Nasdaq Falls 189 as Tech Sell-Off Widens; Dow Up
Call it the Abby J. Cohen hangover effect: A steep drop in technology stocks yanked the Nasdaq composite index down almost 4% on Wednesday as investors grew worried about how richly priced stocks may fare over the next few weeks.
Another market guru, Templeton mutual funds’ Mark Mobius, added to the gloom with a warning about Internet stocks worldwide.
A day after Goldman Sachs market strategist Cohen, Wall Street’s best-known bull, suggested that investors pare their stock holdings modestly, sellers took control of Nasdaq and sent the index down 189.22 points to 4,644.67.
The decline, coming atop a 2.5% drop on Tuesday, was broad-based: Losing stocks outnumbered winners by an almost 3-to-1 margin on Nasdaq. Volume increased for a second day, reaching 1.7 billion shares, though that remained shy of peak levels earlier this month.
As money fled tech issues, however, some of it moved into “old-economy” stocks. The Dow Jones industrial average gained 82.61 points, or 0.8%, to 11,018.72, and winners topped losers by 16 to 13 on the New York Stock Exchange.
General Electric led the Dow higher, surging $7 to a record $163. Oil stocks also gained on optimism that OPEC’s planned production boost will stabilize prices at a still-high level.
Though it remains up 14% for the year, the tech-dominated Nasdaq composite is now down 8% from its March 10 record closing high.
Tech companies are widely expected to post strong first-quarter earnings, a belief that has grown in the last two weeks as a relatively small number of companies have issued profit warnings.
However, the good news is already built into stock prices, many experts argue, and institutional investors are anxious to lock in profits before the quarter ends Friday.
The Nasdaq sell-off “is not making a statement that the outlook for the economy is darkening,” said Hugh Johnson, investment chief at First Albany Corp. “This is primarily a shift from stocks with high price-to-earnings ratios to stocks that are more reasonably priced.”
Many market watchers said the selling is likely to continue, given the hyperbolic gains in many tech stocks since October. The Nasdaq index bounced back from two brief sell-offs in January and appeared on the verge of doing so again after tech stocks tumbled earlier this month.
However, the latest rebound came on notably slower share volume, and many “momentum” players were unimpressed by the rally. Sure enough, selling resumed Monday and appears to be building energy.
Some money managers say they wouldn’t be surprised to see Nasdaq drop back to 4,000 before stabilizing. “We could do that easily,” said Peter Anderson, chief investment officer at American Express Financial Advisors.
Some leading tech stocks have begun churning, or gyrating up and down, in some cases on heavy volume, Anderson said.
“We’re getting a ton of churning, and usually before you get a significant correction you get that kind of churning,” he said.
A decline to 4,000 would be a 14% drop from the index’s current level, and would be a 21% drop from the record high. Yet that would only take Nasdaq back to where it was at the beginning of February.
Of course, the losses in individual stocks could be far worse in a pullback.
Internet stocks in particular were hit hard Wednesday after Mobius, emerging-markets chief for Templeton mutual funds, told reporters in Paris that the recent mania for Net-related stocks worldwide may be giving way to a dramatic sell-off.
“If you look closely, it’s beginning,” he said. “Look at the number of Internet stocks that have come off their highs, look at the number of Internet stocks that are below their [public offering] issue price, and you begin to see this is beginning to happen.”
He said there is a “good chance” of a much steeper sell-off this year.
Alfred Goldman, a bullish strategist at A.G. Edwards, said tech stocks in general could be weak over the next week or two. But after that, large-cap tech stocks should reassert their leadership, he said. “When we close the books on 2000, the biggest winners will be the quality, big-cap tech companies,” Goldman said.
In other trading, Treasury bond yields ended mostly unchanged Wednesday, continuing the lethargic pace of activity that has kept yields in a narrow range for the last two weeks. The 30-year T-bond yield ended at 5.97%.
Among Wednesday’s highlights:
* Major tech stocks sliding included IBM, down $3.50 to $119; Dell, down $2.06 to $53.81; Oracle, off $4.06 to $82.50; JDS Uniphase, down $9.69 to $119.38; and Sun Microsystems, down $3.50 to $97.13.
Microsoft was an exception, rising $2.88 to $107.19 as investors speculated about a possible settlement in its antitrust case.
* Semiconductor stocks, one of the hottest groups so far this year, were particularly hard hit. Emulex dived $39.47 to $121.69, Texas Instruments slid $8.06 to $170.81 and Micron Technology lost $6 to $134.50. Intel fell $3.81 to $131.88.
* Mobius’ comments slammed Internet shares. EBay tumbled $24.81 to $199, Yahoo lost $17.94 to $177.06 and Inktomi dropped $23 to $182.
* Biotech shares, which led Nasdaq’s slide earlier this month, were hammered again. Abgenix slid $25.31 to $159.44, Millennium Pharmaceuticals lost $23.38 to $118.75 and Incyte fell $20.81 to $82.50.
* Old-economy blue chips gaining as tech shares slumped included Coca-Cola, up $2 to $46.88; Warner Lambert, up $3.19 to $96.38; and McDonald’s, up $1.69 to $36.81. Major retailers also gained. Home Depot leaped $4.06 to $68.06 and Wal-Mart jumped $4.25 to $58.75. Both are Dow stocks.
* On the downside, financial issues failed to join the old-economy rally. Wells Fargo fell $1.25 to $39.44, Bank of America lost $1.56 to $52 and E-Trade fell $1.19 to $29.50.
* Among Southland issues, Matthews Studio Group was halted at 94 cents a share, down 9.4 cents for the day, after the company said it ended talks to sell its Four Star Lighting unit, and that it may consider filing for bankruptcy.
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Market Roundup, C10
