High-tech Yoyos Learn A Fact: What Goes Up, Must Come Down
Sydney Morning Herald
Thursday February 11, 1999
The most optimistic thing anyone could say on Wall Street yesterday - as the major sharemarket indexes clicked into negative for the first time this year - was that "there's volatility ahead".
The optimists were hoping that the lack of real volume behind yesterday's selling promised a quick bounce. The pessimists were bothered that the market was showing no rotation into another sector away from the plunging Internet and technology stocks. Hardly anyone was neutral.
Indeed, another Wall Street guru defected to the den of bears that has emerged in recent weeks.
Prudential Securities's Mr Larry Wachtel joined the experts predicting a share correction, saying the market lacked breadth and the January run to fresh records had been dominated by 50 to 100 stocks, while there was no catalyst for further gains.
His comments sparked little surprise on a day that saw the Nasdaq Composite index sustain its third-largest points slide ever with a 94-point, 3.9 per cent, tumble, the Dow Jones Industrial Average shed 158 points (1.7 per cent) and the S&P 500 lose more than 27 points (2.2 per cent).
Those falls left all the indices apart from the Nasdaq lower than at the start of the year. But another similar fall would drop the Nasdaq Composite into negative too. By the final bell yesterday few were brave enough to rule it out.
Most experts think it is too early to predict that the long-inflated Internet bubble has burst but there was no doubt again yesterday that it's lost a lot of air.
Internet portal group Lycos' acquisition by Mr Barry Diller's USA Networks sent the buyer's stock 8 per cent higher. But it knocked Lycos down by $US33 to $US99.25 - a 25 per cent tumble that puzzled some analysts because most agreed it was a good deal for both companies.
The tumble in the Lycos share price, said Ms Lise Buyer, director of Internet research for Credit Suisse First Boston, probably was a recognition that investors' ideas of takeover premiums for the sector had become over-inflated.
"Internet stocks have been driven so high by a frenzy surrounding individual companies and beliefs about takeovers," said Ms Buyer. "Lycos' share price probably is down because some of that takeover frenzy has gone, with the maths as it now is."
Even dominant portal operator Yahoo! lost $US17 (almost 11 per cent) to $US140.75 after a similar fall the previous day, its recent high of $US222.50 starting to seem like a mirage.
Nervousness also infected the broader technology sector, with leaders such as Intel, Dell and Cisco losing another 5 per cent.
Two of last week's hot IPOs tumbled: Pacific Internet dropped almost $US6 to $US29.50, a far cry from its high last Friday of $US88, while Mr Ross Perot's four-day old listing, Perot Systems, which also hit $US88, tumbled 21 per cent to $US46.125.
Away from the tech sector, few observers were sure whether the blue-chips were being affected by the down-draught or whether, as some experts claim, they have simply run out of pace and reached unsustainable valuations after a so-so reporting season.
But falls were across the boards, AT&T to Wal-Mart and Merck, and the major financials.
© 1999 Sydney Morning Herald