Sell-Off Slams Growth Stocks
Another wrenching shift by big investors out of high-priced glamour stocks sent the Nasdaq Stock Market tumbling Monday to one of its worst declines since the Crash of 1987, and reversed a sharp early rally in the Dow industrials.
Amid near-record trading volume, the selling that began last week in drug, computer and Internet shares swelled on Monday, driving the tech-heavy Nasdaq composite index down 138.43 points, or 5.6%, to 2,345.61--the third-biggest percentage decline of the ‘90s and the worst since the 8.6% dive of last Aug. 31.
The Dow, which had been up as much as 271 points early in the afternoon, plunged for the rest of the day, ending down 53.36 points at 10,440.53 and snapping a five-day string of new highs.
Even as institutional investors continued pouring money into long-overlooked industrial and raw-materials stocks--betting on a rosier global economy and continued strength in the U.S. economy--the abruptness and speed with which they pulled out of major growth stocks left many Wall Streeters stunned.
“I’ve been doing this since ’66 or ‘67, and I’ve never seen a sector reversal as violent as this one,” said Charles Pradilla, chief investment strategist at S.G. Cowen.
Analysts said it’s unclear whether growth stocks such as General Electric, Wal-Mart Stores and Lucent Technologies--all among the stocks most widely held by U.S. investors--might be bottoming or have much further to fall. A big question is whether growth-stock mutual fund investors will join the selling.
GE sank $6.50 to $104.75, Wal-Mart slumped $5.25 to $89.75 and Lucent shed $4.56 to $52.38.
The drug sector also was hammered. Lilly tumbled $9.44 to $72.88 after reporting a 12% quarterly profit gain. It also said sales had slowed for Prozac, its star-performing antidepressant drug.
Among the worst-hit shares were recently soaring Internet stocks. The Street.com Internet index plunged 16% amid double-digit percentage drops in such online leaders as Yahoo, America Online, Lycos and Amazon.com.
Meanwhile, many “cyclical” issues--which rise and fall with the economic cycles--rose for the fifth straight day Monday. United Technologies jumped $3 to $145, Alcoa rose $2 to $54.69 and Illinois Tool Works leaped $6.44 to $79.25.
Investors are optimistic that an expected recovery in Asia--and surprising strength in economies such as Mexico’s--will help U.S. heavy-industry and commodity firms regain some of the pricing power they lost as demand sank with the Asian crisis.
Oil stocks were among the day’s big winners, as crude oil rose to its highest level in more than a year on indications that Saudi Arabia, Iran and others are cutting output.
May oil futures in New York jumped 47 cents to $17.80 a barrel.
Although industrial stocks are in the limelight, more impressive to some analysts is that many smaller stocks have begun to rebound.
Indeed, winners topped losers by 19 to 12 on the New York Stock Exchange on Monday as 1.2 billion shares traded--second only to the 1.22 billion of last Sept. 1.
A total of 177 stocks reached 52-week highs on the NYSE, the most since last July 14.
On Nasdaq, however, losers had a 24-17 margin over winners, also in heavy trading.
The shift in market sentiment from “growth at any price” to value consciousness has been building for several months, said strategist Rao Chalasani at Everen Securities in Chicago.
Money managers have been moving into smaller, overlooked stocks at least since February, although the trend was overshadowed by explosive gains in the Internet sector and top technology stocks during March.
Despite the sell-off in growth stocks, however, many haven’t given much ground relative to their gains since last fall.
Amazon.com, for example, dropped 16% to $158.94 on Monday. But that only sent the stock back to where it was on March 30. Similarly, GE and Wal-Mart are just back to early-March levels.
However, some market watchers thought Monday’s action was significant and signaled a threat to the 8-year-old bull market.
“I don’t see us getting to Dow 11,000 on the backs of International Paper and Alcoa,” S.G. Cowen’s Pradilla said. Such cyclical stocks can provide temporary leadership at best, he said.
Jack Shaughnessy, strategist at Advest Group, said a greater danger is posed by the Federal Reserve: If the Fed believes that faster economic growth warrants higher interest rates, “you can just kiss the bull market goodbye,” he said.
On Monday, however, Treasury bond yields declined across the board. The 30-year T-bond dipped to 5.52% from 5.57% on Friday.
Market Roundup, C11
* TIME FOR ‘CYCLICALS’? Big investors are rushing into heavy-industry stocks, but some analysts are wary. C5
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Glamour Gone?
A barrage of selling sent shares of many major growth stocks plummeting anew Monday, as money managers took profits and hunted for more value-oriented stocks. Key growth stocks’ losses Monday and their declines so far from their recent peaks:
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Monday Monday Drop from Stock close change ’99 high Chas. Schwab $102.00 -$12.81 -34.2% America Online 115.88 -23.88 -34.0 Amgen 60.94 -5.88 -25.1 Lucent Tech. 52.38 -4.56 -21.8 IBM 166.75 -3.63 -16.3 Merck 73.13 -4.50 -16.3 Wal-Mart 89.75 -5.25 -16.0 Microsoft 81.00 -5.63 -15.3 Home Depot 58.63 -4.69 -13.7 Gen. Electric 104.75 -6.50 -10.8 S&P; 500 1,289.50 -29.5 -5.1
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Source: Times research
