In Wild Trading, Nasdaq Ends at New 2-Year Low; Dow Rebounds
Stumbling technology shares pulled the Nasdaq market Thursday to its lowest close in more than two years, and Wall Street overall sank amid persistent fears about the economy’s weakness.
The Nasdaq composite index gyrated wildly, ending down 23.98 points, or 1.1%, at 2,244.96, its lowest finish since Jan. 4, 1999.
There was enough bargain hunting to lift the index well off its low for the day of 2,185, however.
The Dow Jones industrial average inched up 0.23 point to 10,526.81 after losing 154 points early in the session.
Despite the market’s recovery from its lows, losers still swamped winners by about 2 to 1 on the New York Stock Exchange and on Nasdaq in very heavy trading.
But Wall Street remains a split picture: While Nasdaq is in its worst bear market since 1973-74, many other major indexes are holding up relatively well.
Edward Yardeni, chief market strategist for Deutsche Bank Securities, argues that, despite February’s slide, stocks are in “a very broad bull market masked by a narrow bear market for technology.”
For Nasdaq, the pain may not end soon, some analysts say. Many think the largest tech stocks will continue to struggle in the months ahead amid disappointing earnings from the companies. What’s more, many investors who bought the shares last year, and have lost 50% or more from their purchase price, may be poised to sell at the first sign of a rally, experts warn.
Cisco Systems, for example, has slid to $26.44 from its peak of $80.06 in March.
“Thousands of investors would give anything to sell Cisco at $35,” said James B. Stack, head of InvesTech Research in Whitefish, Mont. If the stock recovers to $35, he said, “History says they will sell.”
For that reason, the near future--at least for Nasdaq--could be one of continued grinding declines peppered with sharp but quickly snuffed-out rallies, some analysts say.
The market overall, meanwhile, for now appears to be in the hands of professional traders just trying to eke out small gains, said Arthur Hogan, analyst at Jefferies & Co. in Boston.
There are “tons of cash on the sidelines,” Hogan said, but amid worries over the economy’s weakness it will take a significant catalyst to lure cautious investors back into stocks in a big way.
Some Wall Streeters think the Federal Reserve Board could play that role, if it decides to cut interest rates again without waiting until its next scheduled meeting, March 20. The Fed voted two half-point rate cuts in January.
“The market is gasping for oxygen,” said Sung Won Sohn, chief economist at Wells Fargo Economics in Minneapolis. “Investors don’t want to wait another month.”
Two important economic reports due out next week may tip the Fed’s hand: the Conference Board’s monthly consumer confidence index, to be released Tuesday, and the National Assn. of Purchasing Management index due Thursday.
A further deterioration in consumer confidence or in the purchasing managers’ snapshot of the manufacturing economy could signal a recession, economists say.
But even with a faltering economy and a deep bear market for tech shares, the broad market hasn’t been hit nearly as hard so far, analysts note.
Smaller stocks and “value” stocks have been particularly strong. The small-stock market sold off this week, but some pros see it bouncing back.
The Russell 2,000 small-stock index has lost 6% in the last four trading sessions but remains 7.5% above its Dec. 20 recent low. Over the same period, the Nasdaq composite is down 3.7%.
Likewise, as money has exited tech stocks this week, many other market sectors have held up well, including utilities, defense, energy and drugs. The Dow is off just 10.2% from its record high a year ago versus Nasdaq’s 55% dive.
Though some pros argue that the broad market hasn’t yet come to honestly reflect the realities of a slowed economy, others say that if the worst of the slowdown is occurring, this is the time to be buying many stocks, not selling.
Stack, long a stock market bear, said that he has more of his portfolio in stocks now than at any time in recent years. He is still avoiding tech and cyclical industries, but is snapping up value names in non-cyclical sectors, particularly stocks with price-to-earnings ratios below their 10-year average.
Stack is buying even though he said he can make “a very convincing case that we are in a recession, one that started last October.”
He believes that the Fed’s rate-cutting will keep the recession shallow and brief, although a turnaround in corporate earnings may not occur until the end of the year, he said.
History has shown that the ideal time to buy stocks is six or more months before corporate earnings start to recover, according to Stack, but he acknowledged that this kind of investing requires a strength of conviction many investors lack.
“When you see the first headlines confirming that we’re in a recession, you’re usually already past the market bottom,” he said.
Market Roundup: C6, C7
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Damage Assessment
The Nasdaq composite stock index has plummeted 55% from its record high reached a year ago. But the losses in other major U.S. market indexes from their peaks are far less severe. A sampling:
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Thurs. Decline Index close from peak Dow utilities 391.36 -5.9% S&P; small-cap 217.35 -6.6 NYSE composite 627.62 -7.4 S&P; mid-cap 498.63 -9.1 S&P; financials 152.30 -9.5 Dow industrials 10,526.81 -10.2 S&P; 500 1,252.82 -18.0 Wilshire 5,000 11,544.33 -21.7 Dow transports 2,918.76 -22.9 Nasdaq composite 2,244.96 -55.5
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Source: Times research
