Two Markets Diverge -- Dow Surges, Nasdaq Crumbles
And this is only Monday.
Investors seized on the
Nasdaq Composite Index's
early
Microsoft
(MSFT) - Get Microsoft Corporation Report
-led negativity with a vengeance, burying the tech-heavy Nasdaq under a loss of 349.15, or 7.6%, to 4223.68 -- the worst point loss and fifth-worst percentage loss in history. They threw their money into the resurgent
Dow Jones Industrial Average
, which rose 300.01, or 2.8%, to 11,221.93.
The Dow's startling gain, its sixth-largest point rise ever, in the face of widespread tech panic demonstrates investors' faith in the market's resilience.
With participants remaining confident in stocks as an asset class, they're still making the technology sector the object of their burning wrath, and today was the extreme example of the two divergent ways of thinking. The equation right now for investors is pretty simple: Hate tech, and love most other stuff.
Nowhere is that more evident in the market averages. The Nasdaq has lost more than 16% of its value since closing at a record 5048.62 on March 10, while the Dow is up 13% in that same time period. The Dow closed at 11,221.93 today, and that's despite 76 points of negative drag from Microsoft. (See our
index page for a full roundup of Microsoft antitrust coverage.) Twenty-seven of the 30 Dow industrials finished the day higher. The
S&P 500
was mixed, rising 7.39 to 1505.97.
"The optimism, and all the flow of funds, had been into the tech sector at the expense of everybody else," said Bruce Bittles, market strategist at
TheStreet Recommends
J.C. Bradford
in Nashville, Tenn. "There's no more sponsorship left. At that same token, for Dow-type stocks like financials and cyclicals, nobody had interest and the potential for sponsorship was there."
The Comp was trampled underfoot from the get-go, on the expectation of an unfavorable ruling in the Microsoft suit. It obliterated any chance for the Nasdaq to build on Friday's rebound from what was an entirely forgettable week for the tech sector.
Microsoft investors woke up this morning and got themselves a gun, after the mediator, Judge
Richard Posner
, said this weekend that he'd given up trying to effect a settlement between Microsoft and the
Justice Department
.
The stock performed about as well as the Seattle Kingdome
did March 26, losing 14.8% to 90 13/16 on 130 million shares, making it the
Nasdaq Stock Market's
most active by a long shot. (It accounted for 7.6% of total
Nasdaq Stock Market
trading today.) The company lost a whopping $79 billion in market capitalization today, dropping it to third place in terms of market cap (behind
General Electric
(GE) - Get General Electric Company Report
and
Cisco
(CSCO) - Get Cisco Systems, Inc. Report
).
Other technology sectors were similarly crushed, as investors continued to revalue the sector harshly.
"You basically have a situation where sellers beget more sellers, and that's what's happening here," said Tim Grazioso, manager of Nasdaq trading at
Cantor Fitzgerald
, about 20 minutes before the close.
The
Morgan Stanley High-Tech 35
lost 5%, and the
Nasdaq Telecommunications Index
lost 7% today, as technology's war horses, no matter what color, were shuffled off to the glue factory. Cisco bested Microsoft's market cap despite losing 4 1/8 to 72 15/16, and
America Online
(AOL)
dropped 2 1/4 to 65.
No More Shaking Off Bad News
"If you think back, one of the characteristics of the tech rally was the ability for the market to shake off bad news," said Richard Dickson, technical analyst at
Scott & Stringfellow
in Richmond, Va. "What's happening is, Microsoft is perhaps bringing to surface deeper problems with tech right now. We had a rebound on Friday and it evaporated -- we've got more problems in techland."
But several years of 20%-plus returns in the stock market have bred an endemic level of confidence in stocks, so much so that bullish types still don't seem overly alarmed, despite 3-to-1 negative breadth on the Nasdaq today.
They continue to offer the usual platitudes when talking about the tech decline: that this had to happen sooner or later; that the rise was so quick, it was bound to cause a similarly disruptive, violent decline.
That's not to say there aren't concerns. Until today, the prospect that selling would ensue because of margin calls seemed far-fetched. Margin debt isn't a problem when the market is going up, but it gave rise to worry, mostly because that's what investors do when they're not trading. But now Bittles is beginning to think that panicked selling will take over, rather than aggressive revaluing of tech.
