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Nasdaq sees big sell-off
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January 11, 2000: 5:46 p.m. ET
Rising bond yields, merger hangover send U.S. stocks lower
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - U.S. stocks fell Tuesday, led by a plunging Nasdaq composite index, as rising bond yields dampened demand for equities.
And with euphoria over the America Online-Time Warner merger over, the market found none of the support it got Monday, when the Nasdaq set a record point gain and the Dow Jones industrial average rose to a new high on enthusiasm over Internet, communications and media stocks.
"We have 30-year bond yield pressing toward 6.70 percent, when you couple that with the kind of strength we had yesterday, you're going to find ample reason to take profits," said Terrence Gabriel, stock market strategist at IDEA Global.com.
Profit taking appeared to be the case with the Nasdaq, which plunged 128.48, or 3.17 percent, to 3,921.19, its fifth biggest point loss on record.
The Dow fell 61.12 to 11,511.08. The S&P 500 index lost 19.04 points to 1,438.56
Breadth was decisively negative, with decliners on the New York Stock Exchange beating advancers 2,085 to 1,015. Nasdaq volume was heavy, as 1.68 billion shares changed hands.
In other markets, bonds fell while the dollar dropped against the euro but rose versus the yen.
Yields soar
Analysts blamed some of the stock weakness on the bond market, where the yield on the 30-year bond rose to 6.67 percent. The highest yield in nearly two and half years, analysts say, may finally be luring investors from stocks, which sharply outperformed bonds last year.
"We're facing the realization that rising (interest) rates and rising stock prices are incompatible," said Richard Cripps, chief market strategist at Legg Mason. "The higher rates are really starting to make themselves felt."
Rising yields reflect market fears the Federal Reserve may need to launch a series of interest-rate hikes to preempt inflation and cool the overheating economy. Tighter credit tends to hurt corporate profits.
"It comes down to rate fears," IDEA Global.com's Gabriel said. "The Fed is going to have to get pretty aggressive. We're quite worried about the interest rate outlook."
Merger hangover
The market's drop Tuesday comes in sharp contrast to its surge Monday, when demand for Internet and media issues following the America Online (AOL)-Time Warner (TWX) merger helped lift the Nasdaq to a record gain of 167 points, wiping out most of last week's heavy losses.
"The reality is setting in on the AOL/Time Warner deal," said Richard Cripps, chief market strategist at Legg Mason.
America Online dropped 8-3/16, or 11 percent, to 64-1/2.
Time Warner, the parent company of CNNfn, fell 6-1/8 to 86-1/8. Yahoo! (YHOO), another Monday winner, also faltered. The leading Internet portal plunged 38-11/16 to 397-3/8 ahead of its fourth-quarter earnings announcement posted after the close of trading. Yahoo! ultimately reported fourth-quarter earnings of 19 cents a share, compared with the 15 cents a share expected by Wall Street analysts. MCI Worldcom (WCOM), Cisco (CSCO) and Amazon.com (AMZN) all ended lower.
Gainers/losers
The Dow's losses were held in check by Intel (INTC), which rose 3-15/16 to 89-11/16 after Credit Suisse First Boston upgraded the world's biggest chip maker to "strong buy" from "buy." Similarly, Dow component Coca-Cola (KO) jumped 2 to 60-13/16 on another Credit Suisse upgrade. General Motors (GM) was the Dow's biggest loser, dropping 2-9/16 to 72-15/16.
Bank One Corp. (ONE) fell 11/16 to 29-9/16 after the nation's fourth-biggest bank warned that earnings for the fourth quarter of 1999 and the full year 2000 will be below Wall Street's expectations.
Other banks also dropped. Bank of America (BAC) lost 1 to 46, and Chase Manhattan (CMB) shed 1-1/16 to 69-13/16.
Caution ahead?
Analysts say trading could slow in the days ahead as the market awaits figures on December producer prices Thursday and December consumer prices Friday. The government data could give insight into whether inflation is rising fast enough to prompt the Federal Reserve to launch a series of interest-rate hikes ahead.
The Fed tightened credit three times last year, bringing its main lending rate to 5.50 percent. But most analysts say the nation's central bank's inflation-fighting job is not done. They forecast a quarter percentage point rate hike in early February to further slow the white-hot economy. But the outlook is mixed over the need for a half percentage point tightening.
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