Tech Shares Lead Broad Market Slide Amid Profit Fears

Hopes that technology stocks had run out of sellers were dashed again Wednesday, as a new flood of earnings warnings sent the Nasdaq market plummeting.

Blue chips also pulled back after three days of gains, indicating that many investors remain poised to sell stocks after even a modest rally, analysts said.

But tech stocks again bore the brunt of the day’s losses, in the wake of downbeat forecasts late Tuesday from such former highfliers as Nortel Networks and Palm. Investors dumped tech issues across the board, pulling the Nasdaq composite index down 118.13 points, or 6%, to 1,854.13.

That left the index just 24 points above its two-year closing low of 1,830.23 on March 21, before a rally began that lifted it to nearly 2,000 by the end of trading Tuesday.

The Dow Jones industrial average, which likewise had rebounded in recent sessions from last week’s two-year low of 9,389, fell 162.19 points, or 1.6%, to 9,785.35 on Wednesday. It had been down as much as 250 points before rising late in the day.

“The profit [warnings], particularly in the technology area, continue to deteriorate and unnerve investors who felt the worst may already have been seen,” said Robert Bloom, who manages $3.5 billion at Friends Ivory & Sime. “Our feeling is the earnings disappointments will continue indefinitely.”

Nortel, a leading computer networker, late Tuesday slashed its earnings estimate for the first quarter and said it no longer could give a reliable forecast for the full year’s earnings because of uncertainty about companies’ capital spending plans in a weak economy.

Nortel shares dived $2.76 to $14 on Wednesday, dragging many other networking shares to multiyear lows as well.

Palm, a maker of hand-held computers, plummeted $7.44 to $8.06--a decline of nearly 50%--after it warned Tuesday that sales growth is expected to flatten.

Some analysts argued that the broad market’s pullback Wednesday was no surprise, given the rally of recent days.

“You’ve had a 10% run-up in the indexes since last week,” said Tom Galvin, chief investment officer at Credit Suisse First Boston Corp. That quick run-up raised the likelihood that short-term traders would take profits sooner rather than later, experts said.

Still, the intensity of the selling in the Nasdaq market may have stunned investors who figured that the prices of many tech shares--already down 70% or more from their 2000 peaks--reflected the worst possible outlook for tech company earnings.

Long-battered shares of Cisco Systems, the No. 1 computer networker, fell $2.38, or 13%, to $15.75, a new multiyear low. That left the stock down 81% from last year’s peak.

Other tech losers included IBM, down $5.09 to $94.41; Texas Instruments, down $3.77 to $32.48; and AOL Time Warner, down $2.24 to $40.76.

In the broader market, investors clipped such blue chips as DuPont, down 96 cents to $41.49; AT&T;, down 87 cents to $22.07; and General Motors, down $1.54 to $51.52.

Losers topped winners by nearly 2 to 1 on the New York Stock Exchange and by nearly 3 to 1 on Nasdaq in heavy trading.

Some analysts said the sharp setback should be a warning that the bear market on Wall Street remains in full force.

“It’s no shock that the earnings season is going to be horrible,” said Bill Meehan, senior market analyst at Cantor Fitzgerald. “I’m truly amazed how many people are willing to conclude, based on a few days’ gains, that something significant has passed” to turn stocks’ declines around.

Other analysts, however, noted that end-of-quarter trading by institutional investors may be skewing activity this week.

“Window dressing” by portfolio managers at the end of each quarter tends to push depressed stocks even lower as managers jettison those issues and add better-performing stocks that clients are likely to want to see on their quarterly statements.

That could account for the bludgeoning of tech shares that are already down sharply.

Meanwhile, window dressing may have helped many so-called defensive stocks Wednesday.

Many beverage and health-care companies gained, for example, reflecting investors’ desire for less risky investments. Adolph Coors rose $2.29 to $65.38, and Merck advanced $1.54 to $75.15. Utility and insurance stocks also rose.

Stocks began recovering late last week from a 10-session slump that included a 1,468-point drop in the Dow. A better-than-expected consumer confidence report Tuesday, which suggested consumer spending might be able to lift the economy out of its malaise, added to buyers’ enthusiasm.

But by Wednesday, pessimism had reasserted itself.

“The desperation was last week. Now we’re finally getting to the acceptance phase. The casino has closed,” said Scott Bleier, chief investment strategist at Prime Charter. “You have to let nature take its course. There may be no magic bottom, and this may take a while.”

As Wall Street swooned again, Treasury bond yields pulled back slightly after surging Tuesday.

Stocks seemed to ignore generally upbeat comments by two Federal Reserve officials.

“I expect to see the economy rebound gradually” after the second quarter, Federal Reserve Board Gov. Laurence Meyer said after delivering a speech in St. Louis. “By next year, I think the economy will be back towards [longer-term] growth” rates, he said.

In separate remarks given to financial analysts in Richmond, Federal Reserve Bank of Richmond President Alfred Broaddus said he believes there is “every reason to expect that we can negotiate the present rocky economic passage successfully and enjoy a resumption of stronger growth in the second half of the year or possibly even earlier.”

Market Roundup: C7-8

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Shares Outstanding: A Sampling

Thanks to repeated stock splits, acquisitions made using shares and the issuance of stock options to employees, the sheer volume of shares outstanding at major tech companies dwarfs the number of shares outstanding at many “old-economy” companies. But that now may be translating into more tech shares for sale.

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Outstanding share totals of six major companies

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Company Shares outstanding (in billions)

Cisco Systems: 7.56

Intel: 6.99

Oracle: 5.85

Exxon Mobil: 3.46

Coca-Cola: 2.49

Merck: 2.30

Sources: Company reports, Times research

Tech’s New-Low Club

Here are some of the technology shares that fell to 52-week lows Wednesday as investors continued to bail out.

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Drop Ticker 2000 Wed. close from Stock symbol peak and change peak Veritas Software VRTS $173.25 $47.50, --$7.42 --73% Vitesse Semi. VTSS 110.50 27.00, --2.06 --76 Cisco Systems CSCO 82.00 15.75, --2.38 --81 Nortel Networks NT 89.00 14.00, --2.76 --84 JDS Uniphase JDSU 140.50 19.92, --3.39 --86 Palm PALM 80.25 8.06, --7.44 --90 Conexant Systems CNXT 115.63 9.03, --1.03 --92 JNI JNIC 126.00 9.13, --1.25 --93 Ariba ARBA 173.50 8.25, --1.81 --95 FreeMarkets FMKT 341.31 9.25, --1.75 --97 Nasdaq composite 5,048.62 1,854.13, --118.13 --63

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Sources: Bloomberg News, Times research