Inflation fears hit techs
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July 29, 1999: 4:29 p.m. ET
Rising labor costs put technology investors in fear of rate hike
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NEW YORK (CNNfn) - Inflation fears hit technology stocks hard Thursday, as economic figures made investors nervous that an interest rate hike may be in the offing.
According to preliminary data, the Nasdaq Composite fell 65.83 points, or 2.43 percent, to close at 2640.01 Thursday, ending what had been an upward trend for the index in recent days. The technology-heavy index got the economic news before markets opened, making for a overall miserable day.
While the nation's gross domestic product grew less quickly than economists had predicted, investors found reason for concern within the employment cost index.
The ECI, which measures the labor-side cost of producing the nation's goods, climbed more than had been expected.
Labor costs are one of the key measures the Federal Reserve uses to set interest rate policy. Rising labor costs can be an inflation signal and if it fans Fed worries, policy makers could raise interest rates.
That hits technology pretty hard, since it raises the cost of borrowing money, which tech firms rely on to grow.
The figure could be just enough to create confusion for a while in the technology sector, according to Barry Hyman, market analyst at Ehrenkrantz, King and Nussbaum.
"People buy techs for gains, not for market performance," said Ehrenkrantz. "They'll be under pressure until we get a clear focus on the Fed."
Internet stocks fall furthest
As the most volatile area of the technology landscape, Internet stocks predictably fell the furthest in the sector.
Investors chose to sell off some of the biggest names with the most energy. Web portal and search engine firm Yahoo! (YHOO) dropped 6 to 137 after rising more than $11 per share the previous trading session. Online retailer Amazon.com (AMZN) dropped 4-3/16 to 101-9/16.
Online advertising firm DoubleClick (DCLK) suffered a similar fate. It fell 4-1/8 to 81-7/8 Thursday after gaining more than $5 on Wednesday.
Shares of America Online (AOL) dipped 3-7/8 to 98-7/8 Thursday. Earlier in the day, the company announced a deal with Apple Computer in which Apple will develop products based on AOL's popular instant messaging service.
Elsewhere on the access side, Mindspring (MSPG) lost 1-1/8 to 34-3/8 after taking a severe hit on Wednesday as investors reacted to its earnings. Earthlink (ELNK) shed 3 to 49-1/2 and PSINet (PSIX) edged 1-1/16 lower to 51-1/2.
Shares of online brokerage E*Trade (EGRP) couldn't find support Thursday, even after the company announced it had launched operations in the United Kingdom. It lost 1-31/32 to 32.
E*Trade will offer U.K. investors online trading for $23 per transaction. Charles Schwab (SCH), which rolled out a European trading service last year, fell 2-3/8 to 45-11/16.
Another online broker managed to staunch a sell-off of its shares. Ameritrade (AMTD) stock edged 1-3/16 lower to 26-11/16 after announcing it had canceled a previously announced $250 million secondary offering due to weak demand.
Instead, the company is going to sell $200 million of convertible notes to institutional investors, a move that Wall Street analysts applauded, as Ameritrade shares have fallen since the company announced the secondary offering.
Hardware shares pressured the Dow Jones industrial average. Hewlett-Packard (HWP), a maker of computers and peripheral devices, fell 3-7/16 to 106-1/2. Blue chip IBM (IBM) lost 3 to 125-3/8.
Elsewhere in the hardware sector Texas Instruments (TXN) lost 5-5/16 to 143-1/4 and Intel (INTC) was down 13/16 to 69-1/2. Server maker Storage Technology (STK) fell 2-13/16 to 19-15/16 and Sun Microsystems (SUNW) was off 2-5/8 to 68-1/8.
One tech managing to escape the sector sell-off was Net2Phone (NTOP), a Web telephone firm that made its market debut on Thursday, leaping 11-9/16 to 26-9/16 after being priced Wednesday at $15 per share.
The company provides services allowing phone calls over the Internet. Its software will be embedded into new versions of the browser of America Online's Netscape unit.
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