Cisco Leads Techs Into Morass of Malaise

With selling in Cisco providing today's catalyst, the market has remained in a funk ahead of next week's Fed meeting.

Author:: Eileen Kinsella
Publish date:: May 8, 2000 1:12 PM EDT

Stocks stumbled out of bed this morning, trying to muster up enthusiasm for work, but by midday, the groggy feeling remained. Blue-chips were dipping in and out of the red, while technology stocks wished they had just stayed in bed.

The

Nasdaq Composite Index

was down 90, or 2.4%, to 3727, though it rebounded slightly from its morning low of 3716.97. The

Dow Jones Industrial Average

managed to fight off the early selling and lately was above break-even, up 5 to 10,582. The small-cap

Russell 2000

, which was the only major index that pocketed a gain last week, was down 7, or 1.4%, to 506. The broader

S&P 500

was down 6, or 0.4%, to 1427.

A bearish

Barron's

article on

Cisco

(CSCO) - Get Report

was blamed for a lot of the pressure in tech stocks today. The networking giant lately was off 6.2% after the story questioned Cisco's valuation in the wake of $6 billion all-stock bid for

ArrowPoint Communications

(ARPT)

The market "just sort of has a blue-funk feeling," said Doug Myers, vice president of equity trading at

IJL Wachovia

in Atlanta. "There is just no compelling reason to run out and buy stocks right now. Most of the people who want to own them already do. They don't need to add to positions now." A glance at the volume on both exchanges certainly backed up that viewpoint.

Myers was referring to the general malaise of

Fed fever weighing on the market as all eyes stay focused on the May 16

Federal Open Market Committee meeting. Investors were taken for a wild ride last week as report after report showed signs that inflation might finally be rearing its ugly head.

When Friday's numbers showed

unemployment

at a 30-year low and the market hopped higher, some market watchers dubbed it a "relief" rally, saying that the uncertainty of a 50-basis-point hike had been removed. Given Friday's thin volume and today's limited upside, the so-called relief looks more like wishful thinking. Things aren't likely to be any smoother this week with

retail sales

and the

Producer Price Index

, two closely watched economic indicators, on the way.

Net Stocks Share in Suffering

Net stocks were underwater, with

TheStreet.com Internet Sector

index off 14, or 1.5%, to 884.

Yahoo!

(YHOO)

CMGI

(CMGI)

and

Amazon.com

(AMZN) - Get Report

all were down.

John Babyak, portfolio manager at

WHB/Wolverine Asset Management

, said there has been little rhyme or reason to the "topsy-turvy" market of late. "This is definitely a trader's market. They're selling the stuff that was up last week. There's no trend or real theme, nothing in here that anyone can hang their hat on."

Babyak pointed to

Young & Rubicam

(YNR)

as a stock that is almost emblematic of the recent market. The stock lately was down 2 1/2, or 4.6%, to 51 5/8 after news this morning that it will be taken over by British advertising giant

WPP

. The stock had a volatile ride last week. "One day it's up on news of rumors, then on Friday it sold off on rumors that the deal was off," he said.

"From a portfolio manager's standpoint, you have to take profits selectively," said Babyak. "We're stocking up on the names we like when they're down. You have to have faith. Fundamentally everything is going on sale at some point. Nothing is immune."

Indeed, watching the speed of rotation in and out of sectors these days is enough to give an investor whiplash. Financials are up today, seemingly for no other reason than that they were beaten up last week. Dow component

J.P. Morgan

was rising 2.7% while

American Express

(AXP) - Get Report

was up 2%. The

American Stock Exchange Broker/Dealer Index

was up 1.1%.

Cyclical stocks were benefiting from the stream out of tech stocks today. The Dow Jones Utility Average was up 1.7%, while the

Dow Jones Transportation Average

gained 1.5%.

Oil service stocks were higher, with the

Philadelphia Stock Exchange Oil Service Index