Tech Leads Stock Slide on Profit Taking; Bond Yields Fall
Amid fresh reminders that many companies still are struggling in a weak economy, investors took profits in stocks Monday, locking in gains following the market’s two-week rebound.
The technology sector led the way down amid some bearish comments by key analysts.
Meanwhile, Treasury bond yields tumbled as investors again sought safer havens. Short-term yields fell to seven-year lows.
On Wall Street the Nasdaq composite index, which soared 33% from April 4 to last Thursday, fell 104.09 points, or 4.8%, to 2,059.32. The index slumped at the outset and continued falling for most of the day.
The Dow Jones industrials eased 47.62 points, or 0.5%, to 10,532.23, and the Standard & Poor’s 500 slid 1.5%.
Losers topped winners by 3 to 2 on the New York Stock Exchange and by 24 to 15 on Nasdaq. But volume retreated from last week’s high levels.
The market had been stoked last week in part by the Federal Reserve’s surprise half-point interest rate cut, but many experts warn there is no guarantee that the economy will rebound soon.
With that backdrop, stocks could easily give back more of their gains before they stabilize, some say.
“Tech stocks have moved ahead quite significantly, but let’s face it, people have been hurt so badly and lost so much money by the decline that there is a natural tendency to take profits,” said Jack Shaughnessy, strategist for Advest Inc. in Hartford, Conn.
Some analysts encouraged investors to sell Monday. Semiconductor stocks slumped after Merrill Lynch downgraded many companies in the sector, including PMC-Sierra and Intel. PMC-Sierra plunged $6.05 to $38.76 and Intel fell $2.11 to $30.32.
Merrill analyst Joseph Osha said the semiconductor sector is overvalued after a 36% average gain in the last two weeks. “We would also add that there is no identifiable evidence that the semiconductor recovery is closer at hand,” Osha said.
The SOX chip-stock index tumbled 5.8% to 630.82.
Some other tech sectors were hit hard as well. The Goldman Sachs software stocks index dropped 7.3%, led by Oracle, which slid $2.60, or 13.2%, to $17.15. Brokerage Lehman Bros. reduced its rating on the stock to “buy” from “strong buy” and warned of a weak fiscal fourth quarter for the firm.
Oracle is facing slumping orders at the same time it faces increasing competition in the market for database software, its main product line, Lehman said.
Some of the money exiting stocks appeared to flow into Treasury bonds. The government sold new six-month T-bills Monday at a yield of 3.79%, the lowest in seven years and down from 4.34% in late March.
Longer-term yields also dropped, after rising last week. The yield on two-year T-notes dropped to 4.14% from 4.25% Friday, and the 10-year T-note fell to 5.18% from 5.28%.
The Treasury market may have been helped by continuing worries about Argentina’s worsening economic situation.
Among Monday’s highlights:
* Tech names pulling back after last week’s surge included Cisco Systems, down $1.82 to $17.33; Broadcom, down $5.03 to $35.59; EMC, off $5.15 to $39.95; Veritas Software, down $8.23 to $59.13; and EBay, off $3.70 to $46.95.
In the telecom sector Qualcomm tumbled $5.63 to $58.20 and Ciena slid $7.41 to $59.68.
* Energy and utility shares, many of which lost ground last week as tech rallied, attracted more interest. Exxon Mobil gained $2.83 to $88 after reporting earnings. Other winners included El Paso, up $3.30 to $70; Duke Energy, up $1.16 to $46; and Schlumberger, up $1.47 to $62.24.
* Retailers were mixed. Kohl’s lost $1.27 to $58.70 and May Department Stores fell $1.21 to $36.98, but Zale gained $1.50 to $33.42.
Market Roundup: C15-16
