NEW YORK (CNNfn) - Caution prevailed as investors sold off technology stocks Monday to send U.S. stocks plunging, amid renewed concerns that a decelerating economy may be in play and could stifle corporate earnings growth.|
Citrix Systems was the catalyst pressuring the Nasdaq composite index to its first triple-digit loss in almost three weeks, after the software maker issued a profit warning. The Dow Jones industrial average faltered under tech selling, with financial stock buying unable to prop up the blue chip index.
"It's a very cautious market," said Alan Skrainka, chief market strategist at Edward Jones. "We're saying take a step back from the day-to-day and look at the big picture."
The Nasdaq fell 106.92 points, or nearly 3 percent, to close at 3,767.92. Meanwhile, the Dow Jones industrial average slid 49.85 to end the day at 10,564.21. The broader S&P 500 slid 10.95 to close at 1,446.00.
But analysts said now was not a time to panic. "I think it's just a little bit of balancing out after two weeks of a rally mode," said Peter Coolidge, senior trader at Brean Murray & Co. "Certainly Citrix set a negative tone for the tech-heavy Nasdaq and we really didn't recover."
The light volume signaled investors sitting on the sidelines ahead of fresh economic data to give indications about what the Federal Reserve may do with interest.
Linda Jay, a New York Stock Exchange floor specialist for RPM, told CNNfn's Market Call that stocks may remain in a holding pattern until the week's economic data and Tuesday's speech by Fed Chairman Alan Greenspan provides the market with direction. (317K WAV) (317K AIFF)
Analysts also said the lack of conviction also showed investors making snap selling decisions. "There is a predisposition to sell first and ask questions later," Christine Callies, stock strategist at Credit Suisse First Boston, told CNN's Street Sweep.
Market breadth turned negative. Declining issues on the New York Stock Exchange topped advancing ones 1,485 to 1,411, on volume of 754 million shares. Nasdaq losers beat winners 2,572 to 1,527, as more than 1.2 billion shares changed hands.
In currency markets, the dollar firmed modestly against the euro but weakened versus the yen. Treasury securities were little changed.
Economic radar turned up high
After six interest rate hikes by the policy-making body of the Federal Reserve, investors are hoping that the end is in sight for rising rates. Analysts said economic data this week is high on the list of what investors are looking at and could help cement some investor confidence if it continues to show a slowing economy.
"If we continue to see the trend slowing and we get better (economic) numbers, I think the Fed can take a pass at the end of the month and wait until August," said Art Hogan, chief market strategist at Jefferies & Co., referring the Fed meetings June 27-28 and Aug. 22.
Analysts said investors are keen to digest any rhetoric by the Federal Reserve ahead of its June meeting, in an attempt to glean what path the Fed may take with interest rate policy.
Greenspan will speak Tuesday about business data analysis. It is his first public address since May 25. The U.S. Central Bank said the speech will be delivered to the New York Association for Business Economics at 1:10 p.m. ET.
Also Tuesday, retail sales for May will be reported. A Briefing.com poll said analysts expect the number to edge up to 0 percent from a negative 0.2 percent. Excluding auto sales, the poll said analysts expected a rise to 0.4 percent from the previous zero percent.
"I think investors are somewhat nervous about the economic data coming out," David Presson, associate director of equity research at Banc of America Capital Management, told CNNfn's market coverage. "Once investors do become more convinced that we are near the end of the rising interest rate cycle, the market will turn around."
Techs follow Citrix on selling path
A profit warning from Citrix was the catalyst for tech sellers to jump into the fray and dump tech issues, weighed down by further jittery concerns about rising interest rates by the Federal Reserve.
"Investors are becoming extremely prejudiced about fundamentals," Ash Rajan, senior vice president at Prudential Securities, told CNN's Street Sweep. "There's no conviction and volume is really light."
Citrix Systems (CTXS: Research, Estimates) plunged 18-15/16 to 24-1/4, after the software maker warned that its second-quarter profit will fall short of expectations due to a slower rate of expansion for certain of its businesses. Paine Webber downgraded the company's stock to "neutral" from "buy."
Other software makers also slumped. Microsoft (MSFT: Research, Estimates) dipped 1-15/16 to 66-7/8, Oracle (ORCL: Research, Estimates) fell 2-1/8 to 80-9/16, and Veritas Software (VRTS: Research, Estimates) lost 10-7/16 to 125-1/4.
"(Techs) had such a terrific run for the past two weeks that I believe some people are taking this opportunity to take some money off the table and invest it in the 'old economy,'" Hogan said.
Investors in interest rate-sensitive financial stocks seemed to be favorably inclined about the future, supporting the Dow in the process. While a slowing economy would not normally be supportive for financial issues, analysts said they could provide more stable earnings growth.
J.P. Morgan (JPM: Research, Estimates) gained 1-1/16 to 129-5/8, Citigroup (C: Research, Estimates) remained unchanged at 64, and American Express (AXP: Research, Estimates) fell 1/8 to 53-11/16.
Corning (GLW: Research, Estimates), a maker of optical networking equipment, surged 18 to 230-1/8 after raising its second-quarter earnings forecast, citing strong demand for its products.
Hollywood Entertainment (HLYW: Research, Estimates) lost 3/32 to 7-1/4, after the firm said it will close its online retail division, Reel.com, another casualty of the e-commerce shakeout.
In acquisition news, aerospace equipment maker Northrop Grumman (NOC: Research, Estimates) has agreed to sell its commercial jet parts unit to closely held Carlyle Group for $843 million in cash and securities, plus the assumption of $400 million in unfunded benefits. Northrop shares fell 4-1/4 to close at 75-3/8.