Big-Cap Indices Run Out of Gas, Coast to Downside Finish

SAN FRANCISCO -- Stop me (oh ho ho) stop me, stop me if you think that you've heard this one before: Alan Greenspan spoke about the likelihood of higher interest rates today, sending blue-chip stocks reeling.

But in a new twist on the old song, tech favorites couldn't resist the siren selling in "old economy" stocks, and the Nasdaq Composite Index retreated from its record-setting pace. The Russell 2000 set another record but even that small-cap proxy cooled off in the final hour, as the majority of stocks reflected the mood of most songs by The Smiths. (Depressed, that is.)

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 196.70 -1.9% 10,170.50 -11.5% S&P 500 17.89 -1.3% 1391.28 -5.3% Nasdaq 9.94 -0.2% 4904.85 +20.6% Russell 2000 3.76 +0.6% 601.64 +19.2% TSC Internet 31.64 +2.6% 1252.74 +8.5% TSC New Tech 30 101.76 +13% 883.87 +43% NOTE CHANGE PRICE YIELD 10-Year Treasury 7/32 100 18/32 6.421%

"Until market forces, assisted by a vigilant Federal Reserve, effect the necessary alignment of the growth of aggregate demand with the growth of potential aggregate supply, the full benefits of innovative productivity acceleration are at risk of being undermined by financial and economic instability," Greenspan said in a speech at a conference at Boston College.

Those remarks (and others) poured cold reality on anyone who thought Friday's employment report would prompt the Fed to rein in its aggressive monetary stance. A rethinking of that notion -- which helped spur stocks higher across the board Friday -- snapped the five-session winning streak of the Dow Jones Industrial Average, which fell 196.70, or 1.9%, to 10,170.50 after trading as low as 10,121.48.

The price of the 10-year Treasury note fell 7/32 to 100 18/32, its yield rising to 6.42%.

But Brian Belski, chief investment strategist at George K. Baum in Kansas City, Mo., argued Greenspan didn't depart from his recent commentary and thus wasn't truly responsible for the action -- a view shared by many.

"You're seeing a normal pullback from [the Dow] being overextended as of Friday," Belski said of today's setback. "It's all normal-type action."

Further supporting the notion that today's decline was more of a technical move than fundamental story, financial stocks were relatively unscathed today, the strategist noted. "It's more a case of some of these Dow stocks bounced up too much from oversold."

The Dow was most restrained by tech components Microsoft (MSFT Quote) and Intel (INTC Quote), as well as American Express (AXP Quote).

The Dow avoided a wider loss thanks to a big advance by Hewlett-Packard (HWP Quote), which leapt 5.1% in concert with its recent spinoff Agilent Technologies (A Quote). Agilent soared 40% after announcing new switching technology designed to increase the speed of fiber-optic networks.

With the Agilent news plus a fiber-optic conference opening in Baltimore, shares of several names in the sector were sharply higher. JDS Uniphase (JDSU Quote) rose 5%, Avanex (AVNX Quote) jumped 15.3% and Advanced Fibre Communications (AFCI Quote) rose 14.8%, just to name a few.

Net Faves Rally

With those names in the lead and big Internet favorites such as Yahoo! (YHOO Quote) and CMGI (CMGI Quote) also in favor, the Nasdaq Composite rose as high as 4980.15 around 2 p.m. EST.

But the late afternoon proved troubling and the Comp closed off 9.94, or 0.2%, to 4904.85 as mega-cap tech names such as Microsoft, Intel, and Cisco (CSCO Quote) followed their blue-chip counterparts lower.

Additionally, 3Com (COMS Quote) shed 16.2%, continuing to retreat from last week's big advance. Its Palm (PALM Quote), freshly traded as of last week, sledded 17 1/8, or 21.3%, to 63 1/8.

Market players debate the significance of round numbers, but "the Comp rolled right off 5000 and came back with the rest of the broader market," noted one equity trader. "Everyone was yelling '5000, 5000' and it never stood a chance. This group will continue to do well, but today you saw some of the volatility increased."

Behind strength in Yahoo! and CMGI, TheStreet.com Internet Sector index rose 31.64, or 2.6%, to a record 1252.74. Meanwhile, TheStreet.com New Tech 30 rose 101.76, or 13%, to 883.87, getting a big lift from Internet Capital Group (ICGE Quote), which rose 21% after Robertson Stephens upped its recommendation to strong buy. Unveiled Jan. 5, the TSC New Tech 30 is a market-cap-weighted index focusing on tracking the so-called hot money part of the market. A list of index components is available at http://www.thestreet.com/newtech/.

The Russell 2000 gained 3.76, or 0.6%, to 601.64 as small-cap tech and biotech names continue to enjoy heightened interest from traders. The American Stock Exchange Biotech Index rose 4.7%.

NeoRX (NERX Quote) was the standout in the biotech group, rising 152% after reporting successful testing of its cancer treatment on laboratory mice.

The S&P 500 followed the Dow lower, dipping 17.89, or 1.3%, to 1391.28 as weakness in most major industry groups overshadowed runaway gains in tech components such as Advanced Micro Devices (AMD Quote), which rose 15.7% after unveiling a one-gigahertz microprocessor.

No Unifying Theme

Despite the hubbub about Greenspan, there was no overarching factor moving stocks today, traders said.

Jay Meagrow, vice president of trading McDonald in Cleveland, noted airline stocks were hurt by negative comments from Goldman Sachs while utility stocks got "pummeled" after Edison International (EIX Quote), down 30%, warned of a profit shortfall. The American Stock Exchange Airline Index shed 2.7% while the Dow Jones Utility Average slid 9.40, or 3.2%, to 280.80

Meanwhile, retailing stocks were flattened by a profit warning by Williams-Sonoma (WSM Quote), which dumped 39.3%. The American Stock Exchange Retailing Index lost 3.2%.

Despite the concerns about certain names and groups, Meagrow observed the buying interest in small-caps remains strong, although "I don't think anybody is chasing" anything.

In New York Stock Exchange trading, 1.03 billion shares were exchanged while declining stocks led advancers 1,908 to 1,116. In Nasdaq Stock Market action just under 2 billion shares traded while losers led 2,190 to 2,099. New 52-week lows bested new highs 189 to 27 on the Big Board while new highs routed new lows 505 to 121 in over-the-counter trading.

Among other indices, the Dow Jones Transportation Average fell 58.36, or 2.4%, to 2376.09 and the American Stock Exchange Composite Index gained 8.65, or 0.9%, to a record 1022.36.

---

For coverage of today's top stocks in the news, see the Company Report, published separately.