The Man is awesome! Even lying in traction somewhere in Conn, BM is still articulating Razor Sharp market analysis -g-
>>March 24, 1999
Technology Stocks Lead the Fall as Stock Prices Drop
By KENNETH N. GILPIN
NEW YORK -- A broad selloff sent stock prices sharply lower Tuesday as worries about high valuations and anxiety about corporate profits led investors to pare their holdings. Chances that the United States might soon be involved in air strikes over Kosovo only added to the anxiety.
The decline was worst among technology stocks, the group that has led the market's rise in recent months. But few areas were immune: nearly seven stocks fell for every two that rose on the New York Stock Exchange, the broadest drop since Oct. 8. Of the 30 stocks that make up the Dow Jones industrial average, only AT&T rose in price. Eighty-seven of the 89 industry groups that constitute the Standard & Poor's 500-stock index declined.
"Things look pretty ugly to me," said William Meehan, chief market analyst at Cantor Fitzgerald. "It has been a long time since we have seen breadth this negative. A lot of people are saying it doesn't matter, but I think it does."
By the close of trading, the Dow had fallen 218.68 points, or 2.2 percent, to 9,671.83, its biggest decline since Jan. 14. The S.& P. 500 had its worst day since Oct. 1, losing 34.87 points, or 2.7 percent, to 1,262.14. The Nasdaq composite index shed 73.10 points, or 3 percent, to 2,322.84, the worst drop since Feb. 12. And Thestreet.com's index of Internet companies fell 36.82 points, or 5.8 percent, to 596.69.
"It was tech wreck," said one trader, who insisted on anonymity. "The next rally has to be driven by corporate earnings, not interest rates. And if we get good earnings, a lot of money will come into the market."
For some time, investors have been concerned that prices could undergo a fairly significant correction, if only because stocks have risen so far, so fast.
Between the end of August and last Thursday, when it peaked at 9,997.62, the Dow rallied 33 percent. According to the ISI Group, a New York consulting firm, there have been only four other times in the last 30 years when the Dow rose as much during a similar 143-day period.
Gains in broader indexes have been even more impressive.
Between Aug. 31 and last Thursday, when it hit a record of 1,316.55, the S.& P. 500 shot up 37.5 percent. And from Oct. 1 until Feb. 1, when it peaked at 2,510.09, the Nasdaq advanced 77 percent.
"A 10 percent correction would not be unreasonable on the Dow," said Louise Yamada, a managing director in technical research at Salomon Smith Barney. "Nor would a 15 percent to 20 percent correction on the Nasdaq."
Concern about earnings, particularly among personal computer makers, continues to hound technology stocks.
Dell Computer was the most active Nasdaq issue Tuesday, losing 2 3/16, to 35 11/16, on concerns it faces another quarter of slowing sales growth. On Monday, Kevin McCarthy, an analyst at Donaldson, Lufkin & Jenrette, lowered his earnings estimate on Dell and said he expected the PC industry to grow only 8 percent in 1999.
Microsoft, the dominant software provider, fell 6 1/4, to 166 9/16. And I.B.M., which sank last week after Morgan Stanley Dean Witter voiced concerns about revenue growth, dropped 1 5/8, to 165 3/8.
"Earnings will probably be good this year for most of these technology companies," said Ned Riley Jr., chief investment officer at BankBoston. "But expectations were unrealistic."
BellSouth joined the list of earnings trouble stories. The telecommunications company said that additional spending to build its data and wireless businesses would reduce profit growth in the first half of the year to the low end of the current range of Wall Street expectations. Richard Klugman, an analyst at Goldman, Sachs, lowered his earnings estimate for the first quarter. The company's shares fell 2 13/16, to 42 3/4.
The price drop was not confined to technology shares.
Industrial giants like General Motors and General Electric were battered. So too were financial service companies and banks, including J. P. Morgan, the American Insurance Group and BankAmerica.
Shares of General Motors fell 4 11/16, to 85 9/16. General Electric lost 3 13/16, to 106 9/16. J. P. Morgan shed 3 11/16, to 122 3/4, while AIG slumped 5, to 117. And BankAmerica was down 3 1/2, to 69.
Elsewhere, Coca-Cola fell 1 13/16, to 65 7/8, after analysts at Merrill Lynch cut their earnings forecasts for the first quarter and the entire year, citing what appear to be deteriorating conditions in Latin America and Japan.
But the session's biggest loser was Pathogenesis, the pharmaceutical company. Its shares tumbled 22 3/16, or 65 percent, to 12 3/16 after it said it expected to post a loss this year on weaker-than-expected sales of its sole drug product, an inhaled antibiotic.
But shares of Autoweb.com, an on-line car retailer, soared 26, to 40, on their first day of trading.
Other Internet stocks did not fare nearly as well.
America Online, the most active issue on the Big Board, fell 9, to 121. Amazon.com lost 12 5/8, to 119 3/8. And Yahoo dropped 9 1/2, to 155 1/2.
Despite the sharp pullback, analysts at ISI provided a glimmer of hope: After each of the last 33 percent rallies in the Dow -- in 1975, 1982, 1986 and 1987 -- the analysts noted the index gained an average of 5 percent over the next three months.<< |
