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Battering of P&G Illustrates Impatient Market Mood

Traders will brook no slip-ups by modest growers like Procter & Gamble, which is why it and the Dow are getting crushed as techs rise.

For a while there it looked like the "old economy" might not have lost all of its relevance to the technology sector.

Things were looking very sweet before

Procter & Gamble

(PG) - Get Report

started trading this morning.

News that

Deutsche Bank


Dresdner Bank

were in merger discussions had Frankfurt's exchange humming along nicely. And back home,


(VRSN) - Get Report

plans to pay a

huge premium for

Network Solutions


, along with a handsome upward revision of fourth-quarter

productivity, were sending the

Nasdaq Composite Index

through the 5000 mark for the first time ever.

Then P&G, which warned of a third-quarter earnings shortfall, opened down 30 points. That blow momentarily knocked

ILX Systems

terminals offline all over Wall Street and took all of the major proxies off their highs. The

Dow Jones Industrial Average

immediately fell below the 9900 level, while the Nasdaq, which had been up more than 50 points in the moments before P&G started trading, soon sank into negative territory.

"You've got to think it's a hell of an overreaction for losing a little growth," said Jay Meagrow, vice president of trading at


in Cleveland. But "if you're not growing 20 to 30%, and say you'll miss on anything -- come on."

Lesson learned. Right now, it looks like the early selloff is shaping up to be just another buying opportunity in the hyperactive tech sector. The Nasdaq was up 54, or 1.1%, to 4958. The Dow, meanwhile, was off 260, or 2.6%, to 9910, while the

S&P 500

was down 15 1/2, or 1.1%, to 1376.

TheStreet Recommends

'Why Buy 7% Growth?'

"If there's ever an

example of why money flows are going toward tech, it's because on the face of things, today looks like an outrageous merger between Network Solutions and VeriSign, and the destruction of a traditional old-economy company," said Barry Hyman, chief market strategist at

Ehrenkrantz King Nussbaum

. "Why buy something with 7% growth and a 20 P/E when there's no money flow there?"

And P&G is indeed looking extremely nontech today. The company warned that its third-quarter earnings would come in 10% to 11% below the 72 cents a share it earned last year. The 13-analyst consensus was for earnings of 78 cents.

The company blamed the coming shortfall on a number of things, including the delay of U.S. approval for its osteoporosis drug Actonel, competition in South America, and higher European production costs. But perhaps most notably, P&G said that higher-than-anticipated prices of pulp and petroleum would hurt its bottom line.

Merrill Lynch

downgraded the entire household products sector on the news, noting that the P&G blowup "carries broader fundamental implications for the group which will likely keep interest in the sector and therefore group valuation muted for the foreseeable future due to escalating raw material costs and competition in emerging markets, in particular." Merrill then took a deep breath and promised to swear off run-on sentences in the future.

So it would seem that rising commodities prices finally are starting to hurt some bottom lines. But it remains to be seen whether and when damaged bottom lines in the old economy will make their presence felt in tech.

"It will tend to have an effect on capital spending," said Hyman. "That's the concern. It will delay marginal spending, because of lowered earnings expectations. But nothing's going to stop the buildout of telecom. That's there, and it's happening on a global basis.

Oil prices were soaring anew, with crude for April delivery trading at $33.48 a barrel at the

New York Mercantile Exchange

, up from $32.18 yesterday. That was sending oil and oil service stocks flying, with the

American Stock Exchange Oil & Gas Index

up 4.1% and the

Philadelphia Stock Exchange Oil Service Sector Index

up 5.5%.

Paper stocks were selling off despite P&G's partial blaming of increased pulp prices for its earnings difficulties. The

Philadelphia Stock Exchange Forest & Paper Stock Index

was down 2.7%.

Small-cap and Net measures were higher, with the

Russell 2000

up 3, or 0.5%, to 603 and the Internet Sector

index up 29, or 2.3%, to 1282.

Market Internals

Breadth was negative, especially at Broad and Wall, while volume was strong.

New York Stock Exchange:

1,046 advancers, 1,804 decliners, 728 million shares. 98 new 52-week highs, 210 new lows.

Nasdaq Stock Market:

1,952 advancers, 2,129 decliners, 1.2 billion shares. 370 new highs, 78 new lows.

For a look at stocks in the midsession news, see Midday Movers, published separately.