Merger Remorse, Surging Bond Yields Depress Stocks
Surging bond yields and ebbing enthusiasm for the AOL-Time Warner mega-merger proposal weighed on stocks Tuesday, as indexes reversed early advances and Internet shares led the Nasdaq composite in a steep decline.
The Dow Jones industrial average fell 61.12 points, or 0.5%, to 11,511.08, after having risen as much as 90 points.
Nasdaq fell 128.48 points, or 3.2%, to 3,921.19. The technology-dominated index has swung more than 100 points in five of seven sessions so far this year, a sign of extraordinary volatility. Last year it recorded a stream of record highs en route to an unheard of 86% climb.
The blue-chip Standard & Poor’s 500 fell 19.04 points, or 1.3%, to 1,438.56, while the Russell 2,000 index of smaller companies fell 9.28 points, or 1.8%, to 492.61.
Stocks slumped as the yield on the 30-year Treasury bond soared to a 28-month high of 6.67% from 6.58% the day before. The bond market weakness was spurred by increasing concerns that the economy’s robust growth will force the Federal Reserve to raise interest rates at its next meeting Feb. 1 and 2.
Rising bond yields can make it difficult for stocks to advance, in part because they can present an appealing alternative to investors looking for stable returns.
Net stocks, which buoyed the market Monday in response to the AOL-Time Warner accord, mostly fell Tuesday as investors collected profits.
AOL dropped $8.63 to $64, after declining more modestly Monday. Analysts said investors were struggling with the notion that AOL, a highflying Internet leader that has commanded premium stock prices, will now behave more like a traditional media company.
Time Warner fell $6.25 to $86.
Other media stocks were mixed: News Corp.’s U.S. shares dipped $1.25 to 43.81, Seagram added 75 cents to $54.75, Walt Disney added 38 cents to $36.25, Viacom eased 19 cents to $58.81 and Sony’s U.S. shares skidded $17.50 to $232.50.
Yahoo tumbled $38.69 to $397.38 in advance of its earnings announcement, which beat forecasts but disappointed some jaded investors. In extended trading, shares fell to $382.50 on Instinet.
Elsewhere in the tech sector, Excite@Home skidded $3 to $37.13, Broadcom dived $27.56 to $268, EarthLink Network rose $3.94 to $47.63 and Cisco Systems slumped $3.31 to $106.50.
Declining issues outnumbered advancers by a 2-1 ratio on the NYSE. Trading volume was heavy all around, with Nasdaq notching its fourth-busiest day ever.
Big stocks across a spectrum of industries declined. Microsoft dropped $2.88 to $109.38, Home Depot fell $1.63 to $61.56 and J.P. Morgan lost $2.75 to $117.56.
Qualcomm, whose 27-fold increase was the biggest in the S&P; 500 last year, fell $14.94 to $144.44. The shares have sagged 18% in 2000.
“In the fourth-quarter of last year, you had companies reach valuation levels that just aren’t sustainable. That applies to Qualcomm,” said Gregg Summerville, a money manager in Columbus, Ind.
But the broader market managed to show pockets of strength.
Intel rose $3.94 to $89.69 after Credit Suisse First Boston raised its rating on the stock to “strong buy.”
“There’s talk about increased PC demand throughout the world,” said Dan Mathisson, head stock trader at D.E. Shaw Securities. “The semiconductors stand to benefit tremendously regardless of who’s making the machines.”
Last week Gartner Group’s Dataquest unit said worldwide sales of semiconductors rose 18% in 1999 and will increase faster this year.
Coca-Cola rose $2 to $60.81, also benefiting from an upgrade to “strong buy” from CS First Boston.
Among other highlights:
* Bank One, citing continuing weakness in its credit card business, eased 25 cents to $30 after saying it expects earnings for 2000 to fall well short of Wall Street expectations.
Despite the bond market’s slump, the financial sector was not bludgeoned. Wells Fargo lost 63 cents, but Citigroup advanced $1.13 to $53.13 and American Express gained $1.44 to $156.
* International Paper fell $2.69 to $55.81 after saying fourth-quarter profit from operations rose to 55 cents a share, higher than analysts expected but disappointing to some investors.
“We’re at a point in the commodity price cycle where International Paper and the other paper companies should be blowing away estimates to the upside,” said Morgan Stanley analyst Matthew Berler, who rates the company “neutral.”
* Compuware rose $1.25 to $24.56 as the maker of software to manage corporate computer networks said quarterly profit will exceed expectations.
* Juno Online Services climbed $3.63 to $41.63 after the Internet service provider said revenue more than doubled.
* Southern California stocks on the move included Thousand Oaks-based HomeStore.com, which catapulted $19.81 to $90.81; Camarillo-based Vitesse Semiconductor, which dropped $4.38 to $45.13; and Costa Mesa-based QLogic, which slid $19.25 to $147.25.
* Overseas, Japan’s Nikkei stock average zoomed 3.6%, while indexes in Europe and Latin America mostly declined.
Market Roundup, C8
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Pushing 7%
The yield on the 30-year Treasury bond is nearing the 7% level for the first time since 1997:
Tuesday:
6.67%
