Investors’ Fears Stifle Attempt at Nasdaq Rally; Index Loses 2%

Wall Street tried to recover Wednesday from Tuesday’s earnings-related sell-off, but investors’ nerves and lack of conviction stifled several attempts at a rally.

Major market indexes fluctuated throughout the day before blue chips eked out a small gain late in the session.

The Nasdaq composite, however, sank 34.20 points, or 2%, to 1,638.80, a 29-month low, as many tech shares continued to slide. The index fell 6.2% on Tuesday.

“Everybody’s taking advantage of any kind of rally to sell,” Leo Smith, head of trading at Putnam Investments, told Bloomberg News. “Why buy today? They figure they can buy cheaper tomorrow.”

Trading volume remained at very high levels.

“Investors are depressed and shellshocked at the magnitude of the declines,” said Peter Anderson, chief investment officer at American Express Financial Advisors.

Indeed, instead of stocks, many investors continue to snap up Treasury bills. The yield on the one-year T-bill fell below 4% for the first time since 1998. It closed at 3.94%, down from 4% on Tuesday.

The Dow Jones industrial average closed up 29.71 points, or 0.3%, at 9,515.42. The blue-chip index had a turbulent day, briefly slipping into bear-market territory--meaning a decline of more than 20% from its 2000 peak--but also rising as much as 140 points.

At its low, the index hit 9,375, exactly a 20% loss from its 2000 peak of 11,722.

Market watchers weren’t surprised at the volatility, noting that investors’ worries about corporate earnings have repeatedly undermined Wall Street’s efforts to rally in recent weeks.

“We’re still operating in the dark as to when the economy may start to recover. It’s very difficult to buy when you have no idea [what] earnings performance will be ahead,” said Bill Barker, investment consultant at Dain Rauscher. “I think this market is going to stay off balance for a while.”

Concerns about Lucent Technologies’ financial health also weighed on investors. The telecom equipment giant denied rumors it would file for bankruptcy, but its stock tumbled $1.10 to $6.75, a multiyear low.

The continuing stalemate with China over a grounded U.S. spy plane has added to nervousness.

“We’re going to be back and forth here for a while,” Anderson said. “But that may be a good thing. We need to go through a gradual mending process before we can move higher again.”

The Nasdaq index now has fallen 67.5% from its 2000 peak.

Tech shares that fell further Wednesday included Intel, down $2.38 to $22.63; PMC-Sierra, down $1.12 to $19.12; Cisco Systems, down 6 cents to $13.69; and Broadcom, down $2.09 to $21.37.

Overall, losers topped winners by 22 to 15 on Nasdaq, though the two sides were evenly matched on the New York Stock Exchange.

Amid the pessimism, some investors see bargains in technology stocks. “I’m buying a broad range of them,” Barbara Marcin, who manages the Gabelli Blue Chip Value Fund, told Bloomberg News. She cited Lucent, Cisco, Corning and EMC as examples.

“Cisco at $13.50 to me is a value stock,” she said.

Corning rose 50 cents to $19, and EMC rose $1.75 to $26.95.

Stocks gained early in the day following comments by Goldman, Sachs & Co. strategist Abby Joseph Cohen, who again called the Standard & Poor’s 500 stocks undervalued. In a speech, she said declines in share prices “have gone well beyond [what the] fundamentals would suggest.”

But the S&P; index closed off 0.3% at 1,103.25, a two-year low, despite Cohen’s comments and despite gains in some “old-economy” shares, including GM, up $1.12 to $52.50, and Merck, up $1.67 to $74.48.

The S&P; is down almost 28% from its March 2000 peak.

Market Roundup: C5-6