"I don't think we're there yet, where margin calls come into play," Bittles said. "But a lot of leverage has been used in these things and that's how you get into panics. If you get margin calls, then you get forced liquidation and you create a panic."
Earnings Outlook Still Strong
It's ironic that it would happen now, because analysts are expecting generally strong news on the earnings front for the entire market, even though analysts have been revising estimates for tech companies down, according to Joseph Kalinowski, strategist at
I/B/E/S
. Expected earnings growth for a basket of 79 New Economy stocks for the first quarter 2000 is 27.6%, down from 29.6% last month, he said. That's still strong growth.
Yahoo!
(YHOO)
, one of the more well-regarded Internet companies, lost 6.5% today, ahead of its Wednesday earnings report.
"Maybe some sort of a blowoff will create some sort of buying opportunity as soon as we see what they have to say, if Yahoo! reports well," said Grazioso.
Being a dot-com couldn't save you today, as
TheStreet.com Internet Sector
index dropped 9.8%.
eBay
was crushed, losing 18% to 143 1/4. B2B player
VerticalNet
(VERT)
lost 24% to 52 5/8.
'What's happening is, Microsoft is perhaps bringing to surface deeper problems with tech right now,' said Richard Dickson of Scott & Stringfellow. 'We had a rebound on Friday and it evaporated -- we've got more problems in techland.'
TheStreet.com New Tech 30
plummeted 102.68, or 13.9%, to 637.72. The index, launched in January, tracks the kind of go-go companies that serve as a magnet for the market's hot money. Quotes on the index are available at
http://www.thestreet.com/newtech/.
Level 3 Communications
(LVLT)
dropped 8% to 98 1/2,
CMGI
(CMGI)
lost 13% to 100, and
Qualcomm
(QCOM) - Get Qualcomm Inc Report
declined by 8 7/16 to 140 3/4.
AOL was the
New York Stock Exchange's
most active, with 20 million shares changing hands.
Going Into Stocks, Staying in Stocks
The
Philadelphia Stock Exchange Semiconductor Index
fell 7%, led by volatile
Rambus
(RMBS) - Get Rambus Inc. Report
, which dropped 11% to 256 15/16, and
Motorola
(MOT)
, which lost 5% to 138 3/4.
Does the tech sector decline mean more people are going to take up smoking? Certainly seems that way -- the
American Stock Exchange Tobacco Index
tacked on 6% today, led by Dow component
Philip Morris
(MO) - Get Altria Group Inc Report
, which added 10%, and
RJ Reynolds
(RJR)
, which rose 14%.
"What'd you'd seem to argue is, rather than a flight to safety, with money going into bonds, money is going into stocks and staying in stocks," said Dickson. "Why are chemical stocks going crazy? Why the bank index? Maybe we won't get 40, 50% growth in these areas, but we'll get good growth."
The
S&P Chemical Index
gained 4.9% today.
Banks were strong again. Dow component
Citigroup
(C) - Get Citigroup Inc. Report
gained 2 1/16 to finish at 62 7/16, an all-time closing high, and fellow Dow hand
J.P. Morgan
(JPM) - Get JPMorgan Chase & Co. Report
rose 10 to 141 3/4. The
Philadelphia Stock Exchange/KBW Bank Stock Index
gained 5.8% today.
Interestingly, the price-weighted
Wilshire 5000
, the broadest measure of the entire stock market, lost 1.2% today. Tech stocks make up 29% of the Wilshire's performance. Small-cap stocks were also a drag on the overall market, as the
Russell 2000
lost 4.3% of its value today.
Kohl's
(KSS) - Get Kohl's Corporation Report
, a department store retailer, hit another all-time closing high today, ending the day at 104 11/16, up 1 5/8. The stock rose more than 30% in the last month. The
S&P Retail Index
gained 5.6% today.
The bond market was quiet. The benchmark 10-year Treasury note gained 10/32 to 103 31/32, dropping the yield to 5.96%. The 30-year bond was up 10/32 to 106 7/32, dropping the yield to 5.81%.
Market Internals
Breadth was positive on the NYSE, horrific on the Nasdaq.
New York Stock Exchange
: 1,569 advancers, 1,486 decliners, 1.027 billion shares. 65 new highs, 42 new lows.
Nasdaq Stock Market
: 1,138 advancers, 3,167 decliners, 1.715 billion shares. 57 new highs, 157 new lows.
For a look at stocks in today's news, see the Company Report, published separately.
