Interesting perspective on yesterday's action:
Tuesday's tech tankage
was swift and healthy
By R. Scott Raynovich
Redherring.com
July 21, 1999
When it was all over, it wasn't nearly as
bad as it looked.
The tech-centric Nasdaq
Composite lost over 98
points -- or roughly 3.5
percent of its total value
-- on Tuesday, but in the
context of the increasing
volatility of the tech
stocks, it's just a blip on
the screen.
For example, the Nasdaq Composite has
already experienced eight drops of over
80 points within the past two years.
Today's drop of 98.11 points beat out
February 9's drop of 94.13 points to
become the fourth largest single-day point
drop in Nasdaq's history.
In percentage terms,
however, today's drop of
3.5 percent didn't even
make the top-ten list. For
example, compared to the
"Black Friday" drop of
11.35 percent on October
18, 1987, this was a
healthy trim. Last year,
the world financial crisis
precipitated August 31's
8.56 percent drop in the
Nasdaq index.
A HEALTHY DECLINE
It may have been time for investors to
take some profits, say some analysts.
After all, the Nasdaq Composite had been
up roughly 30 percent on the year.
"Every now and then the market's got to
let some steam off," says Charlie Glavin,
vice president and equities analyst at
Credit Suisse First Boston. "I don't read
anything into this. I would advocate that
people buy on the weakness."
Many of the leaders in the technology
sector -- ranging from Microsoft (Nasdaq:
MSFT) to Oracle (Nasdaq: ORCL) -- lost
between 3 and 5 percent of their market
value within a period of hours. Though
nobody can say what was going through
each trader's mind, the collective wisdom
on the street seemed to be that it was time
to take some profit in the midst of an
earnings season in which a number of
technology companies are meeting or
beating expectations. Over the past few
quarters, technology stocks have fit a
pattern: run-up before earnings season,
only to experience some weakness once
the earnings start emerging.
Mr. Glavin also notes that summer is
typically a slow period for technology
stocks and that there is still some
uneasiness about the impact of Y2K
issues on the markets. But he believes
that fundamental growth in technology
stocks is likely to continue through the
year 2000.
CAUTION, SLOW GROWTH
Despite the rosy earnings reports,
however, some companies say that there
is the potential for slowing growth.
One such company is Microsoft, which
on Monday announced a profit of $2.2
billion, or 40 cents a diluted share, up 62
percent from $1.36 billion, or 25 cents a
diluted share, a year ago. Revenues hit
$5.76 billion, up 39 percent from $4.15
billion a year ago.
But Microsoft's frothy earnings report
was accompanied by the typical
conservative commentary by the
Microsoft financial braintrust, which
warned of slowing growth ahead. And
this may have precipitated the market
sell-off. With Microsoft stock touching
all-time highs during the past week, many
investors could have seen it as a good
time to take some profit. An astounding
45 million shares of Microsoft changed
hands today, with shares shedding $5.06
to close at $93.31, a loss of 5 percent.
The rest of the technology leaders took
their lumps. Cisco Systems (Nasdaq:
CSCO) lost $2.69 to close at $62.25
(down 4.14 percent); Dell Computer
(Nasdaq: DELL) dropped $1.31 (3.09
percent) to close at $41.13; and Intel
(Nasdaq: INTC) shed $2.63 (3.89
percent) to close at $64.94.
That still wasn't enough to rattle market
bulls such as Mr. Glavin, who believe
that the fundamental growth in the
technology sector is here to stay.
"If you try to infer that there's something
fundamentally wrong, it can be
dangerous," says Mr. Glavin. "You need
to look at the breadth of the market
movement. That's why you can actually
find some good opportunities."
IPO MACHINE CHUGS ON
The one bright spot in today's gloom was
the IPO market, which continued to crank
out blockbusters despite the general
market malaise.
For example, Gadzoox Networks
(Nasdaq: ZOOX) rose $53.81, or 256.25
percent, to close at $74.81 in its first day
of trading. Engage Technologies (Nasdaq:
ENGA) gained $26 to close at $41, a
173.33 percent debut.
Tom Taulli, analyst with Edgar Online,
says it will take more than today's market
downdraft to stop the momentum of a
rampant IPO market. However, it's still
too early to tell what effect today's
market decline will have on the
new-issues market, he says.
"By the time you're ready to do your IPO,
you already have your investors lined up
and it's in the best interest of the
underwriters to pull it off," says Mr.
Taulli. "The momentum of the IPOs can
carry for a couple of days."
Teflon |
