Nasdaq in Nose Dive as New Wave of Selling Hits Net Stocks
Another round of heavy selling of Internet-related stocks on Wednesday pushed the Nasdaq composite index into its deepest decline since the market plunge of late last summer.
The broader market also tumbled as many investors stepped to the sidelines, shaken by the recent surge in bond yields and slump in the dollar’s value.
The Nasdaq composite index dropped 47.99 points, or 1.9%, to 2,540.00, bringing to 11.3% the index’s total loss since it peaked at 2,864.48 on July 16.
That is the worst loss since the Nasdaq barometer fell 30% in the dive that began in July 1998 and extended to early October.
A drop of 10% in a major stock index is termed a “correction.” A drop of 20% is usually considered a bear market.
The blue-chip Dow Jones industrial average eased just 2.54 points to 10,674.77 on Wednesday. But that finish was a bad ending to a day that started out strong for the Dow, after one of its component stocks, Union Carbide, got a surprise takeover bid.
The Dow was up as much as 155 points before giving it all back.
Even more disappointing to traders was that stocks continued their latest slide despite a drop in bond yields.
The bellwether 30-year Treasury bond, which had reached a 20-month high of 6.16% on Tuesday, slipped to 6.10% after the government proposed a plan for formal buybacks of Treasury debt.
Still, many analysts say higher interest rates are the main cause of stocks’ latest pullback, as investors focus on the possibility that inflationary pressures in the still-strong economy will compel the Federal Reserve to raise short-term interest rates again. Policymakers meet Aug. 24.
A major test for stocks and bonds will be this Friday’s report on July employment.
“The market has gone from an emphasis on [second-quarter] corporate earnings, which provided good news, to a hunt for signs of inflation,” said Philip S. Dow, director of equity strategy at Dain Rauscher Wessels in Minneapolis.
Yet traders note that share volume remains modest on the New York Stock Exchange and, on many days, on Nasdaq as well. That suggests there is no great rush to sell stocks.
Although falling stocks outnumbered rising issues by nearly 2 to 1 on the NYSE and by a greater margin on Nasdaq, NYSE trading volume Wednesday was less than 800 million shares. Heavy trading would be 1 billion shares or more.
“The market is lacking any conviction,” said Richard Cripps, strategist for Legg Mason in Baltimore.
Losses haven’t yet become extreme for many stocks. The Dow index is off just 4.8% from its record high reached July 16. The Standard & Poor’s index of 600 smaller stocks is down 5.9% for the same period.
But the sellers definitely have the upper hand in the Internet sector.
Major Net stocks have crumbled in recent weeks. Amazon.com fell $6.44 to $88.44 on Wednesday, its lowest price since December. America Online, down $1.38 to $87.44, is at its lowest since March. Many Net stocks now have fallen 50% or more from their peaks.
“Some new valuations for Internet stocks are being tested,” Dow said, suggesting that the shares are returning to prices that more accurately reflect their future earnings potential.
Among Wednesday’s highlights:
* Many highflying telecom-related shares joined the Net stock sell-off. Equant fell $4.13 to $85.88, JDS Uniphase fell $5.06 to $85.38, Nortel slumped $5.13 to $81.63 and Nokia lost $4.88 to $78.75.
* Leading tech stocks were lower, though minimally compared with what happened to Net stocks. Intel lost 6 cents to $72.81. Microsoft was a winner, up 19 cents to $84.94.
* Retail stocks were sharply lower. Dayton Hudson fell $1.63 to $61.13 and Gap dropped $3.13 to $43.31.
* Union Carbide soared $10.56 to $59.38 and Dow Chemical sank $6.06 to $118.63 on news of their merger.
The news helped buoy some other heavy-industry stocks, including Emerson Electric, up $1.63 to $61.63; Goodrich, up 25 cents to $40.25; and Monsanto, up $1.44 to $41.56.
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Market Roundup, C10
