Earnings Fears Slam Tech Stocks

Technology stocks on Thursday suffered their worst setback in two months, as investors dumped many key names amid another batch of disappointing earnings forecasts.

The Nasdaq composite index plummeted 145.49 points, or 3.7%, to 3,842.23 as investors reacted to downbeat profit projections from such tech giants as long-distance giant WorldCom and cellular phone leader Nokia.

The decline, as Nasdaq losers swamped winners by nearly 3 to 1, left the tech-dominated index down 10% from its mid-July high.

But the tech sector’s loss translated into gains for many non-tech blue-chip shares Thursday, as investors ran for cover. The Dow industrials rose 69.65 points, or 0.7%, to 10,586.13 as energy, drug and retail stocks surged.

After plummeting in spring from its record high of 5,048.62 reached on March 10, Nasdaq had rebounded 35% from its May low to its mid-July high, in large part on investors’ hefty expectations for second-quarter earnings growth in the tech sector.

Although many tech companies indeed came through with robust profit growth in the quarter, more than a few well-known firms have warned that growth in the second half of this year won’t meet expectations.

With many tech stocks still valued at high levels relative to earnings-per-share estimates for 2000, analysts say investors are simply in no mood to take any prisoners.

Nokia, the world leader in wireless phones, on Thursday reported a 64% jump in second-quarter earnings, but the firm said third-quarter results will be weaker than expected because consumers are likely to delay purchases, waiting for new model phones later in the year.

Nokia shares crashed $14.75, or 26%, to $41.06 on the New York Stock Exchange.

WorldCom also reported strong second-quarter earnings growth, but said growth in the second half will be at the low end of analysts’ estimates. The stock slumped $5.44 to $39.31 on Nasdaq.

In the Internet sector, which has lagged the rebound in the rest of the tech sector since late May, stocks tumbled anew in the wake of online retailer Amazon.com’s latest quarterly loss, reported on Wednesday. Amazon.com slid $4.69 to a 52-week low of $31.38; the Interactive Week index of 50 major Net stocks fell 3.8%.

Nasdaq now has declined in six of the last eight sessions. Optimists say this is merely a “correction” in the context of the sharp rebound since late May.

But market bears take the opposite view, arguing that the rebound from late May to mid-July was a rally within a continuing bear market. Nasdaq still is down nearly 24% from its record high.

Despite the size of the index’s decline on Thursday--the biggest since May 23--Nasdaq volume of 1.8 billion shares was far from record levels, though it was the busiest session since June 30.

What was bad for tech, meanwhile, was good for many non-tech stocks, as investors looked for safer havens. On the New York Stock Exchange losers had only a modest edge over winners, and the NYSE composite index actually rose 0.4% for the day.

“The stocks that are doing well are ‘defensive’ ones,” said Hugh Johnson, chief investment officer at First Albany Corp. “Drugs, health care, insurance, utilities, soft drinks--those stocks that tend to post good earnings regardless of what happens to the economy.”

Those stocks also tend to be priced at much lower levels relative to earnings than many tech shares.

The bond market also attracted buyers as money fled tech shares. The yield on the 30-year Treasury bond fell to a 3 1/2-month low, closing at 5.81% versus 5.85% Wednesday. The 10-year T-note eased to 6% from 6.02%.

Bonds were helped by a report showing growth in job costs slowed in the second quarter.

Although many experts aren’t convinced the economy is slowing much, more investors appear to be taking that view--especially in the wake of tech-firm warnings about second-half earnings.

Yet many tech firms say their problem isn’t one of slowing demand, but an inability to get needed parts to meet demand.

Whatever the reason, investors have demonstrated repeatedly in recent days that they have no patience with tech companies that fail to beat earnings expectations or fail to provide a rosy outlook for the near term.

That has been true overseas as well: In Asia on Thursday Japan’s Nikkei-225 index slid 1.9%, and the South Korean share index tumbled 2.2%. Both markets were weighed down by tech stocks.

Among Thursday’s highlights:

* Semiconductor stocks were particularly hard hit for a second day, in part on fears that slowing demand for Nokia’s phones and other chip-using products will crimp demand. Vitesse Semiconductor slumped $8 to $57.63, National Semiconductor fell $4.13 to $35.75, Motorola gave up $2.69 to $33.94 and Texas Instruments lost $6.94 to $57.06.

* Internet stocks falling sharply included EBay, down $3 to $49.69; Priceline.com, down $2.81 to $25.81; Redback Networks, down $11.19 to $133.88; and Infospace, down $13.25 to $34.50.

* In the telecom sector, Nortel Networks sank $5.50 to $78.50, JDS Uniphase lost $7.31 to $128.63 and Corning lost $9.38 to $248.75.

* On the plus side, oil stocks exploded higher after several days of selling. Exxon Mobil gained $4.31 to $80.50, Chevron rose $3.63 to $80.94 and Anadarko Petroleum gained $1.69 to $47.81.

* Health-care stocks also rose. Bristol Myers added $2.75 to $50.50 and Wellpoint Health rose $2.19 to $86.13.

* Among retailers, Home Depot was up $1.19 to $54.75 and Wal-Mart jumped $1.31 to $60.06.

* The Dow got a boost from Coca-Cola, up $1.63 to $60.44, and American Express, up $2.69 to $58.31, among others.

* Insurance stocks were particularly hot, led by UnumProvident, up $3.75 to $24, and Chubb, up $1.44 to $75.94.

*

Associated Press contributed to this report.

Market Roundup: C7-8

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

New Trouble for Nasdaq

The Nasdaq composite index slumped 3.7% on Thursday as tech stocks plunged anew. The index had rebounded 35% from its May low to its mid-July high.

*

Nasdaq composite index, weekly closes and latest:

*

Thursday: 3,842.23, down 145.49

*

Source: Bloomberg News