Is the bubble gone..??
-------------------------------------------
'The bubble is gone' -- Nasdaq hits 5-year low
By Carol Emert
San Francisco Chronicle Staff Writer
Tuesday, July 2, 2002
Jittery investors sent the Nasdaq composite index spiraling downward yesterday to a level not seen since before dot-com mania.
The tech-heavy Nasdaq plunged 4 percent to 1,404.80, its lowest level since June 10, 1997. That was a time when Amazon.com had just gone public, Monica Lewinsky was an unknown Washington intern, and Enron was still a five- letter word.
By the end of trading yesterday, the Nasdaq had lost 72 percent of its value since peaking at 5,048.62 on March 10, 2000. It stood 20 points below the nadir hit immediately after the Sept. 11 terrorist attacks and was down 28 percent for the year.
"The bubble is gone," said Steve Massocca, president of Pacific Growth Equities, a San Francisco investment bank. "The bubble has burst. What happens now, I don't know, but all that money from the bubble is gone."
Investors, worried about the rising tide of corporate and accounting scandals, sent other stock indexes lower yesterday. The Standard & Poors 500 index fell 2.1 percent to 968.65, and the Dow Jones industrial average, composed of 30 blue-chip stocks, slipped 1.4 percent to 9,109.93.
WorldCom became the first stock to trade more than 1 billion shares in a single day as it plummeted yesterday to 6 cents from 83 cents. Although 1.5 billion WorldCom shares changed hands, they didn't account for much of the day's downdraft, since each share is worth so little, Massocca said.
The market's sell-off was driven more by market mechanics and a chronic lack of confidence than by any one piece of bad news, experts said.
Stocks typically rise at the end of June as portfolio managers bid up the value of their holdings at the end the first half. Stocks then declined a corresponding amount in early July.
In that sense, yesterday's fall was not unexpected. Still, the stock market is clearly in crisis.
The number of accounting scandals -- WorldCom, Xerox, Arthur Andersen, Enron, Tyco -- is rising rather than abating.
Meanwhile, foreign investment is leaving the country, a trend that both deflates the stock market and raises fears that the Federal Reserve will boost interest rates to retain capital.
Political instability overseas is worrisome to investors, and fears of a potential terrorist attack on Independence Day are hitting even closer to home.
On top of that, corporate profits continue to fall short of expectations, a serious problem since stock prices are supposed to reflect future earnings.
"People are reassessing their portfolios for the second half of the year, and they're getting rid of stocks -- tech stocks in particular," said Jeremy Siegel, a finance professor at the Wharton School at the University of Pennsylvania. "They're weeding those out."
Corporate profits matter more to investors than disasters like the Sept. 11 attacks, he said. In a sense, Enron is more frightening to stockholders than al Qaeda.
"I'm not surprised" the market is lower now than last fall, Siegel said. "Tech companies don't pay dividends. Everything is the trust of earnings, and we all know trust of earnings is in a very tenuous state."
Because business spending is so anemic, tech company profits aren't expected to begin recovering until next year, according to Siegel. But David Blitzer, chief investment strategist with Standard & Poors in New York, cautioned that the tech rout was temporary and said there were a few bright spots.
Last month, Microsoft's market capitalization -- the value of its publicly traded stock -- passed that of General Electric for the first time in several months.
That was still true yesterday, as Microsoft accounted for 3.206 percent of the S&P 500, while GE made up 3.173 percent.
Also last month, Redwood City's Oracle Corp. enjoyed the biggest price increase of any S&P stock, Blitzer said. "I guess nobody told those guys about the demise of tech stocks," he said.
sfgate.com |
