Greenspan’s Talk Fails to Sustain Nasdaq Rally
Alan Greenspan told financial markets what they wanted to hear Thursday, but technology stocks took a dive nonetheless on the heels of a slower-growth warning from fiber-optics giant Corning.
The Nasdaq composite index slumped 104.87 points, or 3.7%, to 2,754.28, closing near its low for the day. It was the index’s biggest drop since Jan. 5 and halted a two-day rally.
The Dow Jones industrials gained 82.55 points, or 0.8%, to 10,729.52 as investors moved back into some “old-economy” stocks amid the tech sell-off.
The market overall was mixed, with losers topping winners by 22 to 16 on Nasdaq, while winners had a 4-3 edge on the New York Stock Exchange.
The Federal Reserve chairman, testifying before Congress, strongly hinted that the central bank is poised to cut its key short-term interest rate next week, which would be the second cut in less than a month. Greenspan also endorsed President Bush’s plan for broad tax cuts to reinvigorate the weakened economy.
But the Nasdaq market struggled at the opening and trended lower for much of the day after Corning’s warning late Wednesday that sales of fiber-optic equipment in 2001 will rise between 70% and 90% from 2000, instead of the 100% previously expected.
Analysts say major telecom companies are reducing orders in the face of large inventories of certain equipment.
Corning shares, which had surged in recent weeks, plummeted $13.88, or 20%, to $56.25.
Other telecom shares also slumped, including Ciena, down $11.94 to $90.06; Lucent Technologies, down $1.63 to $18; and Alcatel, down $4.25 to $57.75.
After trading ended Thursday, JDS Uniphase, another fiber-optics giant, posted strong fourth-quarter earnings. The company also shaved its sales-growth forecast for 2001, but only slightly, to about 115%. JDS stock, which tumbled $7.88 to $55.19 in regular trading, rose to $56 in after-hours trading.
Meanwhile, telecom chip maker PMC-Sierra crashed in after-hours trading, falling 30% to $66.75, after the company said current-quarter earnings will be as little as 13 cents a share, far below analysts’ average estimate of 37 cents.
PMC-Sierra had fallen $7.25 to $95.88 in regular trading before it announced earnings.
Traders said today could be a key test for Nasdaq: Will investors continue to take profits in recently rebounding tech shares or will bargain hunters take control?
Elsewhere Thursday, bond yields gyrated as Greenspan spoke. Treasury yields initially fell, then jumped in late morning as Greenspan endorsed a tax cut, then fell again by day’s end. The five-year T-note yield ended at 4.89%, down from 4.95% on Wednesday.
Greenspan indicated that “the Fed will continue to cut rates based on economic weakness and not based on how much a tax cut there’ll be,” said Joseph Pregiato, co-head of institutional fixed-income sales at Josephthal & Co.
Among Thursday’s highlights:
* Computer networking stocks were hit hard. Juniper Networks fell $7.56 to $126.44, Cisco Systems slid $3.25 to $39.31 and Sycamore Networks slumped $6.06 to $40.
* Internet stocks also surrendered some of their recent gains. EBay fell $4.56 to $49.81 and Amazon.com fell $2.88 to $19.
* Chip stocks were weak even before the PMC-Sierra news. Vitesse Semiconductor lost $4.25 to $69.75, Broadcom tumbled $20.94 to $104 and Applied Micro Circuits fell $9.13 to $78.
* On the plus side, defense stocks gained as investors sought alternatives to tech shares. General Dynamics gained $2.50 to $72.38, Raytheon jumped $3.19 to $33.25 and Northrop Grumman gained $2.69 to $88.69.
* Drug stocks also were hot, led by American Home Products, up $2.89 to $57.64; Merck, up $2.94 to $81.88; and Abbott Labs up $2.38 to $45.63.
* Among initial public offerings, Peet’s Coffee (ticker symbol: PEET), which was priced at a lower-than-expected $8 on Wednesday, rose $1.38 to $9.38 on its first day of trading. Also, Align Technology, a maker of “invisible” braces for teeth, priced its IPO at $13, below the expected range of $14 to $16. The stock (ALGN) will begin trading today on Nasdaq.
Market Roundup: C7, C8
