The Nasdaq composite was nasty again yesterday, taking its fourth consecutive tumble – which left it a whopping 27 percent below its high.
After rallying in a big way – the tech-packed index was up 3.9 percent at one point in the trading session – the Nasdaq composite plummeted in the last 45 minutes. For the day, it dropped 92.85, or 2.46 percent, to 3,676.78.
For the year, it’s down 9.65 percent.
Other major market averages joined the sell-off yesterday, with the Dow Jones industrial average dropping 201.58, or 1.81 percent, to 10,923.55. The blue-chip average is sitting on a year-to-date loss of 4.99 percent.
“The down side of the market is always quicker and more vicious than the up side,” said Peter Skirkanich, president of Fox Asset Management. “Markets can take a long time to get to mad extremes, but once they get there, they just peter out.”
Meanwhile, the S&P 500 index slumped 26.66, or 1.82 percent, to 1,440.51, and has a year-to-date loss of 1.96 percent. Two days ago, the S&P index was the only major market average that was up for the year.
“The bubble’s been pricked,” said Mark Petrie, portfolio manager at Hokanson Capital Management. “We are raising our cash position. We don’t think it’s time to go bargain-hunting yet, because some of these companies still have a way to go down.”
On Wall Street trading floors yesterday, the talk centered around the idea that the Nasdaq could hit 3,000 before it ever resumes its climb to its previous levels above 5,000.
“There is no clear support [on the Nasdaq] until 2,900” said Bob Dickey, a strategist at Dain Rauscher. “The problem with the sharp rises like on Wednesday is that the corrections that follow are often twice as steep as the previous rallies were, as sentiment is quicker to change to bear camp than it is to turn investors bullish again.”
One reason the market turned south yesterday, strategists said, was that there are signs that inflation is entering the U.S. economy, which suggests the Federal Reserve will continue to hike short-term interest rates.
That makes it more expensive for companies to operate and could reduce their profits.
So when the government reported that this month’s producer price index had inched up 1 percent, mostly due to higher energy costs, equity investors were not happy.
Fed Chairman Alan Greenspan used the report to justify the rate increases the Fed had put through in the past 10 months.
“There are a lot of indications of prices going up,” Greenspan said in testimony to the Senate Banking Committee.
Those comments took some steam out of the two-week-long rally in financial services stocks, which can see their margins squeezed in rising interest rate environments.
That hurt Chase Manhattan Corp., which slid 81 cents to $86.
Other big losers yesterday were Avigen, down $3.56 to $26.25, and SciQuest, down $1.13 to $15.56.