SAN FRANCISCO -- The law of unintended consequences reared its ugly head today.
Abby Joseph Cohen
announced she was reducing her recommended equity exposure and technology stock weightings
yesterday, she pretty obviously didn't want to come off as "bearish" on tech or cause a severe market reaction. Similarly, when
decided to increase production it clearly didn't intend to send oil prices swooning.
But Cohen's comments got an already jittery market thinking (more) about potential overvaluation in tech stocks, which helped spur Tuesday's selloff in tech. That, in turn, carried over into today's session where tech favorites tumbled and blue-chip names assumed leadership. Meanwhile, crude prices fell 2.5% to $26.41 a barrel.
Nasdaq Composite Index
fell 189.22, or 3.9%, to 4644.67 today, its third biggest point decline in history. Technology stocks big and small -- save notable exceptions such as
-- fell sharply for the second straight session.
Microsoft rose 2.3% after announcing an alliance with
to sell appliance servers; meanwhile, there was a welcome lull in news reports about a potential settlement in its dealings with the
. IBM fell 2.1%.
Excite@Home rose 9.1% after
said it would
increase its voting stake in the Internet portal. AT&T gained 1.4%.
But those were clearly the exceptions, as bellwethers such as
to highflyers such as
stumbled in unison.
TheStreet.com Internet Sector index lost 93.01, or 7.6%, to 1124.08 while the
shed 3.7% and the
Philadelphia Stock Exchange Semiconductor Index
Dow Jones Industrial Average
rose 82.61, or 0.8%, to 11,018.72 after trading as high as 11,101.55.
The Dow gained thanks to strength in Microsoft, as well as strong gains by non-tech components such as
ExxonMobil rose 2%, leading a strong showing by energy stocks despite the dip in crude prices. The
American Stock Exchange Oil & Gas Index
rose 4.9% while the
Philadelphia Stock Exchange Oil Service Index
Retailers and other consumer focused stocks were also strong as money went searching for perceived values in so-called Old Economy stocks. The
S&P Retail Index
Those gains helped the
rise 0.79, or 0.1%, to 1508.52, overcoming the negative effects of bellwether tech names.
fell 16.04, or 2.9%, to 543 as biotech favorites such as
suffered big losses in concert with small-cap tech names. The
American Stock Exchange Biotech Index
"It's another one of those days where they're selling the New Economy and buying the Old," said Bob Basel, director of listed trading at
Salomon Smith Barney
. "People are doing the group rotation off what
Cohen said yesterday."
Some traders attributed the action to other factors, such as the coming end of the first-quarter. But, expect "more volatility tomorrow and Friday vis-a-vis end-of-quarter activity," Basel said. "This is more on Abby's comments."
Asked about the fact Cohen simply expressed a view espoused by many others, the trader said simply: "She's got a lot of clout."
New York Stock Exchange
trading, 1.04 billion shares were exchanged while advancers led declining stocks 1,613 to 1,337. In
Nasdaq Stock Market
action 1.7 billion shares traded while losers led 2,989 to 1,317. New 52-week lows bested new highs 56 to 53 on the Big Board and by 120 to 65 in over-the-counter trading.
Feeling a Change in the Wind
The action this week -- indeed the action since mid-March -- has some market players hopeful the long-awaited, long-anticipated revival of blue-chip stocks at the expense of technology issues is at hand.
Stanley Nabi, chief investment officer at
DLJ Investment Management
, admitted having expected such a shift previously, only to have been proven wrong.
"But there is some accumulation of factors here that show there may be a better balance developing between the Old Economy and the New Economy," Nabi said.
The veteran strategist noted 18 months ago (or so) areas such as pharmaceuticals were trading with price-to-earnings ratios of 35 to 40 times, thus making the choice to pay higher P/Es for technology stocks easier to digest. But currently, many of those non-tech industries have "reached levels of valuation reminiscent of the recession" in the early 1990s, while tech names are trading at higher P/Es still. "The disparity of valuation has become so wide it's become noticeable even to those who don't notice" valuation, he said.
Other factors include the increasing supply of high-tech stocks, either via the end of lock-ups on IPOs even as the same -- and other -- companies attempt to sell secondary offerings.
Additionaly, the rotation into different "subsegments" within technology by speculators has become so quick and intense, there may not be any sectors left for the momentum players to get into, he said.
Finally, there are "seasonal factors," such as the end of the quarter. While so-called window dressing is usually thought of as a time when fund managers buy winners, Nabi noted many also "take profits" to "average down" exposure to names that have become outsized parts of portfolios.
"A combination of these things is going to slow the demand for these high P/E tech stocks," he said. "I'm not going to pound the table to say it's happening now and we see the turn. But it has to happen sometime in the short-term."
But another market player dismissed talk of a shift.
"I'm sticking with the scenario rates are going higher, the
will slow the consumer and stocks like
that are up sharply today probably have more downside than upside right now," he said. "I'd lean more toward the New Economy than the Old for the shorter run. They're less affected by the rate scenario than the old-line stocks we've seen rally today."
Among other indices, the
Dow Jones Transportation Average
rose 9.27, or 0.4%, to 2690.24; the
Dow Jones Utility Average
rose 6.42, or 2.3%, to 290.77; and the
American Stock Exchange Composite Index
shed 15.61, or 1.5%, to 1000.90.
Market data above are preliminary. For coverage of today's top stocks in the news, see the Company Report, published separately