NEW YORK (CNNfn) - A massive exodus from technology stocks that started last week entered its second phase Monday, leading to the second largest one-day point loss on the Nasdaq and wiping out a 272-point rally on the Dow industrials.
"We're seeing a very substantial shift going on in the market," said Hugh Johnson, chief investment officer at First Albany.
The Dow Jones industrial average closed 53.56 points lower at 10,440.53, a dramatic turn after the index rose to 10,765.74 points around midday. Gainers still outnumbered losers by a margin of 1,931 to 1,195 as 1.2 billion shares changed hands on the New York Stock Exchange.
The Dow's failed rally was smothered by heavy selling among the index's technology components. At the same time, the technology-heavy Nasdaq Composite, which went through a lot of turmoil last week, plummeted 138.43 points, or 5.6 percent, to 2,345.61, a loss smaller only than the 140.43 points the index shed on Aug. 31, 1998.
The S&P 500 index fell 29.52, or 2.2 percent, to 1,289.48.
The abandonment of technology stocks, until recently the backbone of the Wall Street bull market, began last week as investors developed a new fervor for cyclical stocks -- shares of companies that do well when the economy is strong. According to Johnson, this sector rotation is "just what the doctor ordered" for Wall Street -- a broadening of the market that should eventually provide support for more gains. (434K WAV) or (434K AIFF)
Bonds drifted higher, bolstered by the stock market's halted advance. The benchmark 30-year Treasury bond climbed 23/32 of a point in price, pushing the yield down to 5.51 percent.
The dollar crept down against the yen and continued to force the euro to new lows following weekend comments by European finance officials implying they will tolerate their nearly four-month-old currency's decline against the greenback.
Tech stocks melt away
In stocks, technology issues, the market's laggard last week, remained under heavy pressure as investors digested news that a leading computer manufacturer is taking dramatic action to fight off slowing profit growth. Concerns about growth prospects in the entire sector have been haunting high-tech shares since last week.
Over the weekend, the board of Compaq (CPQ), the world's largest PC maker, forced the resignation of President and Chief Executive Eckhard Pfeiffer. The shake-up came only days before the company's first-quarter earnings release and its annual shareholder meeting, and just nine days after Compaq warned its profits would amount to less than half of consensus market expectations.
Compaq shares slipped 7/8 to 22-3/4, and the company's rivals in the computer industry also headed south. Dell (DELL) lost 2-13/16 to 35-7/16 and Gateway (GTW) fell 4-11/16 to 59-1/2, both registering losses of more than 7 percent.
Performance was mixed among the Dow's technology components. Shares of Hewlett Packard (HWP) advanced 1 to 71-3/8, but IBM (IBM) tumbled 3-5/8 to 166-3/4.
Other technology leaders came under the selling ax as well, with Microsoft (MSFT), which reports earnings Tuesday, losing 5-5/8 to 81, Intel (INTC) shedding 1-3/4 to 55-1/2, and Cisco Systems (CSCO) plunging 5-11/16 to 100.
Outside the big computer makers, shares of Qwest Communications (QWST) finished unchanged at 82 after rallying earlier in the day on news BellSouth (BLS) will invest $3.5 billion to buy a 10 percent stake in the company.
Internet shares also suffered big declines, with Yahoo! (YHOO) shedding 25-1/2, or more than 13 percent, to 163-11/16, Amazon.com (AMZN) losing 31-1/16, or more than 16 percent, to 158-15/16 and America Online (AOL) tumbling 22-3/4, or more than 16 percent, to 117.
Banks ride the wave, then sink
Strong earnings once again helped financial shares surge above the rest in the morning, before succumbing to the overall market slide late in the session.
Citigroup (C), the Dow component and largest U.S. financial-services conglomerate, became the latest bearer of bullish news, reporting record first-quarter profit and earnings per diluted share of $1.04, well above market projections for 87 cents per share. Citigroup's stock rallied during much of the trading session, but eventually finished 1 lower at 70-5/8.
Following in the footsteps of Citigroup, banking giant BankAmerica (BAC) also reported results that surpassed expectations, and saw its stock rise, then fall and close 1-1/4 lower at 71-3/4.
The news drove other banking stocks higher as well, before a downturn late in the day. Chase Manhattan (CMB), which rallied in the morning, finished down 1-1/16 to 85. On the Dow, American Express (AXP) fell 3-3/4 to 126-1/8 but J.P. Morgan (JPM) surged 3-1/2 to 136-5/8.
Transports fly, oil explodes
The Dow transports picked up where they left off last week, leaping 38.01 points, or more than 1 percent, to 3,566.71. Airlines, truckers and railroads were all deep in the black, with the airlines in particular extending their recent advance as investors woke up to the sector's relative bargain values.
Delta Air Lines (DAL) gained 1-7/8 to 68-3/16 and United parent UAL (UAL) rose 3/4 to 83-1/4.
Trucking firm CNF Transportation (CNF) joined the party after announcing first-quarter profits of 58 cents per share, beating Wall Street estimates by 8 cents. As a result, shares leapt 1-7/8 to 41-7/8.
The transport rally flew in the face of an upturn in oil stocks, traditionally a bad sign for the fuel-dependent truckers and airlines. Morgan Stanley Dean Witter raised its outlook on crude-oil prices, bumping its 1999 price target to $16 per barrel from $13.50 and its 2000 target to $17.50 per barrel from $15.50.
Morgan Stanley also said it expects major oil stocks to edge higher, recommending investors take up heavier positions in the sector. On the Dow, driller Chevron (CHV) surged 3-1/16 to 101-15/16 and Exxon (XON) leapt 2-5/16 to 82-1/4. Oilfield-service firm Halliburton (HAL) climbed 1-1/2 to 42-7/8.
Elsewhere in the energy industry, shares of Consolidated Natural Gas (CNG) soared 3-9/16 to 56 after the fossil exploration company got a $6.7 billion buyout offer from Columbia Energy Group (CG). Columbia shares slipped 1-1/2 to 46-3/4, while shares of Dominion Resources (D), Consolidated's former preferred merger partner, climbed 1-9/16 to 39-5/8.
(Click here for a look at today's list of CNNfn's market movers.)
(Click here for a look at today's CNNfn technology stocks report.)
-- by staff writer Malina Poshtova Zang with Robert Scott Martin