Stocks Slide on Tech Pullback
A late sell-off sent major stock indexes sharply lower Thursday, as Wednesday’s rally proved to be as short-lived as several others in recent months.
Technology stocks, which had been bolstering the market in recent days, led the way down, with the Nasdaq composite index shedding 40.30 points, or 2.9%, to 1,356.95, bringing its year-to-date loss to more than 30%.
The Standard & Poor’s 500 index sank to a five-year low, down 24.48 points, or 2.7%, to 881.56, while the Dow Jones industrial average fell 132.99 points, or 1.6%, to 8,409.49, lowest since September.
Analysts said the losses reflect investors’ unwillingness to leave their money in a market that shows no signs of a sustained turnaround. The tech sector’s pullback was a particular disappointment, although Nasdaq did hold above last week’s five-year low.
“In the 1990s the mantra among mom-and-pop investors was, ‘Buy on the dips,’ ” said Chris Orndorff, head of equities at Payden & Rygel in Los Angeles. “Now that mantra seems to be, ‘Sell into the rallies.’ ”
In July alone, three rallies have sputtered after one or two sessions. Orndorff said the rash of recent corporate scandals has damaged investor psychology.
“Individuals understand corporate profits slowing or business being bad during a recession, but what has negatively affected so many people’s views is this series of accounting irregularities and other scandals,” Orndorff said. “I hate to liken the stock market to gambling, but if you go to a casino and lose fair and square, you’ll probably go back--but not if you feel like you’ve been cheated.”
A key sign of investors’ disillusionment is mounting redemptions from stock mutual funds. TrimTabs.com Investment Research estimated that a net $19.3 billion was redeemed from equity funds in the week ended Wednesday.
In Thursday’s trading, the major indexes closed near their lowest levels of the day after hovering in mixed territory for much of the session. Losers swamped winners by more than 2 to 1 on the New York Stock Exchange and Nasdaq, on active volume.
Despite some upbeat corporate earnings reports this week, other reports have reminded investors that the economic recovery hasn’t been evenly distributed.
Disappointing results late Wednesday from chip maker Advanced Micro Devices and software maker Siebel Systems, and a cautious outlook early Thursday from cell phone giant Nokia, weighed on the tech sector.
AMD, which reported a wider-than-expected second-quarter loss, slid 61 cents to $8.72, while Siebel, which had a second-quarter shortfall and issued a third-quarter profit warning, plunged $2.12 to $9.62. Nokia fell 79 cents to $13.33.
Meanwhile, longer-term Treasury bond yields sank as the latest economic data underscored that the recovery is far from robust. The yield on the 2-year T-note fell to 2.49% from 2.61%.
Among the day’s highlights:
* Automatic Data Processing plummeted $9.75 to $31.60 after the payroll-services company warned of slower profit growth next year. Rival Paychex fell $3.72 to $24.50.
* In the ailing drug sector, Eli Lilly lost $2.36 to $48.54 after reducing its profit target for this year. Bristol-Myers Squibb sagged $1.63 to $22.50 after regulators said a blood pressure drug should not be approved because of its side effects. Also, medical device and vaccine maker Baxter International tumbled $11.41 to $32 after saying revenue rose less than analysts expected.
* Among biotech stocks, Biogen sank $2.20 to $32.85 after reporting a drop in second-quarter profit. Amgen fell $3.18 to $33.92.
* In the financial sector, PNC Financial dropped $6.91 to $39.69 after saying profit may be hurt by a deal with U.S. regulators over how the company accounted for units it created with insurer American International Group. AIG fell $3.67 to $57.23.
* IBM defied the downtrend, adding $1.36 to $72.05 after reporting a quarterly net profit.
Market Roundup, C5-6
