Tech Stocks Lead Wall St. Retreat
Technology stocks led a broad market decline Thursday, as some disappointing earnings reports raised new fears that shares have become overvalued relative to companies’ near-term prospects.
The tech-dominated Nasdaq composite index suffered its biggest percentage decline in two months, falling 49.95 points, or 2.9%, to 1,698.02.
Other sectors that have spearheaded the recent rally, including smaller-company shares, also tumbled. The Russell 2,000 index of smaller stocks lost 13.75 points, or 2.9%, to 459.93.
Overall, losers swamped winners by 3 to 1 on the New York Stock Exchange and by almost 4 to 1 on Nasdaq, in heavy trading.
But the damage was relatively limited in blue-chip indexes, as some investors shifted funds to industrial companies whose shares typically sell for much lower price-to-earnings ratios than tech stocks.
The Dow Jones industrial average slipped 43.77 points, or 0.5%, to 9,050.82. The Standard & Poor’s 500 was off 12.27 points, or 1.2%, to 981.73.
Sellers hammered shares of such tech firms as IBM, cellular phone maker Nokia and chip maker QLogic on concerns about earnings.
IBM slid $3.41 to $83.33. Late Wednesday the company reported quarterly earnings that matched estimates, but executives also said demand for tech products was “good, but not robust” -- suggesting that corporate spending may lag some investors’ optimistic expectations.
On Thursday, those concerns were deepened by Nokia’s report of lower second-quarter profit and downbeat forecast for third-quarter sales. Nokia’s shares plunged $3.57, or 20%, to $14.38.
Also Thursday, QLogic shares dropped $4.81 to $46.54 after the Southland-based chip company matched, but did not exceed, Wall Street’s estimate for second-quarter sales.
“Everyone was expecting such a strong economic recovery,” said Peter Dunay, chief market strategist at Wall Street Access, a New York-based brokerage. “The earnings numbers have been good but tempered [about results] going forward.”
The itch to sell spread beyond technology, suggesting that a significant market pullback might be at hand. Many of the highest-flying shares of recent months were down sharply.
Among generic drug makers, Hi-Tech Pharmacal fell $4.32 to $29.20. In the restaurant sector, Panera Bread lost $1.56 to $40.05. In the financial group, insurance firm Progressive dropped $6.09 to $67.11.
“There is a thorough and merciless thrashing occurring in the high price-to-earnings stocks,” said Robert Howard, editor of the Positive Patterns market letter in Springfield, Mo.
By contrast, some investors snapped up lower P/E stocks in the industrial sector, encouraged by some strong earnings and by fresh economic data pointing to a pickup in activity.
Heavy equipment maker Caterpillar, one of the 30 Dow stocks, soared $5.25 to $63.54. It said second-quarter earnings doubled and projected higher results for the full year.
Other industrial winners included United Technologies, up $1.54 to $73.73; Ingersoll-Rand, up $3.81 to $52.38; and Johnson Controls, up $4.31 to $92.33.
The government said housing construction rose in June, and the Federal Reserve said manufacturing activity in the mid-Atlantic states expanded in July for a second month. Other recent data also have suggested that the economy is improving.
That’s what Wall Street wants to see, but many stocks simply may have risen too far, too fast in recent months, some analysts say.
Meanwhile, expectations for a stronger economy have helped drive bond yields higher in recent weeks. On Thursday yields ended mostly flat after rising early in the session.
The 10-year Treasury note yield finished at 3.92%, the same as Wednesday.
Among Thursday’s highlights:
* Internet-related stocks were hit hard. Sohu.com slid $3.07 to $37.10, Amazon.com lost $1.36 to $36.32 and Findwhat.com sank $3.24 to $20.
* TiVo tumbled $1.37 to $10.62 after satellite TV provider Hughes Electronics said set-top boxes with TiVo’s recording technology have not been as popular as hoped.
* Hershey Foods gained $1.31 to $73.11 after the candy maker said quarterly operating profit rose 15%, thanks in part to higher prices.
Market Roundup, C6-7
