SAN FRANCISCO -- There were nine in the bed and the little one said, "roll over":
"As a consequence of relative performance, we no longer are overweight in technology or consumer staples. Financials have been assigned the largest recommended overweight relative to the S&P 500. Other overweights include pharmaceuticals and selected basic materials and energy-related stocks."
Abby J. Cohen, Goldman Sachs. March 28, 2000
There were eight in the bed and the little one said, "roll over":
"We think that investors ought to use rebounds to reduce exposure to technology stocks that have declined by 40% to 50% or more from their recent highs; they should also use pullbacks or tests to increase commitments to the energy, basic-industry, consumer-cyclical, and financial sectors of the market."
Richard McCabe, Merrill Lynch. April 10, 2000.
There were seven in the bed and the little one said, "roll over":
"A routine correction to the still-heavy weighting of technology in the broader equity market could result in the transfer of roughly $2 trillion of market cap into other sectors or assets. New leadership is likely to develop along two parallel lines: the fundamental (consumer cyclicals, energy) and the tactical (healthcare)."
Christine Callies, Credit Suisse First Boston. April 10, 2000.
Gail Dudack, the long-skeptical equity-market strategist at
Warburg Dillon Read
, and Louis Yamada, director of technical research at
Salomon Smith Barney
, also said "roll over" (in so many words) Monday.
Countless other "little ones" have issued similarly negative utterances about tech stocks in recent days, weeks and months, including Thomas McManus, equity portfolio strategist at
Banc of America Securities
, and Edward Kerschner, chairman of investment policy at
, as reported in this space back on
(Going further back, some market seers have been saying for years that techs are overvalued and investors should focus on so-called value stocks. While it's interesting to hear what those folks have to say, the fact the goatee I'm sporting will
come back into style doesn't make me a fashion plate.)
The point is, anyone who doesn't believe the "herd mentality" is a powerful force on Wall Street got a rude awakening
Monday. In large part in reaction to aforementioned comments from McCabe and Callies, the
suffered its second-worst point loss and eighth-largest percentage decline ever, which puts the seriousness of the session in better perspective (as those who complain about the irrelevance of "record-setting" point moves rightfully note).
"This is one of the consequences of everyone saying the same thing," said one trader. The herd mentality "always has been in force
on Wall Street and always will."
That may be informative to those who thought "independent thinking" was more than just a slogan used by
research shop on Wall Street, but provides little solace to the rest of you.
In that vein, Gary Kaltbaum, chief technical analyst at
in Orlando, Fla., said the fact so many fundamental analysts are "suddenly extremely bullish" could be a "contrarian indicator." He notes correctly that few were "talking down" tech stocks a month ago.
In other words, there may not be anybody left to yell "roll over" if this keeps up, thus limiting the potential for tech stocks to continue (can't resist) falling out of bed.
Additionally, Monday's setback came on relatively light volume and before first-quarter earnings are released
. By all accounts, those earnings should be stellar for the tech sector, particularly given the relative paucity of negative preannouncements.
"The earnings news for this quarter should be exceedingly good," Chuck Hill, director of research at
First Call/Thomson Financial
, wrote today. "Whether that will pull the market out of its current funk remains to be seen, but the earnings reports certainly should help."
After the close,
first-quarter profits that were more than double the results of a year ago and a penny ahead of expectations.
Hill noted that while commodity cyclical sectors are expected to have the highest absolute increase in earnings, "the technology sector really is what is driving the strong earnings" that should bring overall S&P 500 earnings up 22% for the quarter.
But the research chief also recalled how past advances in technology have led to "excessive valuations" for this sector, which have been followed by "major" corrections.
"The only difference this time is that the tech advancements are more profound and therefore the tech valuation bubble is bigger and longer-lasting than prior ones," he said. "Whether the correction is deeper or not remains to be seen, but a correction of some sort seems inevitable. However, the current earnings reports will certainly not be what breaks the bubble."
Judging by the experience of
since its report last week and Motorola tonight, earnings may not prove the salvation either. Motorola shares were trading down around 1, to 150, in after-hours activity, according to
Meanwhile, despite his hope that the fundamental analysts have called the bottom, Kaltbaum said "it still looks ugly on a technical basis" for the Nasdaq. "Too many leaders have broken down. Any move up will take time, and if big-caps like
get caught up, then 3650 will be easy" to revisit (vs. easy to digest for those long).
Unfortunately, cold comfort is all I can offer at this point. Somebody must have taken the blankets with them.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at