Bloody Tech Selloff Keeps Hacking Away at Valuations

The Nasdaq's big-cap tech leaders are awash in red, even as the blue-chips hold up relatively well.
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Heaven help the bulls if that was the rebound. Stocks bounced at the opening bell in the wake of

yesterday's thrashing but soon retreated into negative territory, with big tech names at the vanguard once again. Continuing the trend evident yesterday, blue-chip proxies were not suffering as much as tech gauges, but that was little solace to most Wall Street participants.

"The failure of the rally

yesterday, after the

Federal Open Market Committee

calmed everyone down by not talking about raising rates if the economy stays hot, was a real worry," said Jim Volk, co-director of institutional trading at

D.A. Davidson

in Portland, Ore. "Everyone is running scared because of the mindset that you have to be the first one out of the theatre in case someone yells 'fire.' This, I think, is one of the primary reasons for the recent volatility, especially on the downside."

The

Nasdaq Composite Index

was the weakest of the major proxies again this morning. Coming off its third-largest point decline ever, the index lately was down 62 to 2348, unable to sustain an early rise as high as 2421.43.

Weakness in

Cisco

(CSCO) - Get Report

,

Sun Microsystems

(SUNW) - Get Report

and

Dell

(DELL) - Get Report

was most pronounced among Nasdaq bellwethers. The

Nasdaq 100

was down 3%.

On the Big Board,

IBM

(IBM) - Get Report

,

Lucent

(LU)

,

Micron Technology

(MU) - Get Report

and

Compaq

(CPQ)

were all trading notably lower in sympathy.

Meanwhile,

Advanced Micro Devices

(AMD) - Get Report

was recently down 12.5% following its profit warning late yesterday and

Electronic Data Systems

(EDS)

was off 9.5% after reporting fourth-quarter earnings down 50% from a year ago. EDS' results were in line with expectations and

Lehman Brothers

upgraded its recommendation, but investors were shooting first and saving questions for later. Finally,

SCI Systems

(SCI) - Get Report

was off 18.9% following its profit shortfall and subsequent downgrade by

Merrill Lynch

.

The

Merrill Lynch Technology 100 Index

was down 4% while the

Philadelphia Stock Exchange Semiconductor Index

was off 4.8%.

Despite

rumblings about mergers, both real and imaginary, Internet names also failed to sustain early strength;

TheStreet.com Internet Sector

index was off 18 to 521 after rising as high as 548.70.

The

Dow Jones Industrial Average

, however, was off just 16 to 9288, while the

S&P 500

was lower by 14 to 1234.

Once again, recently ignored commodity producers were finding favor with investors. Big gainers this morning included

Alcoa

(AA) - Get Report

,

3M

(MMM) - Get Report

,

Dow Chemical

(DOW) - Get Report

,

Chevron

(CHV)

and

Mobil

(MOB)

.

"You start hearing talk of a

Fed

tightening and have

GDP

and employment numbers higher than expected," said one trader. "With the valuation of these companies being at rock bottom prices it's easy to see why some money is shifting there."

Money was having a tougher time (still) shifting into small-caps; the

Russell 2000

was down 5 to 413.

In

New York Stock Exchange

trading, 489 million shares have traded and declining stocks were leading advancers 1,620 to 1,101. In

Nasdaq Stock Market

trading, 578 million shares have been swapped and losers were leading 2,240 to 1,367.

No Relief for Bonds = More Pain for Stocks

The bond market, meanwhile, renewed its trek southward after the

Labor Department

reported nonfarm payrolls grew by 245,000 in January, significantly exceeding expectations for a rise of 135,000. The unemployment rate was unchanged at 4.3%, a 28-year low. The report was not as robust as feared yesterday, when rumors of a 350,000 payroll figure were heard, but did nothing to dispel the noting the U.S. economy remains robust. The price of the 30-year Treasury bond was down 14/32 to 98 29/32, its yield rising ever higher to 5.32%. (For more on the fixed-income market, see today's early

Bond Focus.)

Rising bond yields may indicate stronger economic growth, which benefits technology companies (among others). But the allure of stocks with high price to earnings valuations (a.k.a. tech stocks) is dissipating as bonds become relatively more attractive to institutional investors.

Additionally, "as interest rates come down you should be able to support higher stock prices because the present value of future cash is going to be valued a little higher," said Carl Bhathena, vice president at

Holland Capital Management

in Chicago, noting the inverse occurs as rates rise. "It also has something to do with the cost of capital, which is a major reason companies have been able to expand even in areas that have not had massive growth."

"I think the market clearly has some resistance," Bhathena continued. "You've got relatively difficult

earnings comparisons, profit-margin expansion has ended and you're seeing difficult in raising earning numbers because sales growth is much skimpier than people thought."

Regarding the jobless figures, the fund manager said the report is "clearly impressive," particularly that average hourly wage growth remains modest, up 0.5% in January. "It's a secular change," he said. "The market has to readjust to what is a sustainable amount of unemployment without inflation, as the Fed has."

Moreover, market players are struggling with countervailing signals from the economy, Bhathena said. The economy is "showing no signs of slowing significantly" but the global financial situation "ties

the

Fed's

hands" to some extent, he said. On the other hand, "many economists are predicting a recession in the next year to 18 months. Robust growth rates cannot continue indefinitely," he said. "The market is still looking for some kind of pattern to the economy, the Fed and so on."

