Slower PC Sales Drag Stocks Down

Reports of slowing personal computer sales slammed the stocks of PC makers and helped drag down the whole technology sector on Monday, sending the Nasdaq composite index below 4,000 for the first time since July 11.

Nasdaq fell 112.88 points, or 2.7%, to 3,981.57, with computer makers such as Dell Computer and Apple Computer among the biggest losers.

The Dow Jones industrial average dipped 48.44 points, or 0.5%, to 10,685.12. It was supported by drug stocks--mainly Merck, which surged $5.81 to $69.56 after reporting better-than-expected earnings.

In commodities trading, oil futures slid again on speculation that other OPEC countries may join Saudi Arabia in pumping more oil.

On Wall Street, analysts noted that the sharp Nasdaq rally of early July showed signs that the market was beginning to broaden, with more than just a handful of big-name stocks participating in the gains.

But that process seems to have fizzled in the last few days of trading. Overall, falling stocks outnumbered rising issues by a lopsided 2 to 1 on Nasdaq Monday and by about 3 to 2 on the New York Stock Exchange in moderate trading.

Scott Bleier, chief investment strategist at Prime Charter in New York, believes the market may have entered a summer slowdown in which the Nasdaq composite will bounce between 3,800 and 4,200 for the next month.

Gregory Nie, technical analyst at First Union Securities in Chicago, said that after a few “somewhat lame attempts by the bulls” to propel the indexes higher, the market is now vulnerable to succumbing to frustration.

Technology company earnings--and prospects for near-term growth--may be a key source of frustration.

Late last week, earnings warnings from Lucent Technologies and Agilent Technologies helped drive tech stocks overall lower.

On Monday, reports from research firms Dataquest and International Data showing that domestic PC sales slowed markedly in the second quarter--although overseas sales stayed strong--added to concerns about the tech sector.

Dell slumped $5.94 to $46.44 and Apple dropped $4.88 to $48.69. Other losers among computer makers included Gateway, down $4.25 to $58.63, and IBM, down $2.25 to $112.50.

Among other tech issues, Yahoo lost $5.75 to $132.56, Broadcom gave up $5.31 to $224.63 and Cisco Systems was down $2.06 to $66.06.

Analysts noted that the market’s rally from its May lows was in part predicated on the idea that the economy would slow enough to preclude further interest rate increases by the Federal Reserve, but not enough to significantly damage corporate sales and earnings--especially in high-growth sectors such as technology.

Now, investors are being forced to question whether earnings are more threatened than had been believed.

Even so, second-quarter earnings growth for the average blue-chip company still looks robust--about 22% over the year-earlier quarter, according to earnings-tracker First Call/Thomson Financial.

Once earnings season winds down, the Federal Reserve’s next scheduled meeting on interest rates comes Aug. 22. It could be well timed to give the market a boost out of the doldrums if the Fed decides not to hike rates, Bleier said.

Monday’s trading in near-term oil futures took the price of a barrel of crude down 54 cents to $28.02 in New York, the lowest level since May 5.

Selling was fueled in part by a report by the Middle East Economic Survey on Monday that the United Arab Emirates and Kuwait may join Saudi Arabia and raise output discreetly without formal agreement from the Organization of Petroleum Exporting Countries.

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Market Roundup: C14-15