Nasdaq Dives 349 Points in Worst Loss; Dow Gains
The Nasdaq composite index suffered its worst one-day point loss Monday as investors again dumped recently red-hot technology stocks and plowed their money with near-equal intensity into long-neglected blue chips.
Though trading volume didn’t suggest a panic sell-off, many investors were clearly scrambling to exit Internet, semiconductor and computer shares amid a deepening Nasdaq decline that began three weeks ago.
The drubbing of tech stocks, as well as the rally in “old-economy” shares such as banks, marked a stunning reversal from the previous six months, in which investors seemingly couldn’t pay too high a price for tech stocks, to the virtual exclusion of all other sectors.
Nasdaq plunged 349.15 points, or 7.6%, to 4,223.68, dragging it down 16.3% from the record high close reached March 10--the day after the tech-heavy index first closed above 5,000. The sell-off was the index’s fifth-worst dive of all time in percentage terms.
The Dow Jones industrial average, meanwhile, jumped 300.01 points, or 2.8%, to 11,221.93 on Monday. Its gain would have been larger if not for the drop in Microsoft, whose shares sank $15.38 to $90.88 after settlement talks broke down between the software giant and the Justice Department.
With investor psychology worsening toward highflying tech stocks in recent weeks, the sector would have cratered Monday even without Microsoft, some experts said. Nasdaq slid 7.9% last week.
But the specter of problems for such a widely held company probably frayed the nerves of portfolio managers who already were willing to pull the trigger on the sector.
Certainly if Microsoft is severely penalized in its antitrust case, it is rational for its stock to plunge. But what of such bitter rivals as Sun Microsystems and Oracle, both of which also fell Monday?
“Ultimately, Microsoft’s problems should create opportunities for the Suns and Oracles and maybe AOLs out there,” said Thomas Galvin, strategist at Donaldson, Lufkin & Jenrette. “By the end of this week, I think we’ll get some filling back into those names. Technology still offers the best growth in town.”
Sun lost $3.89 to $89.81 on Monday, Oracle fell $1.19 to $76.88 and America Online eased 75 cents to $66.50. Among other tech giants, Yahoo fell $11.25 to $160.13, Qualcomm dropped $8.56 to $140.75 and Cisco Systems slid $4.38 to $72.94.
Some Wall Street analysts said Nasdaq could skid to as low as 3,800 or 4,000, which would mark a drop of as much as 25% from its peak. Given the speed with which markets swing these days, the bottom could come this week, they said.
However, tech stocks are unlikely to rebound immediately and could instead spend several months stabilizing before a new rally is possible, experts said. The downturn has saddled some investors, particularly individuals who funneled huge sums into aggressive-growth mutual funds in recent months, with sudden losses. It’s also chased away “momentum” investors who are unlikely to return to tech stocks until a new upturn is clearly underway.
“The process [of recovery] will take some time. I think that’s the real problem,” said Peter Canelo, strategist at Morgan Stanley Dean Witter.
Historically, a market index that skids 20% from its peak is said to be in a bear market. However, many on Wall Street are hesitant to declare Nasdaq to be headed for a bear market because the downturn follows such a dramatic surge.
Though it now clings to a 3.8% gain for 2000, the Nasdaq composite was up 24% this year at its peak after soaring 86% in 1999.
Many analysts have warned for months that Nasdaq was overdue for a sharp bout of profit-taking after its huge gains.
“It is a turbocharged valuation correction,” said Charles Pradilla, chief investment strategist at SG Cowen. “There’s no change in fundamentals for technology stocks. It’s just a matter of price.”
The selling gathered steam late in the day, though Nasdaq did bounce up slightly from the day’s low of 4,193 shortly before the close.
Although Nasdaq losers swamped winners by more than 3 to 1, trading volume of 1.7 billion shares was well below the peak of about 2 billion on some days last month. That might be a bullish sign if it indicates that the problem is more a lack of buyers than a massive number of sellers.
Some pros also were encouraged that major tech stocks could be so beaten up without taking the rest of the market down as far. The Russell 2,000 small-cap index fell 4.3%, while the S&P; 400 mid-cap index lost 3.9%.
“This was not a wholesale dumping of assets,” said Joseph Battipaglia, chief investment officer of Gruntal & Co. in New York.
As for the rally in beaten-down blue chips, A. Marshall Acuff, strategist at Salomon Smith Barney, said investors were evidently deciding that the “growth at any price” mantra that guided tech investing recently should be amended to “growth at a reasonable price.”
Hence, buyers snapped up drug, bank, retail and industrial shares that sell for much lower price-to-earnings ratios than tech shares.
Merck rose $4.63 to $66.75, Wal-Mart surged $4.69 to $61.19 and Caterpillar jumped $2.44 to $41.88.
Also helping those stocks: Treasury bond yields have fallen recently, and oil prices appear to have at least temporarily crested, said Robert W. Bissell, investment chief at Wells Capital Management.
Economist A. Gary Shilling, who heads a New Jersey research and money-management firm, is one who sees Nasdaq dragging the entire market down soon.
But Anthony F. Dwyer, strategist at Kirlin Securities in New York, noted that the day’s big gainers included many financial shares, such as J.P. Morgan, up $10 to $141.75. “If the bull market was over, would J.P. Morgan be up 10 points?” he asked.
Day’s Winners, Losers, C14-15
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Nasdaq Takes Some Off the Top
The Nasdaq composite index, which fell 7.6% on Monday, has surged in recent years. Monthly closes and latest:
Monday: 4,223.68
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Sources: Bloomberg News, Associated Press
