NEW YORK -- U.S. technology stocks suffered a gut-wrenching slide Tuesday, driving the Nasdaq market down to its lowest close since last November, as fears that computer-related issues are overvalued and prospects of further interest rate rises combined to pummel investor confidence.
"No one wants to commit to technology because every time they do they are getting their fingers blown off," said Guy Truicko, portfolio manager at Unity Management in Garden City, New York. "Until we get some kind of feeling that Fed Chairman Alan Greenspan is done raising rates, there is not much of catalyst to drive us north right now."
While technology stocks are seen as more able to weather higher interest rates than old-line companies, aggressive increases in borrowing costs by the Federal Reserve have raised concerns about their high stock prices relative to earnings. Interest rates increases can squeeze profits two ways, by reducing growth in consumer demand and by making it more expensive for companies to borrow money.
The technology-dominated Nasdaq Composite Index plunged 199.92 points, or 5.94 percent, to 3,164.29, its lowest finish since Nov. 10 last year and a decline of 38.3 percent from its all-time high of 5,132.52 on March 10.
The biggest losers among heavyweight technology issues included microchip giant Intel (INTC) which fell 8-1/2 to 109-7/8 after semiconductor equipment makers reported a lower level of orders per $100 of products shipped in April than they did in March.
"I think people are just looking for any excuse to sell technology stocks," said Arnie Owen, managing director of capital markets at Roth Capital Partners. "The underlying fundamentals of technology are still strong. But it's any excuse to sell."
Cisco Systems, (CSCO) the company that provides much of the plumbing for the Internet, dropped 4-45/64 to 50-35/64.
The blue chip Dow Jones industrial average lost 120.28 points, or 1.14 percent, at 10,422.27.
The Dow's financial services components were higher, led by American Express (AXP) up 1-1/8 at 50-3/4, and Citigroup (C) which gained 1 at 62-5/16.
That helped to partially counter the damage done by Intel and by companies such as International Paper (IP), which fell 1-5/16 to 36-7/8 on an analyst's downgrade of the stock and the entire forest products sector.
Broader measures of the market also dropped, with the Standard & Poor's 500 index finishing down 26.90 points, or 1.92 percent, to 1,373.82.
"I don't have a good idea about where we're going to come out of this thing until we start to get some economic data that gives us a handle on what the Fed's course of action" will be, said Bill Meehan, chief market analyst at Cantor Fitzgerald.
"It's both worries about the inflation scenario and also concerns about what is a reasonable valuation for some of these large-cap tech stocks" that is hurting the market," he said.
