Technology stocks rose for a third straight day Wednesday, but blue chips staggered lower, as investors shifted money into high-tech shares in the hope that the worst is over for the battered group.
"It's pretty much 'A Tale of Two Cities' today," said Richard Babson, president of Babson-United Investment Advisors. "There's bottom-fishing in techs. People don't want to miss the upside. . . . But on the Dow, some people are raising cash."
Semiconductor stocks such as Intel--bolstered by positive comments from a Wall Street analyst--led technology stocks higher, and the Nasdaq composite index advanced 46.92 points, or 2.5%, to 1,898.95.
But defensive drugs and tobacco shares, which are often sought as safe havens in times of economic uncertainty, suffered amid the high-tech buying spree. Their losses helped drive the blue-chip Dow Jones industrial average down 89.27 points, or 0.9%, to 10,013.47, after briefly falling below the psychologically key 10,000-point level.
The broader Standard & Poor's 500 index slipped 2.49 points, or 0.2%, to 1,165.89.
Almost five stocks rose for every four that fell on the Nasdaq Stock Market, while more than three declined for every two that advanced on the New York Stock Exchange. Trading was brisk.
Short-dated U.S. Treasury securities, meanwhile, were walloped for a third day in a row as money managers siphoned cash out of the fixed-income market and fed it into tech shares.
Fifth Third Investment Advisors, for example, diverted money from U.S. Treasuries to stocks about two weeks ago, said John Cassady, who manages $3 billion in fixed-income assets for the firm.
"Our equity people were saying, 'Hey wait a minute, there are some healthy equity companies out there,' " he said. "But you have to be careful. There will still be volatility, and it will be awhile before things really turn around."
The yield on the benchmark 10-year Treasury note, which moves in the opposite direction to its price, rose to 5.12% Wednesday from 5.08% Tuesday. The yield was 4.76% on March 22.
Semiconductor shares made sharp gains after investment house Salomon Smith Barney said it upgraded the sector to "outperform" from "neutral." Analyst Jonathan Joseph raised top computer chip stocks to "buy" from "hold," including top-tier firms such as Intel, which gained $2.75 to $27.52, Micron Technology, up $3.45 to $41.60, and Texas Instruments, which climbed $4.40 to $34.
After the semiconductor upgrade, the Philadelphia semiconductor index shot up more than 14% at one point and finished the session up 8.5%.
Gains in the computer-chip sector encouraged buying in other high-tech areas, such as software and computer-related companies.
The Dow, however, slumped under the weight of a drop in the shares of drug companies such as Merck, which fell $1.24 to $77.15, and tobacco giant Philip Morris, which sagged $1.83 to $45.74.
Many analysts were skeptical about whether investors' recent appetite for technology stocks can last, but there was some optimism that the days of relentless selling in the sector's stocks were drawing to a close.
"The worst of it may be ending. We might have a little bit more downside, but it doesn't look like a lot more," said Guy Truicko, equity portfolio manager at Unity Management.
News that China agreed to release the crew of a U.S. spy plane was a psychological boost to Wall Street, analysts said.
But sagging corporate earnings were still on investors' minds as the reporting season heats to a steady burn.
"The view is the results being reported for the first quarter are going to be horrible and next quarter is also going to be weak, but [investors] are looking further and seeing a pick-up toward the end of the year," said Michelle Clayman, chief investment officer at New Amsterdam Partners.
The big earnings news Wednesday came from Internet portal Yahoo, which reported after the market closed that it earned a penny a share, excluding one-time gains and losses, and that it will fire 12% of its work force. Yahoo shares, which closed at $15.86, down 16 cents, in regular trading, rose to $16.38 in the after-hours market.
Market Roundup, C7-8
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A Badly Needed Boost
Semiconductor stocks rose Wednesday on positive comments about the group by a Salomon Smith Barney analyst, pushing the Philadelphia semiconductor index up more than 8%.
Philadelphia semiconductor index, weekly closes and latest
Wednesday: 564.29, up 44.17
Source: Bloomberg News