No Mercy for Tech Stocks

High-tech stocks continued to get slammed Wednesday after a batch of analyst downgrades and corporate earnings warnings ignited an investor selloff, toppling the major indices.

The Nasdaq composite stock index fell 178.78, or 7.12 percent, to 2332.93, its lowest close in 20 months and its seventh straight session decline. The E-Commerce Times stock index, which monitors 10 prominent dot-coms, including Amazon and eBay, fell 11.84 percent.

At this time last year, the Nasdaq was trading more than 1,300 points higher than its current level.

Adding to the unease in the high-tech sector was a trifecta downgrade early Wednesday by analysts at Merrill Lynch.

Warnings Galore

The firm slashed its recommendations on tech bellwethers Cisco Systems (Nasdaq: CSCO), IBM (NYSE: IBM) (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ) (NYSE: HWP) on concerns that a cooling economy will slow technology spending and dampen the companies' earnings prospects. All three companies saw their shares hit 52-week lows as a result.

In addition, news from optical network manufacturer Foundry Networks (Nasdaq: FDRY) that its fourth-quarter results will fall short of expectations also weighed heavily on the Nasdaq. The company's stock sank more than 57 percent, closing at $13. Its high for the year reached $212.

Moreover, the stock of electronics manufacturer Jabil Circuit (NYSE: JBL) fell almost 25 percent after the company lowered its forecasts for fiscal year 2001, due to slowing demand for personal computers.

Dot-Coms Hit

Dot-com heavyweights were also not insulated from the downslide. E-tail giant Amazon fell $1.56, or 8.56 percent, to $16.69, a 52-week low. Online auctioneer eBay fell 13.54 percent to hit a 52-week low of $27.94.

Technology bellwether Microsoft (Nasdaq: MSFT) (Nasdaq: MSFT) shed $3.31, or 7.39 percent, to close at $41.50, while Intel (Nasdaq: INTC) (Nasdaq: INTC) fell $1.50, or 4.5 percent, to $31.94.

Despite these plunges, some industry analysts believe that the market will not deteriorate much further, attributing the decline to end-year investor tax-loss selling. Analysts also forecast that a technology rally may get underway in January.

Concern Over the Fed

Tuesday's decision from the Federal Reserve to leave interest rates unchanged did nothing to slow the broad slide. The announcement, which also warned that a recession poses the greatest risk to the U.S. economy, failed to calm jittery investors.

"The drag on demand and profits from rising energy costs, as well as eroding consumer confidence, reports of substantial shortfalls in sales and earnings, and stress in some segments of the financial markets, suggest that economic growth may be slowing further," said the Fed, the central banking entity of the United States.