Nasdaq Takes Its Lumps Again; Bond Yields Fall on GDP Report

Wall Street’s “anything-but-tech” attitude hardened Wednesday, as the Nasdaq composite index fell for the eighth time in nine sessions, while many non-tech sectors surged.

Worse, a dismal sales forecast by personal computer maker Gateway Inc. after trading ended Wednesday could produce another Nasdaq selling wave today, traders warned.

In the bond market, Treasury yields plunged Wednesday in the wake of a report on slower-than-expected third-quarter U.S. economic growth.

On Wall Street, the Nasdaq index fell 28.05 points, or 1%, to a 13-month low of 2,706.93, after an early rally faded. Still, the index closed above its worst levels of the day: It had fallen as low as 2,642.

Losers topped winners by 2 to 1 on Nasdaq in heavy trading of more than 2 billion shares.

But what was bad for tech was good, again, for many non-tech stocks. Rallies in such sectors as food, drugs, defense and insurance pushed the Standard & Poor’s 500 index up 0.4% for the day.

The Dow industrials surged 121.53 points, or 1.2%, to 10,629.11. Rising stocks outnumbered falling issues by 15 to 14 on the New York Stock Exchange.

Nasdaq’s continuing slide--which now has taken the index down 46% from its March 10 all-time high--reflects investors’ growing fear that tech companies’ earnings will slow dramatically in a weakening economy, analysts say.

The Gateway announcement will only deepen those concerns, many experts said.

“The sentiment’s negative, there’s no question about that, and it feeds on itself,” said Thomas Maguire, who manages $1 billion at Safeco Corp.

Some individuals can’t take the pressure of declines day after day, while “institutions are selling because they can’t afford to be in stocks that aren’t working for them,” Maguire said.

What’s more, investors large and small may be selling losers to lock-in losses for tax reasons, traders say.

Tech losers on Wednesday, however, included many names that have held up far better than others this year. Issues falling sharply included EMC, down $6.31 to $73.19; Siebel Systems, down $5.75 to $71.75; and Brocade Communications, down $7.25 to $153.75.

Some analysts raised the hope that the Gateway news could bring a final sell-off that would mean a bottom for Nasdaq.

“We’re looking for capitulation, and Gateway could give us that capitulation,” said Chris Dickerson, market analyst for Global Market Strategists in Gainesville, Ga.

Meanwhile, amid a now-pronounced economic slowdown, many investors continue to seek out stocks perceived to be safer havens.

Drug stocks, a hot group since spring, continue to benefit from that search. On Wednesday, Eli Lilly jumped $2.75 to $94.50 and Merck gained $2.25 to $94.88.

Financial stocks also rallied--in part because some investors are betting that the Federal Reserve is closer to cutting interest rates to keep the economy from falling into recession. Bank One rose $1.25 to $35.44, Capital One surged $3 to $56.38 and insurer Chubb Group jumped $3.63 to $81.13.

The Fed’s policy-making committee meets Dec. 19, and though no rate cut is expected then, the Fed could signal the likelihood of a cut in 2001.

“We’re still feeling quite bullish on the market. The Fed likely will go to a more neutral bias [on rates], which is what today’s GDP figure pointed to,” said Eugene G. Mintz, financial markets analyst at Brown Bros. Harriman & Co.

The Treasury bond market also is benefiting from that view: Yields plunged Wednesday as investors rushed to lock in returns, anticipating lower rates in 2001.

The yield on the 5-year T-note fell to 5.48% from 5.56% on Tuesday, and the yield on the 10-year T-note slid to 5.51% from 5.59%.

The Treasury sold $10 billion in new two-year notes at an average yield of 5.70%, amid very strong demand.

Yields on many longer-term Treasury issues are at their lowest levels since mid-1999. More important, short-term Treasury yields have begun to slide noticeably in recent sessions, signaling growing faith that a Fed rate cut could happen early in 2001. Short-term yields are most sensitive to expectations regarding Fed rate moves.

The six-month T-bill yield dropped to 6.24% Wednesday from 6.30% Tuesday. It was at 6.36% on Nov. 15.

Still, some bond fund managers warn that a victory for Texas Gov. George W. Bush in the presidential election could worry the Treasury market at some point in coming weeks if investors fear that Bush’s policies will threaten future budget surpluses.

Market Roundup: C8, C9