Sounds like a recipe for indecision, which in investing -- like life -- is a terrible thing.

Among other indices, the

Dow Jones Transportation Average

was off 0.6%; the

Dow Jones Utility Average

was up 0.6%; and the

American Stock Exchange Composite Index

was off 1.1%.

Friday's Midday Movers

By Heather Moore
Staff Reporter

Pacific Internet

(PCNTF:Nasdaq) was soaring 34 1/2, or 202.9%, to 52 1/2 after Lehman Brothers priced its 3 million-share IPO

last night in-range at $17 a share.

Elsewhere in new offerings priced last night,

Delphi Automotive Systems

(DPH:NYSE) was up 1 9/16, or 9.2%, to 18 9/16 after

Morgan Stanley Dean Witter

priced its whopping 100 million-share IPO in-range at $17 a share. The company is a spinoff of

General Motors

(GM) - Get Report

, which was off 11/16 to 86 3/8. And

Del Monte Foods

(DLM:NYSE) was up 3/8 to 15 3/8 after Morgan Stanley Dean Witter priced the 20 million-share offering at $15 a share.

Online brokers were suffering again, with email reports and

TheStreet.com's

own log-on efforts indicating fresh troubles on

E*Trade's

(EGRP)

site. Emailers are also saying the phone trading line to which E*Trade is referring would-be online traders is busy or involves long waits. E*Trade was down 7 7/16, or 14%, to 45 13/16.

Ameritrade

(AMTD) - Get Report

was down 14 11/16, or 13.3%, to 96 7/16; National Discount Brokers

(NDB)

was down 2, or 6.9%, to 27; and

Siebert Financial

(SIEB) - Get Report

was down 7 7/16, or 17.2%, to 35 15/16.

In other news:

CD Radio

(CDRD)

was down 6, or 18.8%, to 26 after Lehman Brothers lowered its price target to 55 from 76 a share.

Shop at Home

(SATH)

was up 2, or 9.2%, to 23 13/16 after reaching an agreement calling for

EchoStar Communications

(DISH) - Get Report

to carry Shop at Home's shopping network, beginning Feb. 8. EchoStar was up 7/16 to 53 3/16.

Earnings/revenue movers

CBS

(CBS) - Get Report

was up 1/16 to 35 7/8 after posting fourth-quarter earnings of 2 cents a share, better than both the nine-analyst outlook for flat results and the year-ago loss of a penny. Separately,

The Wall Street Journal

reported that the company is considering a plan to turn its Web holdings into a separate public company, hoping to cash in on the Internet-stock frenzy.

Advanced Micro Devices continued to fall, lately down 2 3/8, or 12.5%, to 16 9/16, after yesterday warning of a first-quarter operating loss and suffering at the hands of Merrill Lynch's Thomas Kurlak. Micron Technology was down 6 5/8, or 8.8%, to 69 on concerns about competition in the DRAM market;

Texas Instruments

(TXI)

was off 7/16 to 25 5/16.

American Homestar

(HSTR)

was down 1 13/16, or 18.1%, to 8 1/4 after last night warning it expects fiscal third-quarter earnings to be "significantly lower" than the six-analyst estimate of 26 cents a share. A year ago, the company earned 25 cents a share.

American Power Conversion

(APCC)

was down 3 1/16, or 6.2%, to 46 1/8 even after last night beating fourth-quarter earnings estimates by a penny a share with a profit of 49 cents.

Avid Technology

(AVID) - Get Report

was up 5 3/8, or 19.4%, to 33 1/16 after last night reporting fourth-quarter diluted earnings of 57 cents a share, excluding amortization of intangible assets related to its acquisition of

Softimage

, vs. the year-ago 37 cents. The six-analyst forecast called for operation earnings of 22 cents. The company said it's not reporting net income until it evaluates whether to adjust a third-quarter pretax charge of $193.7 million from the Softimage acquisition. Today, Morgan Stanley Dean Witter pushed it up to outperform from neutral.

BioReliance

(BREL)

was down 1 1/2, or 17.1%, to 7 1/4 after last night saying it sees its fourth-quarter results falling below expectations on customer deferrals of certain projects and delays in completing manufacturing projects. The three-analyst prediction called for earnings of 11 cents a share. Today, Morgan Stanley Dean Witter cut it to neutral from outperform.

Central Garden & Pet

(CENT) - Get Report

was up 1 3/16, or 7.8%, to 16 3/8 after last night posting a first-quarter loss 1 cent narrower than expected.

Electronic Data Systems was down 4 15/16, or 9.5%, to 47 1/16 despite last night reporting fourth-quarter earnings of 53 cents a share, 1 cent ahead of the 20-analyst outlook but below the year-ago 57 cents. Today, Lehman Brothers raised the stock to buy from outperform.

SCI Systems was down 8 1/8, or 18.9%, to 34 13/16 after last night missing second-quarter earnings forecasts by 2 cents a share with a profit of 48 cents. Today, Merrill Lynch downgraded it to long-term accumulate from buy while maintaining its intermediate-term neutral.

Sterling Commerce

(SE) - Get Report

was down 12 3/16, or 28.7%, to 30 1/4 after last night posting first-quarter earnings in line with estimates for 33 cents a share. Investors apparently were paying more attention to the company's smaller-than-expected software revenue. Today,

Warburg Dillon Read

slashed the stock to hold from buy.