Earnings Fears, Fed Warning Drive Tech Stocks Down Again
Wall Street’s technology sell-off gathered steam Tuesday as an early rally gave way to renewed dumping of shares in the final 90 minutes of trading.
The market took little solace in the Federal Reserve’s widely anticipated decision to hold interest rates steady. Instead, a fresh Fed warning about inflation contributed to Tuesday’s market gloom, some traders said.
The Nasdaq composite index plunged 113.07 points, or 3.2%, to 3,455.83, bringing its total decline since Sept. 1 to 18%.
Most other market indexes also lost ground, though the Dow Jones industrials managed to eke out a gain of 19.61 points, or 0.2%, to 10,719.74.
The technology-dominated Nasdaq market continues to bear the brunt of the selling amid rising investor fears about corporate profit growth in a slowing economy.
Major tech giants, including Intel, Apple Computer and Xerox, have in recent weeks warned that their third-quarter earnings won’t meet expectations.
Late Tuesday, software giant Computer Associates joined that chorus.
Not even encouraging words about tech stocks from Abby Joseph Cohen--the highly respected market strategist at brokerage Goldman Sachs in New York--could keep Nasdaq from falling into another steep decline.
Cohen said the backdrop for tech stocks remains “favorable,” and that she has become much more comfortable with the stocks’ valuations in light of their recent declines.
Some traders blamed an old nemesis for the market’s slide Tuesday: the Fed.
Stock prices were higher early in the day, but tumbled after the Fed’s 2:15 pm EDT announcement.
In its statement, the Fed’s Open Market Committee said the economy appears to be slowing but left the door open to future rate increases, citing the tight labor market and higher energy costs as potential inflationary pressures.
The central bank’s decision did little to reassure a market already worrying about third-quarter earnings reports coming out this month. Investors, concerned that the Fed’s credit tightening might not be over, sold off stocks they believe to be too expensive in the current economic environment, traders said.
Losers swamped winners by 5 to 3 on Nasdaq in heavy trading.
Nasdaq’s close was its lowest since May 31, when the index hit 3,400.91. The decline also marked Nasdaq’s eighth drop in nine trading days.
“I think what’s going on is specifically Fed-related,” said James Meyer, research director at Janney Montgomery Scott. “What the market would have wanted is for the Fed to move back to a neutral bias, which would have been a prelude at some point down the road . . . to lowering rates in order to stimulate the economy. That didn’t happen.”
“We’re facing slower profit growth and no relief from lower interest rates, and that’s not good for stocks,” said Irene O’Neill, manager of the $1.5-billion Evergreen Equity Income Fund.
But some analysts remain bullish. “This is part of the bottoming-out process,” said Al Goldman, a market analyst with A.G. Edwards & Sons in St. Louis.
The bond market also sold off after the Fed’s announcement, sending yields modestly higher.
“There was more concern about oil in the Fed’s statement than the bond market was expecting,” said Kenneth Taubes, who has bought mortgage-backed and corporate debt for the $1.5 billion he co-manages at Pioneer Investment Management in Boston.
Among Tuesday’s highlights:
* Among tech issues, IBM fell $7.25 to $110.56, Sun Microsystems dropped $5.19 to $108.38 and QLogic fell $8.63 to $78.69. Microsoft tumbled $2.56 to $56.56, a 52-week low. But Cisco Systems gained 75 cents to $56.25.
Also, Ciena fell $11.25 to $110.13, Lucent lost 94 cents to $30.06 and Palm tumbled $4.81 to $46.25.
* Xerox plunged $3.94 to $11.38 after warning late Monday that its results would fall below expectations.
* Depressed shares of many basic materials companies, including DuPont and Alcoa, rose as some investors bet the economy is slowing so much the Fed’s next move will be to lower interest rates.
“Assuming the economic data continue to show the growth rate of the economy slowing, we’ll see the Fed’s tone soften and speculation mount that the next move would be to ease rather than tighten,” said Timothy Ghriskey, a money manager for Dreyfus Corp.
DuPont rose $2.75 to $44.38, Alcoa surged $2.44 to $26.94, Phelps Dodge jumped $2.06 to $43 and B.F. Goodrich surged $3.06 to $41.38.
* Schering-Plough, maker of the allergy pill Claritin, said it remains comfortable with Wall Street’s predictions for its full-year profit. The stock rose $1 to $46.75.
* Defense stocks, a hot sector in recent months, rallied again. Boeing gained $1.44 to $59.88, Raytheon added $1.50 to $27.94 and United Technologies gained $2.38 to $70.63.
Market Roundup: C8, C9
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FED STANDS PAT
Key short-term rate stays at 6.5%--at least for now. C4
