Nasdaq Tumbles Into a Bear Market
Nasdaq officially fell into a bear market Wednesday as the composite index plunged for a third day amid escalating selling of technology stocks.
The index dived 286.27 points, or 7.1%, to 3,769.63, closing at its low for the session as trading volume surged to 1.9 billion shares.
With the latest decline, Nasdaq has tumbled 25.3% from its record closing high of 5,048.62 set March 10. An official bear market is usually defined as a drop of 20% or more from the market’s peak levels.
Measured using daily closes, Nasdaq hasn’t fallen this hard since late-summer 1998, when the Russian debt default caused markets to crumble worldwide. Over 57 trading days in that period, the Nasdaq composite lost 29.5%.
Nasdaq’s latest slide weighed heavily on investors in Asia today. There, as on Wall Street, technology stocks had been the hot names to own from January through early March. Taiwan’s main share index slid 2.5% today, and at midday the Hang Seng index in Hong Kong was down 1.6%, bringing its decline from its March 28 peak to 10.9%.
In Tokyo, the Nikkei-225 index was off 1.9% at midday.
As on Tuesday, the broader U.S. market held up relatively well Wednesday, though Nasdaq’s deepening losses as the day wore on pulled the Dow Jones industrial average down from a 138-point gain to a 161.95-point, 1.4%, loss by the close to 11,125.13.
Although losers swamped winners by 33 to 10 on Nasdaq, the sides were about even on the New York Stock Exchange as many “old-economy” stocks continue to attract money flowing out of plummeting tech stocks.
In the tech sector, investors are bailing out of virtually every industry group, from networking stocks to biotech shares to software to anything Internet-related.
Wednesday’s selling was particularly heavy in many of the tech sector’s biggest names--led by Microsoft, which slumped $4.50 to $79.38 after a well-known analyst trimmed his revenue estimates for the software giant.
Until the last few days, the biggest tech stocks had held up well compared with many smaller names. That ended Wednesday. Cisco Systems slid $5, or 7.1%, to $65, equaling Nasdaq’s percentage decline. Sun Microsystems plunged $7.88 to $80, a 9% drop, and Qualcomm lost $12.31 to $125.13, also a 9% drop.
The spread of selling to the biggest names suggests many investors are throwing in the towel on the tech sector in the near term.
“If investors think there’s a prick in the bubble, that gives them a reason to get out of some stocks that are making them nervous anyway,” said Robert M. Balentine, chief executive of investment advisory firm Balentine & Co. in Atlanta.
Yet Nasdaq trading volume remains well below its record levels of recent weeks and far below the single-day record of 2.8 billion shares set April 4, when the composite index plummeted 13.6% in the first few hours only to rebound.
Many Wall Street pros fear a much more dramatic “capitulation” day is approaching, when the volume record will be broken again, but this time without a late-in-the-session rebound.
Still, even an additional 25% decline in the Nasdaq composite from Wednesday’s close would return it only to its levels of October--and it would still be up about 5% from a year ago.
That’s a measure of the extent of the tech sector’s rally over the last year, as individual and institutional investors alike have come to view tech as the single best industry to own long term, pushing the stocks’ valuations to record highs.
But with the Nasdaq index down 7.4% year-to-date, it remains to be seen how many of those investors are truly committed to tech stocks for the long haul, analysts say.
Even as tech share prices drop, the stocks’ valuations remain far above what is afforded most other stocks. That may explain why, at least for now, even better-than-expected earnings at many tech companies aren’t impressing investors who’ve suddenly rediscovered how to calculate a price-to-earnings ratio.
Internet portal Yahoo, for example, on April 5 reported earnings that topped estimates. But its stock has fallen 18% since, to $136.19--and still is priced at 358 times this year’s expected earnings per share of 38 cents.
Among Wednesday’s highlights:
* First-quarter earnings reports continued to boost the old-economy sector far more than the “new-economy” tech sector. Avon Products, for example, zoomed $5.63 to $34.94 after saying quarterly earnings will beat estimates.
Also, J.P. Morgan gained $1.94 to $136.69 after saying it earned $3.37 a share in the first quarter, well above analysts’ estimates of $2.81 a share.
In the energy sector, Enron jumped $2 to $71.13 after reporting first-quarter earnings of 40 cents a share, versus an expected 37 cents.
* Among other old-economy stocks, American Express rose $5.56 to $150.75, DuPont gained $3 to $62 and Caterpillar jumped $1.38 to $43.44.
Other strong sectors included trucking stocks and paper stocks.
* Tech losers included Compuware, which tumbled $8.13 to $11.94 after the maker of software for managing corporate networks said it expects fiscal fourth-quarter earnings of 13 cents to 15 cents a share, short of the 35-cent average estimate reported by First Call.
Also in the software sector, Adobe Systems fell $7.44 to $112.06, SAP slid $3.88 to $50 and Oracle sank $4.25 to $73.13.
* Internet-related stocks continued their sharp slide, with EBay down $12.19 to $143.38, Inktomi down $12.06 to $123 and Juniper Networks off $19.13 to $204.13.
* Among chip stocks, Intel slid $8.88 to $121.88, Texas Instruments lost $9.50 to $140.50 and Vitesse slumped $8 to $76.
* Biotech issues also fell further, with Protein Design Labs off $3.31 to $84, Immunex down $6.25 to $54.94 and Affymetrix down $4.38 to $103.63. But Biogen inched up $2.13 to $55.13 after diving in recent days on a disappointing earnings report.
Day’s Winners, Losers, C9-C10
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Associated Press was used in compiling this report.
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* TECH EARNINGS
Many firms beat estimates, but investors aren’t necessarily impressed. C3
