Dow Advances, but Nasdaq Ends Lower
Blue-chip stocks rebounded Wednesday in another wild session on Wall Street, but many technology shares continued to struggle, leaving some market watchers to wonder whether 1999’s hottest sector is in for a serious and extended pullback.
Earnings warnings from key software and computer firms during the trading day and after the close caused several strategists to predict that the tech sell-off would continue today.
The Dow Jones industrial average gained 124.72 points, or 1.1%, to 11,122.65, recouping about one-third of the 359-point loss suffered Tuesday amid rising worries about interest rates and pent-up profit-taking as the new year began.
Broader blue-chip indexes were up more modestly Wednesday, with utility, oil and paper stocks among the day’s biggest winners as some investors hunted for alternatives to tech stocks.
Meanwhile, the tech-heavy Nasdaq composite index, amid huge trading volume and continued extraordinary volatility, fell 24.23 points, or 0.6%, to 3,877.55, after Tuesday’s record 229-point plunge.
More than 1.7 billion shares changed hands on Nasdaq, for the market’s second busiest day ever.
Things looked far worse for Nasdaq early in the day. Within the first hour of trading, the index had fallen 166 points, or 4.3%, with such stellar performers as wireless-equipment maker Qualcomm and Internet portal Yahoo leading the retreat.
The rest of the day saw a steady recovery, with the index even creeping into positive territory before backing off near the close. The number of stocks rising topped those falling on both Nasdaq and the New York Stock Exchange.
The bond market, after a strong rebound Tuesday from a severe plunge Monday, sold off again on Wednesday. The 30-year U.S. Treasury bond yield rose to 6.62%, up from 6.53% on Tuesday.
Analysts said resurgent blue-chip stocks may have reminded investors that bonds aren’t the only alternative to whipsawing technology stocks.
Elsewhere, European stocks were down across the board Wednesday, continuing their reaction to Tuesday’s Wall Street debacle, but Latin American shares rose in sync with the Dow.
Wednesday’s splashiest tech loser was BMC Software, down a staggering $27.44, or 36%, to $49.56, on Nasdaq. BMC, which makes computer-management software for big firms, announced before trading opened that its fiscal third-quarter profit would fall well short of expectations because of poor performance in North America.
After the close, another earnings bomb was dropped by Gateway, which warned of weaker fourth-quarter earnings because, it said, businesses had cut back on personal-computer orders out of concern for potential Y2K problems.
Analysts said the Gateway announcement would have greater impact on investor sentiment toward tech shares than BMC’s. BMC was punished so severely because its surprise announcement followed reassurances on Nov. 22 that profit was on track, said Charles L. Hill, director of research at earnings tracker First Call Corp.
But Gateway’s warning spotlighted an industrywide--though temporary--problem and thus will probably spill over to other computer makers. In fact, shares of rivals Dell Computer and Compaq Computer fell along with Gateway in after-hours trading Wednesday.
Gateway slumped $8 to $55. Dell, which had gained $3.31 to $49.94 in regular trading, fell to $47.25 after hours. Compaq eased 50 cents to $28.50 in late trading.
Technology companies have already issued more negative earnings warnings than is typical for this time of year, Hill said, but he added that tech still looks to be the champion sector for profit growth in 2000, as it was in 1999.
Analysts are projecting 28% growth in technology profits overall this year, on top of about 30% growth projected for 1999.
Three of the 11 industry sectors in the Standard & Poor’s 500 index have higher 2000 earnings growth projections than tech does, Hill said, but those three are rebounding from depressed 1999 results: energy, projected to be up 39%; basic materials, up 36%, and transports, up 29%.
But after the spectacular surge in tech stocks last year, which lifted the Nasdaq index 86%, the question dogging the tech sector is whether the stocks already have priced in great 2000 earnings.
That may have turned some buyers to heavy-industry issues instead on Wednesday. Exxon Mobil jumped $4.19 to $81, Alcoa leaped $4.69 to $86 and paper company Champion International surged $4.56 to $63.63.
In the tech sector, IBM attracted buyers, rising $3.94 to $116. But many other tech issues weakened further. Motorola slid $3.63 to $134.25, Yahoo tumbled $32.50 to $410.50 and Qualcomm ended down $5.63 at $156.44 after falling as low as $139.
The crack in the tech sector may have halted its momentum temporarily, but few strategists are ready to throw in the towel for good.
“People with big winnings [from 1999] decided to take some profits, but you’re not going to break a group that is leading the country into the second industrial revolution,” said Alfred E. Goldman, strategist for A.G. Edwards.
Goldman acknowledged that the stock market is extremely “narrow,” meaning that a relatively small number of issues are making gains while the majority are treading water at best. However, he added, “plenty of markets have been narrow in the past and lasted that way for years.”
Arthur Hogan, market analyst for Jefferies & Co., said of the tech issues: “I don’t think they’ve broken, but they’ve got some bending to do.”
Even in the high-priced tech sector, there will be bargain hunters ready to swoop onto stocks that slip, he said, noting that January is when many investors spend year-end bonuses and make retirement-fund contributions.
More pessimistic about the group was Anthony F. Dwyer, chief strategist for Kirlin Securities in New York. “A 5% correction is nowhere near enough to eradicate the excesses,” he said.
Market Roundup, C8
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RED FLAGS
Gateway, BMC shares sink after firms warn of lower profits. C3
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Clawing Back
After diving 229 points on Tuesday, the Nasdaq composite index sank further early Wednesday, then rebounded, though it still ended down 24.15 points. The day’s trend:
