A continued sell-off in the bond market weighed heavily on stock prices in mid-afternoon trading Thursday.
Fear of an interest-rate hike loomed large over Wall Street, even though analysts remain mixed as to what sort of signals Fed boss Alan Greenspan was sending in this week's testimony before congressional panels.
On the one hand, Mr. G said the US economy looks "stretched," which could imply that a rate increase may be in the cards to restore elasticity. On the other, he said nothing to suggest that the risk of inflation is growing, and did point specifically at ongoing turbulence abroad, which might indicate the Fed will leave rates intact.
No wonder investors are so spooked. You could go goofy trying to second-guess this guy.
The Dow Jones Industrial Average fell 122.90 points to 9276.77, and the Nasdaq Composite Index was down 37.93 at 2301.45. The S&P 500 shed 21.69 to 1231.72.
"Bonds are putting pressure on equity markets all around," said Les Childress, president of Childress Investment Research. "But it's not economically driven because economics are good. It's just investors thinking valuations are too high."
Underscoring this point, Morgan Stanley Dean Witter's chief US investment strategist, Byron Wien, advised clients to reduce their exposure to high-priced stocks. He reduced the stock holdings of his model portfolio to 85 percent from 90 percent.
Personal-computer makers took a particularly harsh beating after Merrill Lynch analyst Steven Milunovich said long-term growth may be hampered by increased competition, falling prices, and the arrival of a new breed of "information appliances" that could edge out PCs in the household. But he noted that PC stocks "should be fine in the near term."
Dell Computer (DELL) slid US$2.44 to $80.81, and International Business Machines (IBM) was $2.81 lower at $170.94. Compaq Computer (CPQ) lost $1.31 to $41.13, and Apple Computer (AAPL) was down 44 cents at $37.
Looks like the dot com club is getting a new member, and it's a pretty straight-laced one to boot. Reader's Digest Association (RDA) rose 69 cents to $31.25 after saying it will invest at least $100 million in Internet resources. The publisher of the world's highest-circulation magazine is keen on exploring new business opportunities as sales sag for its more traditional properties.
Here's a cautionary tale for them as they embark on this journey: Priceline.com, the online service that allows users to set their own prices for airline tickets and hotels, told the Securities and Exchange Commission that it saw an operating loss of almost $91 million from April to December last year, and that fewer than 10 percent of its users' bids actually result in a sale.
Then there's the other end of the extreme, Amazon.com (AMZN), which climbed $8.69 to $119.63 as BancBoston Robertson Stephens upgraded the company's stock to "strong buy" from "buy." This follows Amazon's announcement a day earlier that it purchased a 46 percent stake in Drugstore.com, a new Net-based pharmacy.
EMC (EMC), the leading provider of data-storage services for corporate networks, dropped $2.25 to $102.75 even as it announced a two-for-one stock split, which still must be approved at the company's May shareholder meeting. EMC's stock price has practically tripled in the past year.
Meanwhile, Advanced Digital Information (ADIC), another data-storage specialist, surged 29 percent to $17.25 after delivering fourth-quarter profit of 30 cents a share. This easily whipped analysts' expected 20 cents. The company said sales were up 115 percent from a year earlier to $49 million.
BMC Software (BMCS) saw its share price tumble 12 percent to $41.50 after Prudential Securities downgraded the company's stock to "accumulate" from "strong buy." For its part, application developer Autodesk (ADSK) eased $1.25 to $40.81 after reporting quarterly earnings of 50 cents a diluted share, including charges. This was 4 cents shy of estimates.
Khakis anyone? Gap (GPS) fell $1.81 to $60.94 even as it posted record fourth-quarter income of 53 cents a share, topping the 50 cents expected by analysts. The casual-clothing king said it plans to open 400 more outlets this year.
