Gateway warning prompts tech selloff and broader stock downturn

By LISA SINGHANIA

Associated Press

NEW YORK — Wall Street recoiled with fear over corporate earnings and the economy Thursday, with the Nasdaq composite index sinking at one point to less than 50 percent of its closing high for the year.

The tailspin, triggered by PC maker Gateway’s warning of disappointing holiday sales, also dragged the Dow Jones industrials down more than 300 points before a final-hour rally cut losses.

"The financial markets today are sending a strong signal that worries about the economy and earnings are intensifying, that we may be headed toward a recession or hard landing," said Hugh Johnson, a chief investment officer at First Albany Corp. "The good news is that stocks are getting down to levels that are arguably fairly valued."

The drop continued a slide in technology companies that began after Labor Day, when it first appeared that the volatile sector would perform poorly in a slowing economy.

Thursday’s selling, which spilled over to the rest of the market, was directly related to Gateway’s announcement late Wednesday that its holiday sales were weaker than expected.

The market’s worries were compounded by a Commerce Department report showing Americans’ personal income slipped 0.2 percent in October, the first decline in nearly two years. The report also said consumer spending rose by the smallest amount in six months.

The Nasdaq closed down 108.95 at 2,597.98, a 4 percent loss, according to preliminary calculations. Early in the afternoon, the index fell as low as 2,523.04 — about half its March 10 closing record of 5,048.62. The Nasdaq is trading at its lowest levels since early August 1999.

The Dow was down 2 percent or 214.62 at 10,414.49, after falling more than 335 points in afternoon trading. The broader Standard &amp Poor’s 500 index was off 26.98 at 1,314.95.

Declining issues outnumbered advancers nearly 2-to-1 on the New York Stock Exchange, where volume came to 1.11 billion shares.

Gateway fell $1.55 to $18.75, giving it a loss of nearly 40 percent over two days. The stock, which a year ago was trading at more than $80 per share, was also downgraded by several analysts.

The selloff quickly spread to other computer-related stocks on concerns that Gateway’s warning reflected industrywide problems. Rival computer maker Dell fell $2.56 to $19.25.

Chip makers, which supply the PC industry, also dropped, led by Intel, down $4.75 at $38. Microsoft was down $7.69 at $57.38. Intel and Microsoft are Dow components, and their declines helped pull the blue chip index lower.

Not all tech stocks suffered. Oracle climbed $3.63 to $26.50 and, boosted by a late spending spree, Nortel Networks rose $2.63 to $37.63.