Well, it didn't take long for those weak technical conditions to do damage in the Nasdaq Composite. As noted
here Monday, the index has been struggling to breach its 52-week highs for more than a week. On Tuesday, investors threw in the towel and took the index down more than 2% to 2107.86. The Dow Jones Industrial Average, which had not shown the same pattern of failed highs, lost almost 100 points, or 0.9%, to 10,630.78, while the S&P 500 lost 1.2% to 1188.04. Higher oil prices, tax-related profit-taking and all the usual excuses were blamed when the indices lost slight opening gains and started plunging after 10 a.m. EST. But the initial drop accelerated sharply after 2 p.m. EST, when the Federal Reserve released details behind its December decision to hike short-term rates. Minutes of the Dec. 14 Federal Open Market Committee meeting showed the world just how committed the central bank is to raising rates further. A side comment about "excessive risk-taking" brought back memories of Alan Greenspan's Dec. 5, 1996, "irrational exuberance" remark. In reaction, pronounced weakness showed up in semiconductors, with the Philadelphia Stock Exchange Semiconductor Index down 3.3% on the day; homebuilders, with the Philadelphia Housing Index down 2.8%; and mining companies, with the Amex Gold Bugs index down 2.1%. Among individual names in those sectors, Intel ( INTC) dropped 2%, Centex ( CTX) shed 5% and Freeport McMoran ( FCX) lost 4%. McDonald's ( MCD), up 0.8%, was one of only four stocks in the Dow that finished in the green. Breadth was strongly negative, with three times as many stocks falling as rising on both the Nasdaq and the New York Stock Exchange. Also worrisome for bulls, the selloff was accompanied by rising volume, with 2.7 billion shares traded on the Nasdaq and 1.7 billion on the Big Board.
But the indices did climb off their lows for the day -- the Nasdaq found support just above its Dec. 9 low of 2097 -- and the outlook isn't dire after comparing the day's action to similar selling frenzies in the past two years.
The Commerce Department said that factory orders rose 1.2% in November to $377.4 billion, ahead of the 1% gain expected by forecasters. But looked at through the subindex preferred by economists, which excludes volatile aircraft orders, factory activity didn't look good at all. In fact, orders excluding transportation showed no gain in November. Excluding aircraft and the Defense Department, it wasn't quite that bad, with orders for capital goods rising 0.8%.
here, the pickup in IPOs last year hardly looks indicative of the frothy markets of 1999 and 2000. Companies going public had stronger results and longer histories than those of the bubble era. And returns on IPOs were sweet -- rising 29% on average -- but nothing like the average 276% return in 1999, according to Renaissance Capital. But ultratight spreads on junk bonds and crazy housing prices do seem more than a bit worrisome. Both phenomena are directly related to the Fed's decision to keep interest rates so low for so long. As always, the minutes don't identify just which committee members were worried about potential "excessive risk-taking." So outsiders will have to wait for further speeches to see if it included someone influential like Greenspan or someone less well-known, like Sandra Pianalto (president of the Cleveland Fed, for those keeping score at home).