Stocks Slump on Tech Woes
Technology stocks plummeted again Tuesday as investors unloaded the shares, concerned about the sector’s run-up since October in the face of still-weak corporate earnings.
The broader market also closed lower despite upbeat economic news. But most stocks’ losses were modest compared with the hit to the tech sector.
The Nasdaq composite index sank 47.81 points, or 2.5%, to 1,882.53, a two-month low. The tech-dominated index has fallen 8.6% since reaching 2,059 on Jan.4.
Among blue-chip indexes, the Dow industrials eased 58.05 points, or 0.6%, to 9,713.80 on Tuesday. The Standard & Poor’s 500 lost 0.7%.
Losers topped winners by 23 to 13 on Nasdaq and by 18 to 14 on the New York Stock Exchange in moderate trading.
As activity resumed on Wall Street after Monday’s closure in observance of Martin Luther King Day, sellers were pummeling tech shares almost from the opening.
Richard Bernstein, chief U.S. strategist at Merrill Lynch, issued a bearish report on the tech sector. His comments on the broader market had helped contribute to last week’s sell-off.
Bernstein advised clients to book any gains they may have in tech stocks since October. Valuations in these stocks “are now clearly stretched to bubble-like levels,” he said, according to Bloomberg News.
Among tech leaders that slumped Tuesday were Sun Microsystems, off $1.16, or 9.6%, to $10.96; Agilent Technologies, down $1.32, or 4.6%, to $27.16; and Siebel Systems, down $1.64, or 4.8%, to $32.62.
There was some good news from tech: Amazon.com surged $2.44, or 24%, to $12.60 after reporting its first net profit ever.
Still, a stronger-than-anticipated economic report failed to impress investors in general. The Conference Board said its index of leading economic indicators, a key forecasting gauge, rose a strong 1.2% in December, the third consecutive monthly gain and a signal that the economy may be on the verge of rebounding.
“It’s a little bit disappointing. You had some decent news and the market rose initially, but it wasn’t able to stay up,” said Robert Harrington, head of listed block trading at UBS Warburg. “People are expecting an economic rebound but I don’t think [stock] valuations and fundamentals are there yet. As a result the market has adopted a ‘Prove it to me’ attitude.”
Analysts say investors also are disappointed that more companies haven’t sounded upbeat about 2002 prospects in their fourth-quarter earnings reports.
After a strong rally in the first few days of this year, the Dow now is off 3.1% since Dec. 31. Nasdaq has lost 3.5%.
In other markets, Treasury bond yields rose modestly. Robert McTeer, president of the Dallas Federal Reserve Bank, said Fed Chairman Alan Greenspan is more optimistic about an economic recovery than investors interpreted after his speech earlier this month.
Unidentified Fed officials also told the Washington Post late last week that investors had “over-interpreted” Greenspan’s comments.
That could mean the Fed will refrain from cutting interest rates at the agency’s next meeting Jan. 29-30, analysts said.
In currency trading, the yen fell to a three-year low against the dollar, reaching 133.9 per dollar compared with 132.6 on Friday, as traders interpreted remarks by U.S. Treasury Secretary Paul H. O’Neill to mean the U.S. won’t act to stem the slide in Japan’s currency.
Among Tuesday’s highlights:
* Most telecom shares followed the tech sector lower. Qualcomm sank $3.55 to $41.40 and Nokia fell $1.35 to $21.15.
But Lucent Technologies rose 25 cents to $6.94 after saying it is on a “path to profitability” in its current fiscal year, excluding some expenses. North America’s biggest maker of phone equipment said it sees revenue rising 10% to 15% in the current quarter from the December quarter.
Lucent also reported a fiscal first-quarter loss that narrowed from a year ago after a gain on the sale of its optical-fiber unit.
* Semiconductor stocks were particularly weak. Intel slid $1.78 to $31.70 and PMC-Sierra dropped $1.29 to $20.37. The SOXX chip stock index slid 4.6%.
* Drug stocks were winners on an otherwise down day. Merck gained $1.29 to $59.29 after reporting earnings. Pfizer rose 70 cents to $40.80 and Lilly gained $1.26 to $75.85.
* International Paper, the biggest paper maker, rose 69 cents to $38.91. The company reported a profit, before some costs, that beat analysts’ forecasts.
* Viacom Class A shares fell $1.91 to $38.79, extending last week’s decline, amid concern its 2001 purchase of CBS Corp., formerly known as Westinghouse Electric Co., links it to about 130,000 asbestos lawsuits.
* Japanese stocks slumped, with the Nikkei-225 index losing 2.2% to 10,050.98.
In Argentina, the Merval stock index dropped 5.2%. In Mexico, the IPC index eased 0.3%.
Market Roundup: C6, C7
