Nasdaq Off 4.7% as Tech Sector Plunge Deepens
Technology stocks skidded on earnings worries for a third straight day Friday, pulling the Nasdaq composite index down 10.5% for the week--its worst week since the 25% plunge of mid-April.
The tech-stock carnage raised fears that Nasdaq could slide all the way back to its May lows, obliterating what had been a remarkable recovery.
The Nasdaq index slumped 179.23 points, or 4.7%, on Friday to 3,663.00, leaving the tech-heavy barometer less than 500 points above its May 23 closing low of 3,164.55.
For the year, Nasdaq is down nearly 10%.
The Dow industrial average dropped 74.96 points on Friday, or 0.7%, to 10,511.17, and the Standard & Poor’s 500 dipped 2%.
Market breadth, or the ratio of falling stocks to advancing stocks, continued to be very lopsided Friday. Losers outnumbered gainers 2 to 1 on the Big Board and by almost 3 to 1 on Nasdaq, in active trading. Technical analysts consider the flagging breadth a worrisome sign that suggests investors are jettisoning a broad range of stocks.
Seemingly conflicting concerns weighed on investors’ minds. Before the trading day opened, the federal government reported that gross domestic product grew at a 5.2% annual rate in the second quarter, far faster than expected.
Government spending and inventory growth were the main factors behind the strong GDP number. Economists noted, however, that those areas of strength were more than balanced by a benign inflation reading and slower-than-expected growth in consumer spending.
Still, the market reacted negatively to the GDP report, with analysts citing fears that the Federal Reserve would be dissatisfied with its progress in slowing the economy and would bump interest rates up another notch at its Aug. 22 meeting.
Treasury bond yields rose for the day, albeit modestly.
The flip side of rapid-growth concerns is that stock investors continue to hear more companies warn that second-half sales and earnings may not meet expectations. Such tech giants as WorldCom, Nokia and Xerox issued warnings this week to that effect.
One of Friday’s biggest losers was American Power Conversion, which plummeted $20.69, or 44%, to $25.81. The maker of electrical surge suppressors for computers said third-quarter earnings would come in well below analysts’ estimates because of softening sales.
Cable TV giant Cox Communications fell $7.87, or 18%, to $36 after saying higher marketing expenses would cause it to fall short of the most optimistic cash-flow forecasts for 2000.
John Roque, analyst at Arnhold & S. Bleichroeder in New York, said he expects the Nasdaq to keep sliding to the 3,400 level. If it fails to hold there, he said, it could drop to the 3,000 range.
Before Nasdaq can mount a new rally, the market’s complacency needs to be shaken, Roque said. Another 10% to 15% drop probably would do the trick, he said.
More optimistic was Alan F. Skrainka, chief market analyst at Edward Jones in St. Louis.
“Breadth will improve when investors understand that the economy is coming in for a ‘soft landing,’ ” Skrainka said.
The weakness in tech stocks stems from the market’s realization that the group remains overvalued even after the beating the stocks have taken over the last few months, Skrainka said. Long term, he is still bullish on tech, though he expects Nasdaq to finish the year with little or no net gain.
He recommended picking up such old-line growth stocks as Johnson & Johnson, which did not get bid to the stratosphere during the tech-stock frenzy of last winter.
But even some non-tech firms have warned about earnings. Upscale retailer Nordstrom fell $4.06, or 18%, to $18.12 Friday on news that its second-quarter earnings would be below expectations.
In the battered tech sector, wireless phone giant Nokia rebounded $2.75 to $43.81 after diving 26% on Thursday after its earnings warning. The company said it would buy back up to 36 million shares of stock.
Market Roundup: C4
