Wednesday, April 05, 2000

Tech stocks swing low then shoot back up

Microsoft ruling fuels trading flurry

The Cincinnati Enquirer

        Convinced that overpriced technology stocks were about to come crashing down, investors created that very scenario Tuesday morning.

[photo] A stock trader pauses during Tuesday's wild trading.
(Associated Press photo)
        With many technology stocks “priced for perfection,” any little bit of bad news could send prices tumbling, analysts said after a wild trading day that set records for shares traded and market swings.

        When a federal court judge's decision that Microsoft Corp. had violated anti-trust laws hit late Monday, that was all the news the market needed.

        “That might have been the one little thing that pushed it over the edge,” said Steve Folker, director of equity strategy at Fifth Third Bank, after Tuesday's volatile up-and-down ride ended. “But I think it's more the stretched valuations in technology stocks.”

        The tech-heavy Nasdaq Composite Index fell 575 points, or more than 13 percent, by about 1 p.m. The blue-chip Dow Jones Industrial Average plunged 504 points by early afternoon.

        But both markets recovered to close near their opening levels. Nasdaq fell 74.79, or 1.8 percent, to 4148.89, while the Dow closed down 46.85, or 0.4 percent, to 11,175.08.

        At the end, stockbrokers and analysts were left repeating a familiar bottom line: Keep buying technology stocks, but make sure you pick the right companies.

        “It's enough to scare the hell out of you,” said John Bowling, president of Bowling Portfolio Management in Hyde Park. “There are a lot of momentum players in this who buy things when they're hot. They figure they can sell before it drops too far.”

        Mike Garfunkel, a vice president at the local office of Prudential Securities, said the outlook for technology stocks should increase once people start seeing good earnings. That could start with Yahoo Inc.'s expected announcement today, he said.

        “What we really expect is that the tone for the future for the tech companies is going to be very good,” Mr. Garfunkel said. “At the end of the day, what matters is what a company is doing fundamentally.”

        Investor Keith Meyer of Green Township said he had discarded some other technology stocks during the last month and bought Inc. shares. That stock finished Tuesday up $9.871/2 at $75.25.

        “There's a lot of gold-rush speculation out there, people investing in whatever they think they can make a quick buck on,” he said. “I only invest in those technology stocks I think will have a profound impact.”

        Many of those investors are borrowing money to buy stocks, analysts said. That led to a volume of “margin calls” double the normal levels as tech stocks dropped during the last several days.

        That means investors who bought shares using borrowed money were forced to sell to meet brokers' demands that they put up more cash.

        The trend toward individual trading on the Internet also affected the market Tuesday. Mr. Meyer said the E*Trade site he normally uses crashed several times.

        Some of the biggest technology stocks on Wall Street suffered through volatile days. Hewlett-Packard Co. jumped $5.561/4 to $138.121/2. Oracle Corp. stock fell 933/4 cents to $75.933/4.

        Microsoft, the company that started it all, fell $2.311/4 to $88.561/4.

        Mr. Folker of Fifth Third said the banking company had reduced its holdings in technology stocks, moving some of that money into financial-services companies or retailers.

        But he maintained technology stocks are a must in any diversified portfolio.

        “Over the next three to five years, we still think technology is the place to be,” Mr. Folker said. “There's still plenty of demand out there for the tech companies. A lot of people still feel they've missed the big run-up in these stocks, and they're looking for an entry point.”


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