DJ Tech Stocks Keep Falling; Weak Econ Makes Bottom Unclear
12 Mar 12:46
By Riva Richmond and Ross Snel
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Technology stocks keep falling and with the near-term
horizon clouded by economic weakness, market watchers showed little agreement
about where and when the slide will end.
One thing seems clear, the Nasdaq Composite Index's drop below the key 2000
level Monday is not the last sad statistic in the market's immediate future.
The tech-heavy index was recently at 1949.14, down 103.64 or 5.1%, below 2000
for the first time since December 1998. The Dow Jones Industrial Average was at
10407.82, down 236.99 or 2.2%.
Major corporate culprits for Monday's decline included Cisco Systems Inc.
(CSCO), which fell about 10% in the wake of job cut news that prompted analysts
to cut earnings and revenue estimates. Amazon.com Inc. (AMZN) was down 12% as
questions about its financial health continued to mount. Microsoft Corp. (MSFT)
was down 7%, despite news of a broad alliance with eBay Inc. (EBAY), which also
fell 5%.
The overall trouble, of course, is the slowing economy, which is feeding
worries of a prolonged earnings slump. Market watchers are primarily looking to
lower interest rates to give the economy, and thus technology spending, a
boost. They expect a 50 basis point cut at the Federal Reserve's next meeting
on March 20. Some also look to President George W. Bush's tax cut for relief.
"It's a continuation of the negative sentiment across the board, continued
technology warnings. Obviously, the market is saturated with negative news, and
it seems that there's no light at the end of the tunnel," said Peter Cardillo,
director of research at Westfalia Investments.
"When you start to get that feeling in the marketplace, it might be reaching
levels of maximum capitulation."
Noted bear Kent Engelke, capital markets strategist at Anderson & Strudwick,
said: "We think the worst is over but are hesitant to suggest a Nasdaq higher
than 2500 for the foreseeable future."
But Art Bonnel, portfolio manager of the U.S. Global Investors Bonnel Growth
Fund, argued stock prices "will continue to deteriorate." He thinks the Nasdaq
could bottom at 1500, or maybe even 1000.
"As a growth fund manager, I'm looking for earnings that are going up," said
Bonnel. "All tech companies are saying they're going down."
Bonnel urges swift passage of Bush's plan for a retroactive tax cut. "We have
to get money back in the consumer's pocket," and boost consumer confidence, he
said.
The 10-year $1.6 trillion tax cut "is more of a 'feel good' measure," Engelke
said. "This amount is statistically irrelevant in a $9 trillion economy." He is
focused on interest rate reductions and the Fed's comments about whether the
economy is stabilizing or downside risks persist.
In the current environment, Bonnel has little interest in technology stocks,
which he argues are still overvalued. The Nasdaq is still selling at 100 times
trailing earnings, and he wants to see it come down to 50 time trailing
earnings.
Cardillo agreed some stocks are still richly valued, pointing to Cisco as an
example. But other stocks, such as Oracle Corp. (ORCL) and Worldcom Inc.
(WCOM), have become attractive, he said.
Bob Grandhi, senior portfolio manager at the Monument Funds Group, agreed
some of the larger, blue-chip technology stocks have fallen enough that a case
can be made that they're now "reasonably priced" for investors with a two-year
investment horizon. He named Cisco, Oracle and Sun Microsystems Inc. (SUNW) as
such stocks.
Grandhi said fiber-optic components, fiber-optic systems and integrated
fiber-optic companies are potential leaders when technology stocks emerge from
their current slump. Peer-to-peer computing might also emerge as a dominant
subsector, he said.
(MORE) DOW JONES NEWS 03-12-01
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