Tech Stocks Take a Plunge

Since hitting its peak for the year on Jan. 26, the Nasdaq has lagged the Dow severely, plunging more than 7%, while the blue-chip index has fallen only 2%. Both indices remain in positive territory for year, however.

"This doesn't surprise me," said Hugh Johnson, chief investment officer at First Albany. "But the trend has not lasted long enough to have confidence it will last."

Johnson offered several reasons why such a rotation should be expected, given current market conditions.

"In the second-year of a bull market, historically, tech stocks do not outperform the broader market by as much," Johnson said. Also, "the market shifts from rewarding investors for small-cap to large-cap investments."

As is often the case, timing is the most difficult question, Johnson added. "I expect to have a clearer picture of whether this rotation will continue in about four weeks."

Movers

After the market closed Tuesday, Cisco reported better-than-expected earnings, but said it sees only a 1% to 3% sequential rise in sales in the third quarter. Shares of the company dropped on fears that tech spending has not improved as much as previously thought.

The company reported second-quarter earnings of $1.29 billion, or 18 cents a share, before a charge, which was a penny ahead of the consensus estimate. Cisco fell $2.33, or 8.8%, to $24.08 in Wednesday trading.

Oracle (ORCL Quote) boosted its bid for PeopleSoft (PSFT Quote) to $26 a share, or to about $9.4 billion. The tender offer is an 18.8% premium to the closing price of PeopleSoft shares Tuesday, and it will expire at midnight on March 12. Oracle shares fell 64 cents, or 4.6%, to $13.27, and PeopleSoft gained 81 cents, or 3.7%, to $22.70.

Ciena (CIEN Quote) shares fell $1.30, or 17.8%, to $6.99, after the company gave first-quarter revenue guidance of $66.4 million, $9 million below the consensus estimate. The networking company blamed the shortfall on an order delay, but Wall Street wasn't taking it lightly.