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Rotation Favors Dow at Nasdaq's Expense, For Now

The beaten-down Dow is rebounding from last week's dip below 10,000, but Wall Streeters don't expect the trend toward tech to disappear.

Now this is different.

Investors have been cycling out of tech highfliers into some of the market's more beaten-down areas today. Banks, drugs, cyclicals, retailers and consumer cyclicals are all powering higher today; network equipment companies, biotechs and the like have fallen on hard times. For once, the

Dow Jones Industrial Average

is solidly higher while the

Nasdaq Composite Index

has fallen by the wayside.

There are no lack of potential catalysts for the move. The Dow's fall through 10,000

Friday, to a level not seen since early April of last year, brought home for many investors how badly many stocks have suffered over the last year and has probably spurred some bargain-hunting.

Morgan Stanley Dean Witter

put out a positive note on several financial groups -- most notably


(C) - Get Citigroup Inc. Report

, which was drawing attention in any case on John Reed's decision to give the helm over to Sandy Weill earlier than expected. Banks have long been considered a value candidate. The

Philadelphia Stock Exchange/KBW Bank Index

hit levels on Friday that it hadn't seen since October 1998 -- a time, one recalls, when the global financial system was believed to be coming apart at the seams. The bank index lately was up 24, or 3.7%, to 673.


TheStreet Recommends

Goldman Sachs

chief market strategist

Abby Joseph Cohen

-- who, though she isn't followed as closely as she once was, still carries weight -- wrote today that she believes the

S&P 500

is 5% undervalued. Profit expectations for 2000 and 2001 are heading higher, Cohen said. And "

more important than specific profit estimates for this year or next, is the likelihood that economic and profit growth will continue.


policy will be aimed at slowing and elongating the economic expansion, not ending it."

That view that the U.S. corporate profits will remain on sound footing may be drawing money away from technology, which lately has run higher on expectations that it is one of the few sectors that is well insulated from higher interest rates.

But it is not the first time we've seen a rotation out of tech and into old-economy stocks. So far, every time that has happened, things have rotated right back in short order.

"What they're selling today is the groups that have been strong, and then putting money into what people think is relatively cheap and relatively safe," said Jim Volk, co-head of institutional trading at

D.A. Davidson

in Portland, Ore. "Whether it's going to be one of these one day events, I don't know. But it does look like there's been a little stability, and that' given people courage."

The Dow lately was up 142, or 1.4%, to 10,004. The S&P was up 4, or 0.3%, to 1337.

Meanwhile, the Nasdaq was off 72, or 1.6%, to 4519. Internet Sector

index was down 23, or 2%, to 1153. And the

Russell 2000

was down 5 1/2, or 1%, to 551.

Today's rotation, however, is mostly a large-cap affair. Breadth is negative on both the

New York Stock Exchange

and the

Nasdaq Stock Market

. Larry Rice, chief investment strategist at


, said the market is having the same old problem.

"Again, you go from a reasonably valued market after the correction, and it will push you into overvalued in no time at all," he said. "The selloffs kill you, the rallies are narrow." Nor does Rice think that the move out of tech into old-economy stocks will last very long.

"First sign of the blue-chips getting weak," he said, "watch how the Nasdaq goes up."

Market Internals

New York Stock Exchange:

1,217 advancers, 1,629 decliners, 586 million shares. 21 new 52-week highs, 183 new lows.

Nasdaq Stock Market:

1,717 advancers, 2,313 decliners, 1 billion shares. 198 new highs, 105 new lows.

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