Nasdaq Soars After Fed Stands Pat
Here’s a measure of how tremendous the Nasdaq technology-stock rally has been this year: If the Nasdaq composite index were to plunge 35% soon--a bad bear market by any standard--it would wipe out only five months’ worth of profit.
Despite nearly universal expectations that the Federal Reserve would leave short-term interest rates alone for now, the Fed’s announcement of that stand-pat decision at midday Tuesday sparked yet another surge in leading technology stocks.
The Nasdaq composite index ended up 127.28 points, or 3.4%, to a record 3,911.15, for the largest-ever one-day point gain.
Tuesday’s advance left the Nasdaq index up 78% year-to-date.
The broad market also rose Tuesday, though far less than Nasdaq. The Dow Jones industrials added 56.27 points, or 0.5%, to 11,200.54. The Standard & Poor’s 500 index gained 1.1% to a record 1,433.43.
Rising stocks marginally outnumbered falling stocks on the New York Stock Exchange and on the Nasdaq Stock Market.
The Nasdaq composite index’s latest surge was powered by the same technology stock winners that have this year rewritten the rule book of bull markets--names such as wireless tech leader Qualcomm, Internet commerce developer Commerce One, and Net directory firm Yahoo.
All of these stocks already trade not only at extraordinary levels in terms of absolute dollars, but also in terms of their underlying earnings--if they have earnings.
The stocks’ continued gains, experts say, stem in part from their sheer momentum, as more investors pile in to try and catch some of the action.
“It seems that portfolio managers are stuffing their portfolios with the stocks that have performed the best this year,” Eric Barden, a money manager at First Austin Capital Management, noted on Bloomberg News.
But many of the companies also have been making announcements that further feed bullish sentiment about their growth prospects.
On Tuesday, for example, Liberate Technologies, a fledgling company that makes software designed to deliver content to Internet appliances such as set-top TV boxes, said its sales in the fiscal second quarter ended Nov. 30 rose 38% from a year ago, to $6.1 million. The firm also said it lost less than expected in the quarter--30 cents a share--and that it will split its stock 2-for-1. The stock leaped $36.50 to a record $252.50.
Qualcomm, meanwhile, surged $30.06 to a record $496.88 one day after announcing that shareholders approved a plan to split the shares 4-for-1.
Internet advertising consultant DoubleClick rose $15.13 to $216.50 after announcing a 2-for-1 split.
Though stock splits have no effect on the underlying business, they are often viewed bullishly because the stock appears more affordable to more investors.
Analysts also continue to stoke the tech firms. Internet venture fund CMGI jumped $48.06 to $270.25 Tuesday after influential Merrill Lynch analyst Henry Blodget launched coverage of the company and said its shares should reach $300 within 18 months.
In another indication that bearish investors are giving up fighting the huge gains in many market leaders this year, the New York Stock Exchange on Tuesday said “short interest” fell 59.8 million shares, to 4 billion shares, in the month ended Dec. 15.
Short interest is the total number of shares that traders have sold short--meaning, shares they have borrowed and sold, usually in a bet that prices would decline.
If a short-seller is correct about a stock’s direction, he can replace the borrowed shares later at a lower price. If the stock keeps rising, however, the short-seller’s losses mount until he finally closes out his position by buying shares on the open market.
Some traders said Tuesday that the Fed did pleasantly surprise some investors by retaining a “neutral” bias on interest rates, as opposed to adopting a bias to raise rates.
But most bond investors seem to believe it’s inevitable that the Fed will be raising rates again in 2000, after three increases this year.
That pessimism was reflected anew in the bond market on Tuesday: The yield on the bellwether 30-year Treasury bond inched up to 6.46% from 6.44% Monday, a new 27-month high.
Yields on six-month T-bills have risen in recent days to four-year highs--mocking expectations in recent months that yields would fall in a Y2K-related “rush to quality.”
Market Roundup, C9
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The $200 (Plus) Club
Stocks trading above $200 a share used to be a relative rarity. Not anymore. Here’s a sampling of some of the tech stocks that have rocketed well past $200 this year. Several have announced plans to split their shares to lower the price.
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Tuesday Tuesday 1999 Stock close change gain* Commerce One $480.00 +$57.00 +2,186% Qualcomm 496.88 +30.06 +1,818 Liberate Tech 252.50 +36.50 +1,478 Foundry Networks 314.00 +20.00 +1,156 CMGI 270.25 +48.06 +915 DoubleClick 216.50 +15.13 +873 JDS Uniphase 278.48 +23.23 +703 Network Solutions 267.50 +8.81 +309 Broadcom 229.88 +6.44 +281 Yahoo 405.56 +36.06 +242
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* Measured either from Dec. 31, 1998, or from initial public offering price
if the company went public in 1999
Source: Times research
