Stocks Fall as Tech Sell-Off Continues
Jitters over the technology sector’s near-term prospects worsened Wednesday, driving stocks broadly lower in active trading.
The tech-dominated Nasdaq composite index slid 91.04 points, or 4.2%, to 2,084.50, bringing its total loss since May 22 to 9.9%.
The Dow Jones industrial average also succumbed to profit taking, falling 166.50 points, or 1.5%, to 10,872.64.
Losers swamped winners by 28 to 11 on Nasdaq and by 2 to 1 on the New York Stock Exchange.
Some analysts worried that the deepening sell-off may feed on itself, causing more investors who have jumped back into the market since early April to bail out.
“I’m not concerned that we’re going back into a bear market, but I am concerned that we’re going to have a very deep correction,” said Hugh Johnson, chief investment officer at First Albany Corp.
The tech sector had rebounded sharply over the last two months, with the Nasdaq index rising 41% between April 4 and May 22. It was spurred in part by two more Federal Reserve interest rate cuts since mid-April, which boosted hopes that the weak economy might turn around by year’s end.
But as prices rose, more analysts raised concerns that the stocks were getting ahead of the companies’ fundamental prospects, as sales of tech equipment remain lackluster.
Those concerns deepened on Tuesday, when tech giant Sun Microsystems warned that earnings for the current quarter will be well below already lowered expectations.
Sun shares fell $1.80 on Tuesday, and tumbled $2.42 on Wednesday, closing at $16.25 on Nasdaq.
Sun hasn’t been alone in warning about earnings: Data firm Thomson Financial said 388 companies have issued second-quarter profit warnings so far, compared with just 55 at this point a year ago. This quarter’s total includes 136 tech companies.
“Hope overcame reality in April and May, and the view that we were close to a turn in technology spending fed itself,” Douglas Cliggott, investment strategist at J.P. Morgan Securities, told Bloomberg News. “Unfortunately, we have new evidence to the contrary.”
As stocks fell Wednesday some investors moved into bonds. Treasury yields eased slightly. The 10-year T-note slipped to 5.51% from 5.52% Tuesday.
Among Wednesday’s highlights:
* Brokerage firm Morgan Stanley Dean Witter helped fuel the tech sell-off, as Morgan analysts made negative comments about a number of stocks.
Analyst Alkesh Shah said a recovery in the fiber-optics component industry could be as late as the third quarter of 2002. He cut his ratings on JDS Uniphase, Nortel Networks, Sycamore Networks and Tellabs to “neutral.”
JDS slumped $2.23 to $16.94, Nortel fell $1.27 to $13.35, Sycamore slid $1.24 to $8.99, and Tellabs lost $3.45 to $33.93.
Juniper Networks tumbled $6.17 to $40.22 after Morgan analyst Christopher Stix said the maker of Internet routers faces greater competition.
And chip stocks fell after Morgan analysts cut earnings estimates for several companies. Losers included Broadcom, down $3.80 to $33.09, and Texas Instruments, down $3.46 to $33.09.
* In the Dow, weak stocks included Alcoa, down $1.10 to $42.36; 3M, down $2.40 to $117.35; and Walt Disney, down 84 cents to $31.78.
Among the Dow’s tech components, Intel fell $1.25 to $26.60 and IBM slid $2.62 to $112.65.
* Investors moved back into housing stocks, which had been hit by profit taking in recent weeks. Ryland rose $1.21 to $44.20, Toll Bros. gained $1.36 to $32.41, and KB Home added 31 cents to $25.20.
* Some classic “defensive” issues also rose, including Bristol Myers Squibb, up 73 cents to $54.89; Pepsico, up 67 cents to $45.59; and insurer Chubb, up $1.22 to $76.20.
* Some aerospace issues also rallied, led by General Dynamics, up $2.67 to $79.17, and Lockheed Martin, up $1.19 to $39.35.
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Market Roundup: C11, C12
