Nasdaq Hammered to Start the New Year

Happy New Year from Nasdaq.

That market’s composite index plunged 178.66 points, or 7.2%, to 2,291.86 on Tuesday, as investors opened the year by hammering already-depressed tech shares, as well as some that had escaped 2000 relatively unscathed.

The broader market also was lower in the wake of a new report showing another slump in manufacturing activity. The blue-chip Dow Jones industrial average fell 140.70 points, or 1.3%, to 10,646.15, led by a dive in General Electric’s shares.

Still, some analysts said Tuesday wasn’t as bad a start to the new year as the indexes might suggest. Although the Nasdaq--and tumbling Treasury bond yields--seem to be screaming that recession is looming, much of the stock market is not singing the same song, experts say.

Even on Nasdaq, despite the severity of Tuesday’s drop--it was the worst one-day percentage loss in the index since April 14 and the seventh worst in history--17 Nasdaq issues rose for every 25 that fell, a surprisingly good showing.

Trading volume was heavy, but not close to a record, despite the index’s slide to its lowest close since March 1999.

Analysts said the selling in the market overall was triggered in part by the December manufacturing activity report suggesting that that part of the U.S. economy is deteriorating rapidly.

In the tech sector, some of Nasdaq’s biggest stocks also were hurt by analysts’ bearish comments on tech in general and onkey data storage and computer networking stocks in particular.

Fear of recession, and diving corporate profits, may have triggered some money managers to jettison tech issues that they might have been happy to hold even two weeks ago, some traders said.

Indeed, Tuesday’s biggest Nasdaq losers included many of last year’s best performers, including BEA Systems, Ciena, Juniper Networks, Network Appliance and Siebel Systems. All showed 50%-plus gains for the year 2000, despite their fourth-quarter declines. All recorded double-digit losses Tuesday.

“This is the dark side of momentum trading, when money managers sell the highfliers of last year to take whatever profits they have,” said Scott Bleier, chief investment strategist at Prime Charter in New York.

In heavy trading, networking giant Cisco Systems slid $4.94, or 12.9%, to $33.31, a new 52-week low. The stock traded as high as $82 last year.

Sellers also hit some non-tech giants Tuesday. GE lost $4.19, or 8.7%, to $43.75, after the company confirmed that U.S. safety officials are studying incidents of GE aircraft engine breakups.

Among other blue chips, American Express fell $2.94 to $52, and Eli Lilly slid $1.56 to $91.50.

Some investors may have waited to take long-term stock profits on the first trading day of the new year, so that they could defer capital gains taxes on those profits until April 2002, analysts noted.

Still, despite the disastrous performance of many tech stocks since September, some analysts do not believe that the broader market is showing much fear of recession.

Christine Callies, chief U.S. investment strategist at Merrill Lynch, said Tuesday’s market was almost a mirror image of the one that prevailed early last year at the height of the technology “bubble.”

At that time, a small group of big-name tech stocks were racking up stratospheric gains, even as broader market indicators weakened and the large majority of stocks was losing ground.

In recent weeks, by contrast, many stocks are holding up fairly well, while the tech sector continues its free fall.

In fact, 59 of the 87 industry groups within the Standard & Poor’s 500-stock index posted gains during the fourth quarter of 2000, while the tech bear market pulled Nasdaq down 33%.

Over the last month alone, 63 of the S&P;’s 87 sectors have risen, while just 24 have fallen.

The market’s correction “is getting narrower and narrower as it goes on,” Callies said.

Among the sectors gaining in recent weeks is the S&P; basic-materials group, including many commodity-based companies. In theory, those companies would do poorly if a recession hits. So the stocks’ gains suggest that investors are betting on a “soft landing” for the economy, not a “hard landing,” analysts say.

Among Tuesday’s highlights:

* Small- and mid-cap stock indexes were hit, suggesting delayed profit-taking by some investors. Many of those shares, at least in non-tech sectors, had performed well in 2000. The S&P; mid-cap index fell 4.3% on Tuesday. It had risen 16.2% in 2000.

The S&P; small-cap index fell 4.4% after rising 11% last year.

* Some top-performing issues of 2000 attracted more buying--especially tobacco issues. Philip Morris surged $2.19 to $46.19.

* Investors went bargain hunting in the telecom sector. AT&T; gained $1 to $18.25; SBC Communications rose $2.63 to $50.38.

* Among the biggest losers of 2000 that were hit for more losses Tuesday were Yahoo, down $1.88 to $28.19; Qualcomm, down $11.31 to $70.88; and Broadvision, down $2.13 to $9.69.

* In currency trading, the euro started the year with a bang, jumping to 95 U.S. cents, as some traders bet the dollar will suffer amid deepening worries about the U.S. economy.

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Market Roundup: C7-8