FRAMINGHAM (04/21/2000) - The continuing volatility of technology stocks suggests that there could be even more correction on the way before the market starts stabilizing again, analysts cautioned.
Both the Nasdaq composite index and the Dow Jones industrial average once again dropped sharply last Wednesday on future earnings concerns relating to IBM [NYSE:IBM] and Intel Corp. [Nasdaq:INTC]. Nasdaq dropped 84.24 points to close at 3,706.41, while the Dow shed 88.73 points to close at 10,674.96.
The losses broke a two-day winning streak during which both the Dow and Nasdaq seemed to be recovering strongly after the April 14 technology rout (see chart). That sell-off was triggered by inflation concerns that caused the Dow to lose more than 600 points and Nasdaq to lose more than 400 points - their largest one-day losses ever.
Last Wednesday's plunge shows the roller-coaster ride may not quite be over yet for technology investors, said Richard Chu, an analyst at Cowen & Co. in Boston. "What we are seeing is a deconstruction of the speculative excesses of the last few months."
As investors take a closer look at the stock valuations of some companies, "I would definitely not suggest that the correction process has finished. In fact, we are barely at the beginning," Chu said.
The April 14 sell-off suggests that "there is more downside to come - typically such a dramatic correction takes time to heal," said analyst Ashok Kumar at U.S. Bancorp Piper Jaffray Inc. in Menlo Park, California.
The ongoing volatility suggests that the technology sector meltdown that some analysts had been predicting is finally here, said David Wu, an analyst at ABN Amro Chicago Corp. in Mountain View, California.
Particularly hard-hit were several Internet stocks that have seen their valuations drop dramatically over the past few weeks. Examples include companies as varied as Santa Clara, California-based Yahoo Inc. [Nasdaq:YHOO], Seattle-based Amazon.com Inc. [Nasdaq:AMZN] and Cambridge, Massachusetts-based Akamai Technologies Inc. [Nasdaq:AKAM], all of which were trading 50% below their valuations earlier this year. Old-line companies have also been hit. IBM fell 5 points to just over 106 following its earnings report this week, while Intel dropped more than 6 points to 122.
"It's anybody's guess when the meltdown will stop," Wu said. "All I know is I would want a bigger percentage of stock options if I were joining a dot-com company," he said.