Interest Rate, Profit Worries Send High-Tech Stocks Lower
Stymied by concerns about interest rates and earnings, investors sold stocks lower Thursday, focusing once again on technology issues.
The latest blow for high-tech stocks was Merrill Lynch’s downgrade of the fiber-optic industry, which had been seen as the last solid performer in the tech sector. And investors were still shaken by the renewed prospect of higher interest rates that would further cut into corporate earnings.
Prices fluctuated in a narrow range for much of the day as the market sought a direction. By late afternoon, investors found a path: downward.
The Nasdaq composite index fell 133.61 points, or 4.2%, to close at 3,031.88, while declining issues swamped advancers by more than 2 to 1. The Standard & Poor’s 500 index was off 17.49 points, or 1.3%, at 1,372.32. Both indexes have a large representation of high-tech stocks.
The Dow Jones industrial average finished down 51.57 points, or 0.5%, at 10,656.03.
“You’re still seeing a lack of deep conviction on the part of the bulls,” said Ronald J. Hill, investment strategist for Brown Bros. Harriman & Co. “So the market seems to be driven by the news of the day.”
In Thursday’s news, Merrill Lynch analysts downgraded their ratings of several companies in the fiber-optic sector, citing high inventories that will cut into future sales.
Irvine-based Broadcom plunged $25.19, or 15%, to close at $144.50. PMC Sierra fell sharply, finishing down $18.13 at $113.
Meanwhile, investors fretted that higher interest rates in a slowing economy will increasingly pinch corporate profits.
Before the market opened, the government reported consumer prices rose a modest 0.2% in October as price drops for gasoline and air fares offset rising costs for medical care, clothing and natural gas. The data were further evidence pointing to a cooling economy.
But the Federal Reserve, influenced by high energy prices and uncertainty over how demand will affect prices during the winter months, warned Wednesday that inflation still poses a risk to the economy. The central bank disappointed investors who had bid stocks higher on hopes the Fed would be more inclined to lower interest rates as the economy slows.
Hill added that investors’ concerns about interest rates grew when the minutes of the Fed’s previous meeting Oct. 3 were released Thursday. The minutes showed that the Fed voted unanimously to maintain its position that inflation is still a threat.
Analysts have blamed the undecided presidential election for sending some stocks, primarily drug issues, lower. Pharmaceuticals, usually considered wise buys in an uncertain or bearish market, are generally down because the two candidates have differing views on prescription drug policies.
Merck fell $1.44 to $90.19. Johnson & Johnson closed off 81 cents at $94.19.
Recent sessions have been typical of end-of-year trading where volume is lighter and price moves can be magnified, Moore said.
Declining issues outnumbered advancers 7 to 5 on heavy volume on the New York Stock Exchange.
Among Thursday’s market highlights:
* Bonds rallied despite the uncertainty over the direction of interest rates. The yield on the benchmark 10-year Treasury note fell to 5.67% from Wednesday’s close of 5.71%. Traders said fixed-income investors are gaining confidence that the Fed may soon ease its tough stance against inflation, paving the way for lower interest rates.
* Shares of American Greetings plummeted $8.38 to $11.38--a loss of 42%--after the greeting card company said its fiscal third-quarter earnings would come in well below expectations and that it is cutting its dividend in half.
Market Roundup, C7-8
