After feasting last week on meaty, steroid-laden Internet stocks, investors finally walked away from the table Monday with a nasty case of indigestion. Net shares took a particular pounding, but Wall Street suffered losses pretty much across the board as traders returned from the holiday weekend and placed their bloated portfolios on crash diets.
Most investors still expect share prices to post further gains, but they weren't taking any chances. Monday's sell-off resulted from concern that stock values had reached a peak -- a concern that became self-fulfilling as the day wore on, with falling prices prompting more and more traders to exit the market.
The Wired Index shed 21 points to close at 456.13, and the Dow Jones Industrial Average ended 216.53 lower at 9116.55. The Nasdaq dropped 66.89 to 1949.55, and the S&P 500 was down 28.70 at 1163.63.
"There's definitely been a push-back," said Rob Martin, an analyst with Friedman, Billings, Ramsey. "It may be that people went overboard on Friday, and are now coming back to reality."
This certainly appears to be the case with Net stocks, which have skyrocketed recently on hopes that holiday shoppers will be flocking online in record numbers. Internet retailers especially have logged double-digit gains as the e-commerce hype gathered momentum, and as market researchers jostle one another coming up with increasingly rosy projections for online holiday sales (the current spread is anywhere from US$2 billion to $5 billion).
Maybe the hype is on the money, but investors are now asking themselves how a second-tier outfit like Books-A-Million (BAMM) could have started last week at $3.50 a share and closed Friday at almost $39, or how a fairly minor purveyor of tech gear like Onsale (ONSL) could leap by 62 percent to end the week at nearly $98.
Both stocks took a tumble Monday as traders came up short in finding good answers to these questions. Books-A Million fell $9.44, or 24 percent, to $29.50. Onsale plunged $36.13, or 37 percent, to $61.50.
The big guys took a beating as well. Amazon.com (AMZN) slid $24.63 to $192, and eBay (EBAY) was down $20.38 at $197.63. America Online (AOL) lost $7.13 to $87.75, and Yahoo (YHOO) ended $24.94 lower at $192.
Software e-tailer Egghead.com (EGGS) managed to gain ground in the morning after taking the wraps off its revamped site, but sputtered in the afternoon as investors realized that design changes aren't the best indicator of future prosperity. Egghead closed $6.13 lower at $25.50.
Books-A-Million's massive run-up last week also was fueled by a tweaking of the company's Web site. "These are purely makeovers," said Martin of Friedman, Billings, Ramsey. "It will take more than a makeover to generate traffic." Investors are only now learning this lesson.
Infoseek (SEEK) slipped $1.94 to $34.06 after cutting a new deal with Netscape. The portal will pay more out of pocket for a smaller percentage of Web searchers automatically steered to its site. Still, Infoseek has been moving to reduce its dependence on third-party traffic as its prepares to launch its new Go Network with the Walt Disney Company (DIS).
Speaking of which, Team Mickey was up 31 cents at $32.19 as its new computer-animated movie A Bug's Life rakes in cash at the box office. Meanwhile, former Mousketeer Darlene Gillespie faces trial on stock fraud charges. What next -- Goofy getting nailed for insider trading?
In tech, computer makers were buffeted by worries that fourth-quarter sales may not be as strong as earlier anticipated. Dell Computer (DELL) slid $3 to $60.81, and Compaq Computer (CPQ) was down $1.56 at $32.50. Gateway (GTW) declined $5.50 to $56.13, and Apple Computer (AAPL) was $3.13 lower at $31.94.
Among other heavy hitters, Microsoft (MSFT) fell $6.06 to $122, and Intel (INTC) shed $2.38 to $107.63. Cisco Systems (CSCO) dropped $4.63 to $75.38.
More mergers: Medtronic will pay about $3.7 billion for medical-device maker Arterial Vascular Engineering (AVEI), sending shares in the latter soaring $16.50, or 51 percent, to $48.88. Separately, DeKalb Genetics (DKB) advanced $4.75 to $99.75 on word that Monsanto is closing its $2.3 billion acquisition of the biotech firm.
FDX (FDX) rose $1.06 to $64.88 on a report in a Japanese newspaper that Federal Express is on the verge of forming an alliance with Nippon Express, the country's biggest delivery service. FedEx called the report "speculation."
One last thing: Microsoft kingpin Bill Gates has been named by Time magazine and CBS News as one of the "titans" of the 20th century. So was racketeer Charles "Lucky" Luciano.
Probably just a coincidence.
