It looks a bit like the Republican primary fight.
America’s economic establishment, represented for more than a century by the Dow Jones industrial average, fought a symbolic battle Thursday against insurgent investors who are unimpressed by the Dow’s pedigree.
In a day marked by extraordinary volume on the New York Stock Exchange and Nasdaq stock market, the 30-stock Dow, comprising an array of companies from Alcoa to Microsoft, fell below the 10,000 mark during the session for the first time since October.
The Dow–which had fallen more than 280 points during trading–managed to recover by the close, ending down 133.10 points, or 1.3 percent, to 10,092.63. The Dow, which reached a record intraday high of 11,750 in mid-January, has not closed below 10,000 since last April.
Thursday’s rebound depended largely on a rally by semiconductor giant Intel, after upbeat remarks by a prominent analyst.
Intel, which was added to the Dow in November, gained $5.19, to a record closing high, $114.25.
Nonetheless, analysts said chances are good that the blue-chip index will close below 10,000 in the next few sessions.
Meanwhile, the Nasdaq composite index, home to most of the technology growth stocks investors favor these days, advanced to a record closing high of 4617.65, the first close ever above the 4600 mark.
Thursday’s action once again reflected concerns about the likelihood of higher interest rates ahead, which would erode the profits of major firms and invite investors to buy bonds instead of large-capitalization stocks.
More important, the dip to 9942 points on the Dow during the day represented a milestone in a persistent shift by investors away from the largest U.S. multinationals toward companies plowing the fresh ground of technological progress.
Nasdaq share volume, at 1.9 billion shares, swamped the NYSE floor volume of 1.2 billion shares. Even accounting for technical differences favoring a higher Nasdaq volume, the numbers reinforced the view that the Nasdaq market is becoming the preferred venue of investors.
The shifting tide toward leading-edge technology stocks appears to be eroding even some formerly hot tech stocks.
For example, Tellabs, the telecommunications equipment supplier based in suburban Lisle that has long been one of the Chicago area’s best-performing stocks, has been in a slump for most of the year. The stock closed down $2.12, at $51.69, on Thursday on the Nasdaq market.
But JDS Uniphase, a Canadian supplier of fiber-optic materials for telecommunications, continued its recent rally, jumping $22.50, to a record closing high, $258. In the past year, the stock has traded under $20.
Similarly, Amazon.com, a pioneer of Internet commerce, fell $2, to $68.44, while eBay, the lively on-line auction service, added $9.06, to $164.
Indicative of the trend, the Russell 2000 index of small-company stocks advanced 4.13, to 554.04, just short of its record high set last week.
The trend represents a reversal of preferences from just a year ago, when investors rushed to buy major companies but shunned smaller companies.
The Dow’s dip below 10,000 “brings home in a graphic way that you have such a split market,” said Greg Nie, technical market analyst for First Union Securities in Chicago.
From a technical standpoint, the Dow fell below its 200-day moving average in the early part of the month, while the broader Standard & Poor’s 500 index fell below its 200-day moving average only last Friday.
“I do think we’re going to find a low [for the Dow] soon, but the subsequent recovery will be part of the ongoing pattern of the year–up and down, up and down,” Nie said.
“A break below 10,000 reinforces that the technical story for the downside has a lot more credibility today than it has had at any time in the recent past,” he said. “Even if we find a low, over a month or two we are unlikely to trade all the technical negatives.”
He pointed to the low cash reserves in mutual funds, which at the end of December were at levels not seen since the early 1970s, he said.
That means mutual funds lack cash to pay redemptions if investors lose confidence, and fund managers lack cash to buy bargains.
Meanwhile, the Nasdaq composite index stands at 46 percent above its 200-day moving average. “This move has blown away the previous records,” Nie said.
The previous time a sector of the market gapped sharply higher than broader market averages occurred in the late 1970s and early 1980s, when inflation fears prompted investors to buy shares of so-called hard-asset companies, such as oil and gold producers, Nie recalled.
