Investors look for the smelling salts
By BRIAN HALE
2000-10-06 23:08:21
Three back-to-back sessions of triple-digit losses wiping 8.5 per cent off the Nasdaq Composite Index have investors and world markets on edge again.
Nothing attracts their attention as much as steep falls on Wall Street - particularly in the Nasdaq market, whose technology stocks have been the global pace-setters for years.
So the latest rout, brought to a halt by a 2 per cent bounce midweek, has everyone reaching for the smelling salts again.
It was not what was wanted, or expected, as United States markets head into the last quarter with all major indices in the red after a slide through September, particularly by technology stocks.
After the latest tumbles, the Nasdaq was down 15 per cent for the year-to-date. The Dow Jones Industrial Average was down by 6.75 per cent and the S&P 500 was down 2.9 per cent.
Away from the most-watched indices and the headlines as well as this year's Tech Wreck II, the picture is far worse - as it has been for more than two years.
While the apparently wanton savaging of big-name technology stocks (and some smaller ones) has sent the big stock-dominated indices plunging, they are merely heading in the same direction as most of the sharemarket.
At the start of this week, the average Nasdaq stock had fallen 44 per cent from 52-week highs with almost three-in-four companies' shares down more than 20 per cent - the supposed fall-line marking a bear market when it is crossed by the indices. Almost two-thirds of all stocks are down 30 per cent or more.
It was not much better on the New York Stock Exchange, where more than half of all stocks were down 20 per cent or more.
Even though the big stock-dominated S&P 500 Index at that point was down only 2.2 per cent for the year-to-date, the average fall from 52-week highs for stocks in the index was 25.5 per cent.
For Wall Street, the worry is that the indices also might lose as much if the tech stocks keep tumbling.
It is easier to keep the wool pulled over investors' eyes about the health of the market when the indices are still aloft even though most of the market is down, and heavily.
Volume is also down heavily. Nasdaq's share volume in the third quarter averaged 1.58 billion shares a day - a 57 per cent increase over the same period last year - while dollar volume was $US4.73 trillion ($A8.8 trillion) in the quarter, a 96 per cent increase over last year's $US2.41 trillion, as the total market value of all Nasdaq stocks was 57.5 per cent more than last year at $5.28 trillion.
But the problem heading into October is that one-by-one the technology leaders have been falling by the wayside, including the group long known as The Four Horsemen.
First Dell Computer went and now has been halved in price. Then Internet backboner Cisco Systems followed - it is down a third - as did Microsoft (also halved in price) and then Intel.
Five weeks ago, the lone horseman left was riding at 52-week highs. Now it also has almost halved.
Behind them, the second-line tech cavalry has been getting mown down, too.
Apple Computer's share price has slumped two-thirds since its earnings warning last week.
Lucent Technology has fallen 62 per cent and its new spin-off, Avaya, last week tumbled 25 per cent in the two days after it listed.
Meanwhile, the casualty list is growing daily in all the technology regiments from hardware to software, Internet software, semiconductors and data storage, B2B and the rest. (The consumer Internet sector has been dead and buried for months.)
In recent days it has been software giant Oracle's turn in the barrel with a more-than 20 per cent fall in two days after some analysts came away from a meeting with the company thinking the outlook was not too bright.
Investors fled, even though the worst comment from an analyst (Robertson Stephens' Eric Upin) was: "It's difficult to make an argument for the stock to move meaningfully higher over the near-term." Just a month earlier, Oracle investors were cheering as the stock hit a record $US92.94.
Now, with the stock trading around $US69, analysts are saying it is "richly valued".
Share prices are sinking, not just from earnings warnings ahead of the corporate quarterly profit reporting season next week, but from analysts' downgradings, too.
Commerce One took a one-day dive of 18 per cent during the week on a lowered rating, taking the rest of the B2B sector down with it. Bystanders such as Ariba fell 11 per cent. The experts believe sessions of recovery are likely over the next week or so as lower prices attract buyers, even though many analysts still believe valuations on tech stocks are still high.
The market's fate now seems to be tied to the earnings season.
If all the bad news is out of the way, the big stocks and the indices they dominate might avoid the broader market's fate.
But a spate of disastrous results could send the markets spinning.
This story was found at: theage.com.au |
