Why would there be such a huge sell-off on the day that President Clinton nominated Alan Greenspan to a fourth term as Fed chairman?
Traders are worrying about a potential rise in interest rates. But the main reason seems to be that traders, in an effort to forestall their capital gains tax bite, waited until after the new year to unload stocks that appreciated over the past several months.
That's why Net stocks, which recently have gone begging for profit-taking, saw some of the biggest losses Tuesday. TheStreet.com's Internet Sector index dropped 6.79 percent as the Nasdaq fell 5.55 percent to close at 3901.79; the Dow lost 3.17 percent.
The Nasdaq Composite Index set a record for the biggest one-day point loss ever, but that's not as dire as it sounds, given its astounding rise over the past year. On a percentage basis, Tuesday's drop wasn't all that scary, really.
There was no apparent fear on trading desks; the dropoff in prices was steep, but steady; and trading volume didn't indicate a panic. It could be the beginning of a long-needed correction. Or it could be a mere blip in the continuing bull market, driven in part by fears of rising interest rates.
The biggest Net stocks took some of the biggest hits. Ebay lost $13.25, or 9.38 percent, to close at $128. Amazon.com fell $7.44, or 8.32 percent, to $81.94.
America Online dropped $6.06, or 7.3 percent, to $76.94. Yahoo was actually trading higher earlier in the day after some analysts boosted their price targets. But shares couldn't hold out against the onslaught, and ended up falling $32, or 6.74 percent, to $443. Internet holding company CMGI tumbled $32.69, or more than 10 percent, to finish at $293.75.
Interest-rate sensitive stocks were especially vulnerable, with banks and brokers suffering losses pretty much across the board. Net brokers weren't immune, though losses weren't as bad as might have been expected. E*Trade fell 75 cents, or 2.67 percent, to $27.31. Ameritrade fell 94 cents, or 4 percent, to $22.63. Schwab fell 63 cents, or 1.7 percent, to $36.38. DLJ Direct actually managed to pull off a gain of 38 cents to close at $14.06.
There were a few winners. EToys, which has taken the brunt of Wall Street's recent impatience with online retailers, eked out a gain of 50 cents, or 2 percent, to close at $25.63. CommerceOne gained $14.88, or 7.31 percent, to finish at $218.50 after General Motors announced it will send its business-to-business business the company's way. FreeMarkets, which had been GM's vendor until Tuesday's switch, fell $63.38, or 18.54 percent, to close at $278.50.