Nasdaq Gets Hammered Again as Techs Slump
Not so fast, Nasdaq.
The sharp rebound in many tech stocks late last week gave way to fresh selling on Monday, driving the Nasdaq composite index down 258.25 points, or 5.8%, to 4,188.20.
It was the second-biggest one-day point drop in Nasdaq history. The record was posted exactly one week earlier, when the index plunged 349.15 points, or 7.6%--setting the stage for the dramatic dive, then rebound, in many tech shares last Tuesday.
Though Monday’s slump occurred amid very light trading volume--just 1.45 billion shares changed hands on Nasdaq, compared to more than 2 billion on a normal busy day--the action was a warning that profit-taking may not yet have exhausted itself in the highflying tech sector, analysts said.
Among tech leaders, Qualcomm slid $11.06 to $141.19, Intel fell $5.69 to $131.13, Sun Microsystems lost $7.81 to $91 and EBay plunged $25.19 to $155.69.
“The technology sector has begun an important corrective trend,” said Richard McCabe, Merrill Lynch’s chief market analyst. The recent decline “is not a brief, random event, but the beginning of a longer-lasting change,” he argued.
Other analysts were more bullish. But most believe the volatility that has racked the tech sector may not let up in the near term.
Monday marked the 20th time this year Nasdaq had moved as much as 3% in a day. That matched the record number for all of last year.
Meanwhile, what was bad for “new-economy” tech stocks was again good for “old-economy” shares, including banks, paper companies and drug firms. Those sectors helped lead the Dow Jones industrial average higher Monday; it gained 75.08 points, or 0.7%, to 11,186.56.
But most stocks ended lower. Nasdaq losers swamped winners by 29 to 12, while losers had an 8 to 7 edge on the New York Stock Exchange.
There was no specific trigger for Nasdaq’s broad sell-off, traders said. The market started the day moderately lower, but selling accelerated--or buyers disappeared--as the session wore on.
Biotech stocks--particularly in the genome-research area--were among the biggest casualties.
P-E Corp.’s Celera Genomics unit slumped $30.38 to $100 after the scientist running a rival project to decode human DNA questioned Celera’s claim that it has completed 99% of the task. The company’s shares soared 24% last Thursday on its announcement about its progress in decoding the human genetic makeup.
John Blake, technical analyst at Eakle Associates in Fair Haven, N.J., said he’s still waiting for a real “capitulation” sell-off of tech stocks, the sort of abandon-all-hope trading session where losers outnumber gainers by 20 to 1 or more on spectacular volume.
Last Tuesday’s 574-point, 13.6% intraday plunge in the Nasdaq index was ugly, all right, but it didn’t really qualify, from Blake’s standpoint. Too many stocks held up reasonably well, he said.
“Everybody’s still buying on dips,” Blake said. “They’re still very optimistic.”
Blake expects Nasdaq to ratchet downward, perhaps to as low as 3,600, which would set the stage for a late-spring rally.
Gary Anderson, strategist for Anderson & Loe in Eugene, Ore., is less sanguine. “Just because the fish is still flopping around on the deck doesn’t mean it’s not going to die,” he said, referring to the one-day spurts that have characterized both Nasdaq and the Dow in recent weeks, as investors have jumped from tech stocks to blue chips and back again.
“Money is trying to figure out where to go to stay in the game,” he said, “but they may finally figure out that there is no place to hide.”
The bear market that Anderson expects could come in waves, with a few days like last Tuesday when stocks get oversold, followed by an interlude of calm as the damage gets repaired, followed by another, deeper downturn.
Many tech-sector bulls, however, expect buyers to return to the stocks as companies report first-quarter earnings. But a better-than-expected report from Yahoo last Wednesday has failed to help that stock, which fell further on Monday, off $9.19 to $141.94.
Among Monday’s highlights:
* Microsoft fell $3 to $86.06, giving back almost all of Friday’s 3.6% advance, on continued concern about the government’s antitrust suit against the company.
Other tech losers included software maker I2 Technologies, down $28.88 to $108.06; and Intuit, down $9.31 to $41 on concern that the top maker of personal-finance software will fall short of analysts’ estimates for fiscal third-quarter profit because of slower sales of its accounting software.
* Internet stocks were sharply lower in general. Inktomi lost $19.63 to $161.25 and About.com fell $8 to $48.38.
* Among old-economy names, GM rose $1.38 to $86 after analyst Rod Lache at Deutsche Banc Alex. Brown raised the world’s largest auto maker to “buy” from “market perform” and said he expects the shares to reach $107. His time frame wasn’t immediately available.
* International Paper surged $3 to $42.63. Analysts expect the world’s biggest paper maker to report today that first-quarter profit rose to 58 cents a share, compared with 14 cents in the same period last year.
* The Standard & Poor’s financial-stock index rose 2.7%. J.P. Morgan gained $4.69 to $134.56; it is scheduled to report earnings today. The bank said last month it was well ahead of its fourth-quarter profit, citing “very strong” investment banking momentum.
Utilities and real estate investment trust shares also were strong on Monday. The Dow utilities stock index jumped 2.1%.
* On the down side, Philip Morris fell 50 cents to $22. A Florida jury Friday said the company and other cigarette makers should pay $12.7 million to two cancer-stricken smokers and the family of a third as part of a massive class-action lawsuit.
Day’s Winners, Losers, C14-15
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Tech Valuations: A Different Yardstick
PaineWebber noted Monday that software maker Citrix Systems trades at a lower valuation than many of its technology-sector peers based on “PEG ratio”--which compares a company’s stock price-to-earnings ratio with its expected earnings growth rate. A sampling of tech-stock PEG ratios, as calculated by Bloomberg News:
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Est.Est.Est. Ticker Mon.P/E3-5-yr. PEG Companysymbol closeratio growth ratio* JDS UniphaseJDSU$110.1329844.3 6.7 CienaCIEN113.0021032.5 6.5 PMC-SierraPMCS178.2524440.0 6.1 BroadcomBRCM194.5027446.7 5.9 YahooYHOO141.9432955.9 5.9 OracleORCL82.5012925.4 5.1 Cisco SystemsCSCO72.5614129.8 4.7 Veritas SoftwareVRTS113.0023249.5 4.7 QualcommQCOM141.1913437.7 3.6 IntelINTC131.134519.7 2.3 Citrix SystemsCTXS83.699944.3 2.2 MicrosoftMSFT86.065124.4 2.1 S&P; 500 index 1,504.462715.2 1.7
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* To calculate a company’s PEG ratio, Bloomberg divides its estimated price-to-earnings ratio for the current fiscal year by its annualized earnings per-share-growth over the next three to five years. All numbers are rounded.
Sources: Bloomberg News, Zacks Investment Research
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Old Versus New
“Old-economy” stocks such as electric utilities continued to rise Monday as “new-economy” technology shares slumped again. Daily closes for the Standard & Poor’s electric-utility index versus the Amex Internet infrastructure stock index:
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Source: Bloomberg News
