Tech Shares Hit as Investors Shift Sector Bets
Investors who’ve been hoping for a significant stock market pullback are getting one, at least in last year’s hottest sectors.
The technology-dominated Nasdaq composite index tumbled 52.07 points, or 2.5%, to 2,014.14 on Wednesday, its biggest one-day drop since Sept. 24.
The loss brought Nasdaq’s slide since Jan. 26 to 6.5% -- the index’s sharpest decline since Wall Street’s rebound began last March.
The broader market also was lower Wednesday, but blue chips held up relatively well. The Dow Jones industrial average slipped 34.44 points, or 0.3%, to 10,470.74.
Stocks were hit in part by some cautious comments Tuesday by John Chambers, Cisco Systems’ chief, about companies’ capital spending plans. But some analysts said that was just the latest excuse for investors who have been itching to cash in some of their paper profits from the tech sector’s run-up last year, when Nasdaq soared 50%.
Many portfolio managers “don’t want to be out of the market, but they’re reallocating money to areas they think are safer” than tech in the near term, said Marc Pado, a market strategist for New York-based brokerage firm Cantor Fitzgerald.
Indeed, as the tech sector slid Wednesday, some consumer-related blue-chip issues surged. Avon Products, for example, jumped $2.98 to $68.29. Colgate-Palmolive gained $1.91 to $53.76.
Strength in non-tech names limited the Standard & Poor’s 500 index’s loss. It fell 9.51 points, or 0.8%, to 1,126.52.
Still, losers swamped winners by 2.5 to 1 on the New York Stock Exchange and by more than 3 to 1 on Nasdaq, in active trading.
Smaller stocks, which like tech issues were market stars last year, helped lead Wednesday’s slide. The Russell 2,000 index fell 15.12 points, or 2.6%, to 564.03. It has dropped 6.2% since the market peaked on Jan. 26.
Many experts have been predicting that investors would begin to shift away from last year’s big winners, especially in technology, heavy industry and the small-stock sector, to stocks that didn’t perform as well.
But in the first three weeks of this year an avalanche of cash poured into the market, with much of it heading into last year’s leaders. The Nasdaq index jumped 7.5% between Dec. 31 and Jan. 26.
“I think portfolio managers are just starting to change their tune,” said James Park, a trader at Brean Murray & Co. in New York.
Some investors grew more cautious last week, after the Federal Reserve hinted that it may be getting closer to raising short-term interest rates.
Now the question is whether the pullback becomes a full-fledged “correction” -- meaning a drop of 10% to 15% in the Nasdaq and other indexes that had soared last year.
History is on the side of those predicting a continuing pullback: Since 1945, rallies in January usually have been followed by losses in February, said Sam Stovall, investment strategist at Standard & Poor’s in New York.
Many investors still expect technology and industrial companies to benefit the most this year from an expanding economy. The stocks may stall out for weeks or months, but will be back as market leaders later in the year, their fans say.
Still, Park said many potential buyers are in no rush at the moment. “Buyers are picking their prices from sellers,” he said.
Some technology and industrial stocks already have declined more than 10% from their January highs.
Wednesday’s sell-off left Nasdaq up 0.5% year to date. The S&P; 500 is up 1.3% this year and the Dow is up 0.2%.
The pullback in more speculative securities is occurring overseas as well. Brazil’s main stock index, up 97% last year, slumped 2.7% on Wednesday and is down 11% since Jan. 26.
Among the day’s highlights:
* Cisco tumbled $2.33 to $24.08, reacting to Chambers’ remarks about corporate customers’ “cautious” attitude toward spending.
Other tech sector losers included Intel, down $1.34 to $30.02; Dell, down $1.31 to $32.39; and Hewlett-Packard, down 72 cents to $23.19.
* In the industrial sector, Phelps Dodge lost $2 to $72.21, Toyota Motor dropped $2.98 to $64.65 and Caterpillar was off $1.14 to $75.90.
* Stocks rising as investors hunted for issues that were laggards last year included Procter & Gamble, up $1.18 to $103.20; Gillette, up 54 cents to $36.42; and Anheuser-Busch, up 23 cents to $51.88.
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‘Correction’ in progress
Many of the technology and industrial stocks that were last year’s biggest market winners have pulled back sharply from their January peaks. Here is a sampling, with the stocks’ price-to-earnings ratios based on estimated 2004 earnings per share:
*--* Jan. Wed. Drop from P/E on est. Stock high close Jan. high 2004 EPS Deere $67.00 $ 60.99 -9.0% 17 Ingersoll-Rand 72.25 64.10 -11.3 16 Intel 34.24 30.02 -12.3 24 Alcoa 38.78 34.00 -12.3 18 Georgia-Pacific 31.19 26.68 -14.5 13 Cisco Systems 29.13 24.08 -17.3 34 Ford Motor 17.10 13.89 -18.8 11 Veritas Software 40.13 32.51 -19.0 35 Amazon.com 57.18 45.39 -20.6 48 Sohu.com 39.71 27.53 -30.7 22 S&P; 500 1,155.37 1,126.52 -2.5 19 Nasdaq composite 2,153.83 2,014.14 -6.5 NA
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NA: not available.
January high prices are closing highs.
Sources: Bloomberg News, Thomson First Call
