Wall Street was littered with roadkill Thursday as fears of an interest-rate hike increased. Tech and Internet stocks were among the worst casualties.
Share prices rallied briefly in the afternoon following the release of minutes from a December Fed meeting at which participants signaled that there was no need either to tighten or further ease monetary policy.
It didn't take long, however, for traders to remember that this information was about six weeks old, and that red-hot US economic growth since then makes the prospect of a rate increase considerably more likely. Blue-chip stocks promptly went into a tailspin, and tech shares, which had been in the doldrums all day anyway, sank even deeper.
The Dow Jones Industrial Average fell 62.31 points to close at 9304.50, and the Nasdaq Composite Index tumbled 83.41, or 3.35 percent, to 2410.00 -- its third-worst point drop ever. The S&P 500 was 23.58 lower at 1248.49.
The Fed's take on all this probably won't be made clear until 30 March, when the central bank's policymaking committee holds its next scheduled pow-wow. For the next few weeks, therefore, investors will remain in high-anxiety mode.
Adding to these jitters Thursday was word from JP Morgan Securities that its equity strategist, Douglas Cliggott, reduced the stock allocation in his model portfolio to 50 percent from 60 percent, and boosted his cash holding to 25 percent from 15 percent.
High-flying tech shares were among the first to go for many traders looking to follow Cliggott's example. "People are nervous about these high valuations," said Art Russell, an analyst with Edward Jones. "How many new highs has the Nasdaq set this year? More than a dozen. At some point, you just take profits."
No wonder, then, that Dell Computer (DELL), International Business Machines (IBM), Microsoft (MSFT), Cisco Systems (CSCO, and Intel (INTC) all lost ground. But no one in the tech crowd fell harder than chipmaker Advanced Micro Devices (AMD), which lost 9.9 percent to US$18.88 after canceling appearances at a pair of upcoming investment conferences. AMD warned just before the closing bell that it might see an operating loss in the current quarter.
Merrill Lynch cut its near-term rating for AMD to "neutral" from "accumulate," and similarly downbeat outlooks were issued by Credit Suisse First Boston and Donaldson, Lufkin & Jenrette.
On the Internet front, ETrade Group (EGRP) fell $1.75 to $53.50 as its system went kerblooey for a second day in a row, preventing many customers from making trades. The crashes stem from a software change Tuesday night, and you can be sure the company's tech squad is scrambling to fix this mess. ETrade processes more than 40,000 trades every day -- when the system is up and running, that is.
On the other hand, the growing ranks of online investors is sweet music for the numerous boutique brokerages that might not otherwise swim with the big fish. MH Myerson (MHMY) surged 66 percent to $12.38, and JB Oxford Holdings (JBOH) was 32 percent higher at $15.88. Charles Schwab (SCH), by comparison, was reaching for its asthma medicine and slipping $1.69 to $66.31.
CDNow (CDNW) shed 50 cents to $22.50 after joining the earnings chorus with a fourth-quarter loss of 73 cents a share. Analysts had been expecting 76 cents, so this wasn't really so bad, especially with revenues up more than 160 percent from a year before. CDNow's merger buddy N2K (NTKI) was 56 cents lower at $16.25 as it posted a better-than-expected loss of $1.24 a share.
A bumpy flight as well for most other Net notables. EBay (EBAY) fell 14 percent to $239, and Amazon.com (AMZN) was down $7.75 at $118. Yahoo (YHOO) slid $22.06 to $336.
"Some of these valuations boggle the mind," Edward Jones' Russell said. "At some point, many of these stocks have to come back to Earth. Not all these companies will be the next Microsoft."
MCI WorldCom (WCOM) slipped $1.94 to $76.13 even as it ended speculation concerning its plans to splash back into the Internet pool. The telco said it's teaming with America Online's CompuServe unit to offer residential customers Net access for $16.95 a month -- as long as they're also MCI long-distance clients.
CompUSA (CPU) gained 75 cents to $13.88 after coming in just ahead of estimates with quarterly profit of 17 cents a diluted share -- even though plunging PC prices resulted in a 54 percent drop in net income. The company said sales should increase in the current quarter.
Colgate-Palmolive (CL), which enjoys the distinction of being the leading maker of toothpaste in the US, advanced $2.25 to $84.69 as it weighed in with a 13 percent jump in fourth-quarter earnings to 73 cents a share, a penny more than expected. But Wal-Mart Stores (WMT) was $2 lower at $83.75 despite saying that January sales at outlets open at least a year rose 10 percent from a year earlier.
Lastly, data-services outfit Perot Systems (PER) rose another $4.19 to $66.06 on its third day of trading. Predictably, billionaire elf Ross Perot was crowing to Larry King the other night about his good fortune.
