhere in markets Wednesday, bond yields continued to slide, with the 30-year Treasury bond ending at 5.09%, down from 5.1% on Tuesday. The yield was 5.92% a year ago.
With one day left in 1998, 30-year U.S. bonds have handed investors a total return of 18.7%, factoring yield plus price appreciation.
That marks the best year since 1995, when long-term Treasuries returned 34.7%.
By comparison, the Dow index is up about 19.3% this year, including dividends.
On Wall Street, the best-performing stocks Wednesday were many of those that have fallen most sharply in 1998. That was reflected in a 0.4% rise in the Russell 2,000 index of smaller stocks.
Also, investors were buyers of many beaten-down real estate investment trusts.
Among Wednesday’s highlights:
* Internet stocks mostly tumbled, but many closed well above their lows for the day.
America Online, for example, fell as low as $134 but ended at $147.44, down $7.19. The company said that on Christmas Day, a record number of people gave themselves an AOL subscription. The firm declined to divulge the new-subscription number, but its total base has grown by 1 million during the last 48 days to 15 million.
Among other Net names, EBay fell as low as $229.38 but ended at $252.88, off $21.06. Yahoo dropped $25.38 to $244.63, Amazon.com fell $11.06 to $321.25 and E-Trade slid $9.31 to $50.81.
* Tech winners for the day included Compaq, up 88 cents to $42.56, and Hewlett-Packard, up $1.69 to $69.94.
* Consumer growth stocks losing ground included Coca-Cola, down $1.50 to $67.81, and Procter & Gamble, down $1.25 to $92.25.
* Among relative “value” stocks, airlines were winners, with Delta rising $2.25 to $52.50 and UAL, parent of United, up $3.50 to $61.31.
Market Roundup, C7
* COMING SUNDAY: Our annual investment review and outlook section, with comprehensive reports and tables on markets and mutual funds.
