SAN FRANCISCO -- Amid a lot of background noise, and a day ahead of an expected Federal Reserve rate hike, the bottom line is that the trend evident last week re-emerged today. That is, valuations matter.
It would be a gross oversimplification (as well as an increasingly tired trope) to say Old Economy stocks benefited at the expense of New Economy stocks. Still, the
Dow Jones Industrial Average
rose 85.01, or 0.8%, to 10,680.24 while the
Nasdaq Composite Index
shed 187.64, or 3.9%, to 4610.49 -- suffering the third-worst point decline in its history.
The final tallies set up the potential for deliciously cliched headline possibilities for tomorrow's newspapers and tonight's TV broadcasts. But -- as is often the case -- a casual glance does not tell the whole story.
Notably, the Dow's gains were inspired largely by technology components
, rather than Old Economy cyclicals or consumer-focused names.
Other Dow movers included
on the upside while
was the biggest drag, falling 2.9% as crude prices declined.
Meanwhile, beyond tech bellwethers, the mood in the sector was depressed, if not worse.
A major catalyst for the Nasdaq's retreat was
, which tumbled 61% after saying it would
restate its financial results for 1999. The Internet software developer said it was changing the way it recognized revenues for certain contracts following guidance by the
Securities and Exchange Commission
Concerns about revenue recognition go beyond MicroStrategy's specific case, but that firm's announcement heightened questions about using price to revenue as the "valuation standard" for Internet stocks, according to Barry Hyman, chief market strategist at
Ehrenkrantz King Nussbaum
It's the definition of standards here that
is very concerning," Hyman said. MicroStrategy's response to the SEC "changes the parameters. I don't look for a major Internet collapse, but we may have to go down somewhat more to wash out weaker ones."
Internet stocks were further saddled by an article in
that questioned the ability of many names in the sector to maintain operations at current cash-burn rates.
TheStreet.com Internet Sector
index plummeted 87.78, or 6.9%, to 1184.83, although few DOT components were mentioned in the survey, which was contradicted and criticized by many.
Among big Net names in the news,
added 3.4% after inking a
joint venture with
, which fell 14.9%.
fell 14.4% after (another)
article suggested the company could face increasing competition from a proposed online venture by the hotel industry.
Other so-called highfliers in the tech and biotech sectors also got battered today as momentum continued to show its power to move stocks down as well as up.
"It's a potential rout on the Nasdaq," Hyman said. "Clearly the winners are blue-chips because they represent actual earnings."
The strategist noted a "flight to quality" within the tech sector, as evidenced by strong gains from bellwethers such as Intel and
-- which received positive comments from
Salomon Smith Barney
. Other notable tech gainers included
. While the
shed 4%, the older-tech
Morgan Stanley High Tech 35
slid just 1.2%.
Among big losers today were tech names such as
, as well as biotech plays such as
Protein Design Labs
American Stock Exchange Biotech Index
Few Alarm Bells Ring
Despite the Comp's big decline, most traders took a somewhat relaxed attitude about the session.
"These are the markets we've been in," said Sam Ginzburg, senior managing director of equity trading at
. "This is what the Comp does. It's not something that's alarming me."
Like many, Ginzburg noted trading volumes were down as many players chose to sit out the action ahead of tomorrow's Fed meeting.
New York Stock Exchange
trading, 917.7 million shares were exchanged while declining stocks led advancers 1,569 to 1,381. In
Nasdaq Stock Market
action 1.5 billion shares traded while losers led 3,029 to 1,293. New 52-week highs bested new lows 45 to 30 on the Big Board while new lows led 116 to 81 in over-the-counter trading.
"Tech is not going away but it's going to struggle here because it moved so far so fast," said Robert Harrington, co-head of block trading at
. "Valuations are still out of whack."
Once the Fed meeting has passed, the focus will return to earnings and growth, the trader said. "Some highfliers will show good growth and revenue and will go up. Some will show things aren't so good" and will continue to suffer.
Finally, Harrington noted the Nasdaq is still struggling on a technical basis after having its "upside momentum" broken last week. Last
Thursday's intraday low around 4455 will be a short-term focus for market players, he said.
Among broader market averages, the
dipped 7.84, or 0.5%, to 1456.63 while the
dumped 25.57, or 4.5%, to 549.20.
Among other stocks in the news,
fell 4% despite reporting
earnings well in excess of expectations. The
American Stock Exchange Broker/Dealer Index
Among other indices, the
Dow Jones Transportation Average
fell 24.24, or 0.9%, to 2599.59, the
Dow Jones Utility Average
slid 1.88, or 0.7%, to 288.05; and the
American Stock Exchange Composite Index
shed 4.73, or 0.5%, to 1106.27.
For coverage of today's top stocks in the news, see the Company Report, published separately