Broad Market Declines Amid New Troubles in Tech Sector
Stocks retreated Tuesday from a strong early rally, amid more signs of weakness in the technology business.
The Nasdaq composite index, loaded with tech names, slumped 36.15 points, or 1.6%, to 2,259.03 after rallying as high as 2,317 early in the day.
The Dow industrials ended off 27.17 points at 9,297.61 after being up as much as 97 points.
The tech sector dominated the market news, and most of it was bad:
* Micron Electronics, a personal computer maker, tumbled $2.63 to $11.81 after warning late Monday that sales are running below plan.
That followed Compaq Computer’s warning last week that its sales so far this quarter also are weaker than expected.
* Computer networker 3Com’s shares dived $3.69 to $27 before being suspended by Nasdaq. After the suspension, the company announced that earnings in the quarter ended last week will be 23 cents a share, versus analysts’ expectations of about 36 cents.
3Com cited “an unexpected slowdown in the U.S. and Latin American enterprise markets, a weakness in the traditional two-tier distribution channel, and lower-than-expected personal computer” sales.
* Intel shares slid $7.25 to $109.81 after analyst Jonathan Joseph at NationsBanc Montgomery Securities downgraded the world’s largest computer-chip maker to “hold” from “buy,” citing weak demand and a slow transition to the Pentium III processor.
Intel stock now is down 24% from its recent peak.
All of that news took the steam out of a tech rally that had been fueled by Hewlett-Packard’s announcement that it plans to split itself in two. HP shares rose as high as $73.50 but closed up $2.75 at $68.63.
For tech stocks overall, “People got overly optimistic about personal computer sales in the first quarter,” said Bruce Simon, chief investment officer of Glenmede Trust, which oversees $15 billion in Philadelphia.
The weakness in the tech sector has already pulled the Nasdaq index down 10% from its record high reached Feb. 1.
In the broad market, losers topped winners by 16 to 14 on the New York Stock Exchange and by 22 to 17 on Nasdaq.
Among the few pockets of strength in the market were airlines, after Goldman Sachs upgraded key stocks, citing expectations of strong spring traffic.
The bond market, meanwhile, took a breather: Yields fell from Monday’s seven-month highs, with the 30-year Treasury bond pulling back to 5.61% from 5.68% on Monday.
“This is a good buying opportunity,” said Ken Anderson, who helps oversee $14.5 billion of bonds at Evergreen Asset Management in Purchase, N.Y.
For the stock market, analysts say the question now is whether another sector can step up to take the leadership role that had been held by technology for much of the last year.
Among Tuesday’s highlights:
* Losers among major tech shares included Microsoft, down $3.19 to $148.56; Dell, down $2.50 to $78.06; Compaq, off $1.59 to $31.94; Cisco Systems, down $3.75 to $95.69; and Texas Instruments, down $5.75 to $86.50.
* Internet stocks were mixed, as some continued their recent rebound. EBay rose $9.44 to $117.06, Excite gained $6.69 to $108.56 and @Home rose $8.44 to $115.56. But Yahoo fell $6.94 to $153.19 and America Online eased $2.88 to $86.69.
* Airline stocks rising after Goldman Sachs upgraded them were AMR, parent of American, up $1.75 to $57.88; UAL, parent of United, up $3.38 to $65.38; and Continental class A, up $2.13 to $42.06.
Also, Delta surged $2.69 to $65.63 and Alaska Air gained $2.25 to $53.06.
* Among Dow stocks, Union Carbide jumped $3.13 to $44.81 on revived rumors that it is a takeover target.
Market Roundup, C7
