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Nasdaq takes a plunge
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May 10, 2000: 5:21 p.m. ET
Tech selloff enters day three as high-valuation concerns persist
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - The Nasdaq composite index tumbled more than 5 percent Wednesday, flirting with its lowest close of the year in a broad technology selloff led by many of 1999's best-performing stocks.
No major news rocked the markets. Instead, analysts blamed the three-day rout on growing investor sentiment that high-flying tech shares have come too far too fast.
"I think what we've seen is a phase shift on Wall Street," Roger McNamee, general partner at Integral Capital Partners, told CNN's In the Money. "And frankly investors are looking for a reason to sell."
Sell they did -- even in the face of good news. Cisco Systems posted strong earnings, but got punished. Applied Materials, which as expected announced solid profit after the close of trading, also took a hit. And upbeat comments from IBM weren't enough to lift sentiment, which soured after Salomon Smith Barney downgraded Motorola and slashed the price target on its stock.
The Nasdaq fell 200.08 points, or 5.6 percent, to 3,384.93. That's less than 64 points above its lowest close of the year: 3,321.17, reached April 14.
 Still, the Nasdaq rose 86 percent in 1999 and was up 24 percent for the year in early March, leading analysts to conclude a pullback was due.
"Is there still valuation concern out there? The answer is yes," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum.
The Dow, meanwhile, shed 168.97 to 10,367.78, hurt by its major tech components, IBM, Intel and Hewlett-Packard.
The S&P 500 lost 29.06 to 1,383.08.
More stocks fell than rose. Declining issues on the New York Stock Exchange beat advancing ones 2,117 to 878 as trading volume reached 975 million shares. Nasdaq losers topped winners 3,262 to 892, with more than 1.5 billion shares changing hands.
In other markets, Treasurys rose as investors sought safety in fixed-income securities. The dollar fell against the euro but rose versus the yen.
Tech selling accelerates
Despite announcing strong earnings late Tuesday, Cisco Systems (CSCO: Research, Estimates) shed 4-1/4 to 58-1/4. The computer networking equipment maker posted a fiscal third-quarter profit of 14 cents per share, a penny better than Wall Street forecasts.
But valuation concerns that began Monday for Cisco, and spread across the tech sector, showed no signs of letting up.
"The (technology) market is still overvalued by 30 percent according to our model," Elaine Garzarelli, president of Garzarelli Capital, told CNN's In the Money.
For months, investors were willing to pay high prices for technology stocks, bidding them to levels beyond historical precedent. That sentiment changed in recent weeks as emphasis shifted to fundamentals such as earnings.
"I think what's happening is a continuation of the correction in the overbought technology sector that began a couple weeks ago," Clark Yingst, market analyst at Prudential Securities, told CNN's Street Sweep.
Many smaller, less-tested tech companies took the biggest hit last month. But Yingst said the Nasdaq's worst losses may not be over until the large technology blue chips, which have held up better, shake themselves out.
Those stocks fell sharply Wednesday. Applied Materials (AMAT: Research, Estimates) dropped 6 to 84-5/8. After the close of trading, the chip maker posted earnings of 55 cents a share for its fiscal second quarter, more than triple the year-ago figures.
 Motorola (MOT: Research, Estimates) tumbled 18 to 86-1/2. Salomon Smith Barney downgraded the telecom equipment maker to "outperform" from "buy" and lowered the price target on the stock to $120 from $200.
Positive comments from IBM Chairman Lou Gerstner had no apparent effect. IBM (IBM: Research, Estimates) fell 5-1/16 to 103-15/16, even though Gerstner said the company's core businesses are "back on track."
Among other Dow issues, Intel (INTC: Research, Estimates) shed 10-7/8 to 106-1/16 and Hewlett-Packard (HWP: Research, Estimates) tumbled 6-9/16 to 126-1/4.
The Fed ahead
The Federal Reserve next week is expected to raise interest rates for the sixth time since last June. Anxiety over the size of this rate hike has plagued investors, who fret that an aggressive half percentage point increase, by boosting borrowing costs, will adversely affect corporate profitability.
"I think we are just mired in interest-rate concerns until we get some clarity on rates," Ehrenkrantz King Nussbaum's Hyman said.
Still, David Elias, chief investment officer at Elias Asset Management, told CNNfn's Market Coverage that the worst selling may be over for the market. (374K WAV) (374K AIFF).
And not all stocks fell Wednesday as investors moved money into "old economy" shares seen as less sensitive to a slowdown. Philip Morris (MO: Research, Estimates) jumped 5/16 to 23-15/16 and Coca-Cola (KO: Research, Estimates) lost 2-5/16 to 52-13/16.
The Dow Jones utility average, home to many defensive stocks that have weathered bear markets, rose 5.47 points, or 1.72 percent, to 325.98 . 
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