Tech stocks slide

A volatile week on Wall Street is further fueled by economic concerns and a re-rating of chip giant Intel.

2 min read
It has been a roller-coaster week on Wall Street, and today's volatility was further fueled by economic concerns and a downgrade of the microprocessor sector's shining star.

Intel (INTC) shares lost as much as 7.4 percent before closing the day at 96-1/4, down 2-1/8 from yesterday, after Tom Kurlak, an analyst with Merrill Lynch, downgraded the stock to "near-term neutral" from "buy."

Kurlak also downgraded Texas Instruments (TXN) to a "near-term neutral" from "accumulate" and kept the long-term rating at "buy." The stock closed at 118-3/4, down 6-1/4 points from yesterday.

Kurlak said the companies' businesses have softened and will go sideways for the near term. He expects the companies will not duplicate their growth of the second half of last year.

But some analysts question if the Intel downgrade is the cause of the tech sell-off.

Brian Eisenbarth, an analyst with Collins & Company, said the cause was an overall downward turn in the markets.

"Intel has become a big enough stock that it is market-driven," he said, noting that the downgrade has contributed to some profit-taking. (Intel is an investor in CNET: The Computer Network.)

Bruce Lupatkin, the research director at Hambrecht & Quist, agrees that Intel is not the cause of the downward turn in the tech stocks. He said that the real issue is the fear of interest rates being raised again.

That fear stems from the UPS strike settlement and investors' concerns that it will prompt other unions win higher concessions from companies, Lupatkin said. That, in turn, could drive up labor costs, leading to inflation and raised interest rates, he said.

Although recent economic indicators and the Federal Reserve Board meetings have given no indication that rates are on their way up, analysts say investors become jumpy as Fed's release their report each month.

Even if the semiconductor sector steps back to take a breather, a year of strong growth is on the books. Seth Dickson, a research analyst at Hambrecht & Quist said, "the sector rebounded from a correction, and now it is driven by not just the personal computer market, but by other emerging markets, like the communications and telecom sectors. Those other sectors will be the catalysts going forward."

He expected the long-term growth rate for the chipe sector to be in the high teens through at least the year 2000.

The markets were largely down across the board today. The Dow Jones Industrial Average, which dropped 250 points last week, fell as much as 198.59 points before recovering ground to close at 7887.91, down 6.04 from yesterday. The technology-laden Nasdaq index was off as much as 38 points, before closing at 1598.69, down 8.67 from yesterday.

Reuters contributed to this story