NEW YORK Forget about college basketball. The real March
Madness broke out this past week in the stock market.
Technology stocks, which had shot up to stratospheric levels in
recent months, were trampled. Blue-chip stocks, given up for dead
earlier this year, roared back to life.
The shift was swift and fierce. Nonetheless, most analysts feel
it helped restore balance to a market that had lost all sense of
"The rapidity and the violence of the move was stunning, but in
a bull market that's had such a long run, it's healthy," said
Charles Pradilla, chief investment strategist at SG Cowen
Securities in New York. "For the time being, the unbridled move up
in the Nasdaq is over."
From Monday to Wednesday, the technology-dominated Nasdaq fell
466 points, or 9.2 percent below the record high of 5,048.62 set
March 10. For a short time on Thursday, the Nasdaq fell farther,
plunging into what Wall Street calls a "correction" a drop of
at least 10 percent that sometimes signals a turning point for the
It wasn't the first time this year that the Nasdaq fell steeply.
The highly volatile index tumbled 404 points from Jan. 4 to 6. From
Jan. 26 to 28, it lost 280 points.
But during both of those routs, technology stocks so thoroughly
ruled investor sentiment that the broader market collapsed, too,
unable to function without its brash, successful leaders.
This time, however, investors shoved the money they pulled from
technology stocks into old-fashioned blue-chips and other consumer
product and industrial stocks, a shift so strong that the Dow Jones
industrial average smashed through its record for a one-day point
gain, rising 499.19 on Thursday.
Fueling the move were large money managers who tried to
capitalize quickly on the shift in market momentum.
"Five years ago, there would have been four committee meetings
before moving money around like this," said Pradilla. "Today, the
meetings occur on the fly and you just do it."
For the week, the Dow gained 666.41 points, or 6.7 percent, its
biggest weekly point gain ever, and its best percentage gain since
7.9 percent in August 1984.
The Dow's newfound strength was enough to lift the entire market
higher including the now-vulnerable tech stocks.
The Nasdaq, which lost 466 points from Monday to Wednesday,
gained back nearly half of the decline by Friday, leaving it only
250.49 points lower at week's end.
The balance between the stocks of the old and new economies had
at least momentarily been restored.
"The market was acting a bit more rationally," said Ned Riley,
chief investment strategist at State Street Global Advisors.
"Investors realized that (blue chips) have fallen about as much as
they're likely to fall, and at this point, they're very good
The market's volatility has increased this year because so many
investors have given up their old "buy and hold" philosophy in
favor of momentum-driven trading.
Technology stocks caught fire because their success last year
attracted more and more money from institutional clients,
frenzied day traders, and ordinary folks who retooled their 401(k)
plans and mutual funds to focus on the market's top performers.
The problem was that the Nasdaq's velocity was unsustainable,
prompting the stocks of many small tech companies such as
semiconductor component maker PMC Sierra to double in less than
"The valuations of many of those stocks had become ludicrous,"
Ironically, Nasdaq's turnaround began when the market's
composite index first closed above 5,000 on March 9. Computerized
"sell" programs kicked in with the big new milestone, and selling
gathered steam as investors used the 5,000 mark as an excuse to
The last straw came on Tuesday, when President Clinton announced
an agreement with Great Britain to openly share genetic research.
While the true impact of the agreement isn't yet clear, fast-rising
biotechnology companies that plan to sell such data saw their share
prices sliced in half.
That debacle inflicted wide-ranging damage on investor
"There are a lot of unproven companies on the Nasdaq, and they
can make investors' attitudes shift very quickly," Riley said.
"Their fortunes have not been tested through various market and
Ultimately, analysts expect technology stocks to resume their
leadership in the market. As companies begin reporting their
first-quarter earnings in mid-April, most market watchers expect
established technology companies to outperform their "old
economy" brethren while Internet companies that aren't profitable
will at least show rising revenues.
"The Nasdaq stocks computers, networking, the Internet are
the ones that are really changing the world," Pradilla said. "For
the most part, we still want to be in tech."
The Nasdaq ended its wild week with a gain of 80.74 on Friday,
closing at 4,798.13.
The Dow Jones industrials, meanwhile, wrapped up their
blockbuster week with a modest decline. The blue-chip index fell
35.37 to close at 10,595.23.
The Standard & Poor's 500 index rose 69.40 points during the
week. On Friday, the index rose 6.00 to close at 1,464.47.
The Russell 2000 index of smaller companies fell 29.03 for the
week. The index rose 0.54 on Friday to end the week at 574.78.
The Wilshire Associates Equity Index, which represents the
combined market value of all NYSE, American and Nasdaq issues,
ended the week at $14.27 trillion, up $321.54 billion from last
week. A year ago, the index was at $11.80 trillion.