Nasdaq Leaps on Volume Surge
Another powerful rally in technology and telecom stocks swept the Nasdaq market to a record finish Tuesday in the second-heaviest trading ever.
The surge in buying demonstrated again that many investors believe they can’t pay too high a price for tech stocks--despite warnings from Wall Street veterans that many share values are far beyond the danger zone.
The Nasdaq index rocketed 105.73 points, or 2.5%, to a record 4,427.50, leaving it up 8.8% year-to-date after surging 86% last year.
The broader market also rose Tuesday, but gains in other major share indexes paled compared with Nasdaq. The Dow Jones industrials added 51.81 points, or 0.5%, to 10,957.60. The Russell 2,000 small-stock index rose 1%.
Trading volume on Nasdaq totaled about 1.9 billion shares, second only to the Jan. 24 session.
Analysts said a spark for Tuesday’s rally was news that U.S. worker productivity zoomed in the fourth quarter. That could help keep inflation worries at bay.
At the same time, productivity gains have largely been attributed to workers’ use of new technology--which seems to stoke the outlook for many tech companies’ sales and earnings.
Although the Nasdaq index has endured wild swings in recent weeks, it has now advanced for seven straight sessions. The recoveries of many tech stock leaders from sharp declines early in January have reinforced the notion that these stocks never stay down for long.
Intel, for example, closed Jan. 3 at $87, only to tumble to $78.75 by Jan. 6. On Tuesday, the stock hit a new high, rising 88 cents to $108.81.
Small investors--both traders and buy-and-hold types--continue to be a key driving force in the tech stock rally.
Nasdaq Stock Market data show that, as trading volume has rocketed, the average size of Nasdaq trades fell to 697 shares in January, down from 909 shares a year earlier.
That decline is largely a result of the surge in smaller orders from individual investors over the last year, experts say.
And the action overall is only getting hotter: Nine of the 10 biggest trading days in Nasdaq history have come this year.
John M. Hickey, Nasdaq’s chief technology officer, said the market has been busy adding more computer capacity and at the moment has sufficient “headroom” to cope with peak trading traffic at the daily opening of the market.
Among the hottest Nasdaq issues Tuesday were Vitesse Semiconductor, up $5.88 to $50; Advanced Fibre Communications, up $7.44 to $55; Electronic Arts, up $6.25 to $88.13; biotech firm Immunex, up $27.50 to $187.94; and Marketwatch.com, up $5 to $45.
But with each new surge in tech stocks, many analysts say the risk also grows. Richard Cripps, chief equity strategist at investment firm Legg Mason in Baltimore, said the stock market overall appears “very unbalanced,” with even the momentum in Nasdaq showing signs of “toppiness.”
The number of Nasdaq stocks reaching new highs, for example, has been lower than would normally be expected in a market whose chief index is setting record after record, Cripps said.
And more than ever, Nasdaq is “the only game in town, but its gains are coming at the expense of the rest of the market,” he said.
The 50 biggest stocks in the Standard & Poor’s 500, which include many of Nasdaq’s top technology stars such as Microsoft, Intel and Cisco Systems, are trading at an average price-to-earnings ratio of 75, Cripps noted.
Meanwhile, the average P/E for the 1,800 stocks tracked by Value Line is 14.5, he said--a sign of just how ignored the rest of the market has become.
But some investors say there’s good reason to focus on the scores of exciting tech and telecom companies at the expense of many other stocks.
Indeed, former Wall Street darling Nike on Tuesday warned that its earnings growth may lag expectations because of problems at some of the retailers that sell its apparel. The stock plunged $8.25 to $37, and remains far below its peak of more than $74 in 1997.
Philip Morris, another Wall Street favorite for much of the ‘80s and early-’90s, has collapsed under the weight of worries over cigarette-related litigation. The stock fell $1.06 to $19.50 on Tuesday, lowest since 1995.
By contrast, computer networker Cisco on Tuesday said its quarterly earnings soared 49%.
Still, Cripps believes that a sharp Nasdaq correction is coming and that it likely will be sparked not by an external event, such as a foreign political crisis or a hedge fund collapse, but by an “internal technical failure,” such as a much-touted initial public offering that falls short of its hype or a popular stock that has an earnings disappointment or other business reversal.
“It’s like trying to predict the weather in the Northeast,” he said. “You know a snowstorm is coming, it’s just not in the forecast now.”
In other market action on Tuesday, bond yields ended mixed as the Treasury sold new five-year notes at an average yield of 6.74%. Longer-term yields fell, however, reacting in part to the favorable productivity report.
The 30-year T-bond yield slid to 6.23% from 6.34% on Monday.
Bank and financial stocks rebounded as yields fell. Citigroup gained $1.63 to $56 and Merrill Lynch jumped $3.06 to $97.06.
Other strong sectors apart from tech and telecom included biotech, retailers and utilities.
Market Roundup, C8
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PACKING A PUNCH
Productivity grew at a torrid 5% pace in the fourth quarter of ’99. A1
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Small Trades Fuel Nasdaq
The average size of trades on the Nasdaq market has plunged in recent years, which traders say reflects the surge in activity by small investors bidding tech stock prices higher. Average trade size by month:
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January: 696.98 shares
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Source: Nasdaq
