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Nasdaq slide resumes
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January 12, 2000: 5:54 p.m. ET
Tech-heavy index falls with the broader market; Dow ekes out a gain
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - The Nasdaq composite index fell for the second straight session Wednesday, hurt by soaring long-term interest rates and Yahoo!, which dropped 10 percent after missing the most optimistic of fourth-quarter profit expectations and warning of slower revenue growth ahead.
But the Dow Jones industrial average continued to outperform its tech-heavy counterpart, lifted by Intel and once out-of-favor industrial and consumer-product stocks like General Motors, Coca-Cola and Merck.
Still, market breadth was overwhelmingly negative as analysts said the highest bond yields in two-and-a-half years crimped demand for equities.
"You got stocks getting hit by the weakness of the bond market," said Phil Orlando, chief investment officer at Value Line Asset Management.
Kevin Bannon, chief investment officer at the Bank of New York, agreed.
"The thing that's weighing on the stock market is the bond market," Bannon, told CNNfn. "That's because bond investors are convinced the party in the economy is getting too boisterous, the (Federal Reserve's) going to come in and take the punch bowl away, and I think that might keep stocks under wraps here."
That was clearly the case Wednesday, with the Nasdaq falling 71.17 points, or nearly 2 percent, to 3,849.51, a day after posting its fifth-biggest point loss on record.
The Dow rose 40.02 points to 11,551.10. The broad S&P 500 lost 6.31 to 1,432.25.
The Nasdaq is now off 5.3 percent this year while the Dow is up about 0.5 percent.
Still, Megan Graham-Hackett, technology analyst at S&P Equity group, sees pressure on technology stocks lifting by the second half of the year. (437K WAV) (437K AIFF)
Despite the Dow's gains Wednesday, more stocks fell than rose. Decliners on the New York Stock Exchange beat advancers 1,746 to 1,313. Volume was moderate, with 972 million shares changing hands.
In the currency market, the dollar rose against the euro but was flat versus the yen.
Bond yields soar
Analysts said the highest bond yields since July 1997 dampened demand for stocks. With the yield on the benchmark 30-year treasury bond jumping to 6.71 percent, stock investors may be lured into bonds. And higher yields often mean increased borrowing costs, hurting corporate profits.
Richard Cripps, chief market strategist for Legg Mason, said interest-rate sensitive stocks -- such as those of technology companies heavily dependent on borrowing -- are starting to feel this impact.
Yahoo! slips
Internet portal Yahoo! (YHOO) plunged 39-13/16, or 10 percent, to 357-9/16 after reporting better-than-expected fourth-quarter earnings of 19 cents a share and announcing a 2-for-1 stock split late Tuesday. But the firm missed the so-called "whisper" earnings number of 20 cents per share bandied about by some company observers. Further, Yahoo! warned about a revenue slowdown ahead.
America Online (AOL) continued a slide that began after announcing its merger agreement Monday with Time Warner (TWX), falling l 4 to 60.
But with the leading Internet portal off about 40 percent from its 52-week high, one analyst said it's time to buy beaten-up AOL.
"I think it's an excellent opportunity," Linda Duessel, manager of Federated Investors' Equity Income Fund, told CNNfn.
Time Warner, the parent company of CNNfn, fell 6-3/8 to 79-5/8.
Despite Wednesday's slide in Microsoft (MSFT), Cisco (CSCO) and many other tech stocks, Intel (INTC), rose 1-9/16 to 91-1/4. This comes ahead of its fourth-quarter results, expected Thursday.
Analysts surveyed by First Call Corp. expect the world's biggest chipmaker to post earnings of 63 cents a diluted share.
Rotation
The Dow's gains this year come as investors move into once out-of-favor industrial and consumer products stocks.
This rotation continued Wednesday. General Motors jumped 3-7/16 to 76-3/8. 3M rose 1/4 to 100-3/4, Merck (MRK) gained 1-7/16 to 74-7/16, and Coca-Cola (KO) advanced 11/16 to 61-1/2.
Alan Skrainka, chief market strategist at Edward Jones, sees the Dow rising as investors move money into companies poised to benefit from improving overseas economies.
"I think it's a rotation into multinationals," Skrainka said. "I think everyone's starting to realize we're going to have pretty good growth overseas."
The Fed ahead
Traders expect cautious trading ahead of three key economic indicators that could provide clues about Federal Reserve interest-rate policy. Thursday brings December producer price data and retail sales, followed by December consumer price data Friday.
The Fed tightened credit three times last year, bringing its main lending rate to 5.50 percent. But most analysts say the central bank's job of slowing the economy and preempting inflation is not done.
"This has been a gradualist Fed, so I think the February hike will be a 25-basis point hike, but we'll probably see 6-1/4 (percent) by summer on the Fed funds rate," Vic Thompson, head of fixed-income at State Street Global Advisors, told CNNfn.
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