NEWS AND COMMENTARY
October 26, 2000
Nasdaq Tumbles 5.56%, Blue Chips Fall 0.64%
By E.S. Browning, The Wall Street Journal
No One Is Safe ... Weiss comments
NEW YORK - The Nasdaq Composite Index fell 5.56%, its biggest drop since May -- knocked down by a stock that isn't even part of the index.
Nortel Networks, formerly known as Northern Telecom, is a Canadian company traded on the New York Stock Exchange and in Toronto. The shock of its disappointing third-quarter revenue gains hit a wide variety of communications-equipment and fiber-optics stocks, most of which trade on Nasdaq. Until now, those issues had resisted the technology-stock rout better than most tech stocks.
The decline helped knock the Nasdaq composite down 190.22 points, to 3229.57. In a year of historic one-day declines and rises for Nasdaq, it was the index's seventh-sharpest percentage drop this year, and No. 14 on the all-time list. The index now is 36% off its March 10 record close of 5048.62.
"I think what happened today is pretty important because you did have one of the last bastions of strength in the market get its teeth kicked in," said Rob Cohen, co-head of listed trading at Credit Suisse First Boston. Mr. Cohen said the day's trading had been frantic. "The optical sector has been one of the market's bellwethers, and the fact that there has been some disappointing earnings there could keep the declines going," he worried.
"When you are going down the line shooting the semiconductor makers, the personal-computer makers, the wireless and cellular companies, and now you get the one sector whose growth rate has held up over the past year, it is worrisome," said Mr. Cohen of Credit Suisse First Boston. "Until the market gets a better feeling and more comfort with what the growth rates are going to be near term, I suspect that we are going to have a tough row to hoe."
Nortel's drop spilled over into the broader market, but to a lesser degree. Although consumer-products makers and some financial stocks managed gains, Hewlett-Packard led the Dow Jones Industrial Average down 0.64%, or 66.59 points, to 10326.48. That broke the blue-chip index's four-day winning streak, and left the industrials down 12% from their January record.
The Nasdaq composite, which now has been down every day this week, has retraced most of the gains it had staged since Oct. 12.
Overall, stocks declined in dollar terms. The Dow Jones World Stock Index, excluding U.S. stocks, fell 2.07%, or 3.32 points, to 156.76.
Almost no technology sector has escaped unscathed from the recent bloodbath in the Nasdaq.
The dot-coms were the first to go -- e-tailers, Business-to-Business , B-to-Consumer -- no matter what buzzword they hid under, many have closed their virtual doors forever and all have seen their stock prices plummet to the ground.
The telecoms, chip makers, and the PC manufacturers quickly followed. And yesterday, the fiber optics sector had its head handed to it on a platter. Nortel's news that sales slumped in the third quarter shocked Wall Street and touched off a selling frenzy.
Now, Wall Street pundits and investors think the only "safe" sector left is biotech. But those stocks, too, are starting to feel the pinch as investors begin to realize that they are no different from the dot-coms or the telecoms -- all hype with no earnings and huge debts. Plus, biotechs face the additional hurdle of FDA approval before they can make a buck. In this topsy-turvy market, investors aren't willing to wait that long.
The Nasdaq has certainly felt the brunt of the slew of disappointing earnings announcements made recently. Every day, a new tech sector gets punished. And in the Dow, there are at least a half a dozen major companies that are going to get whacked as earnings disappointments continue and the economy heads south.
The sad truth is that none of these high-flying, media darling stocks is a safe investment in this type of market. It won't be long before investors wise up and stampede for the hills.
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