MS ruling knocks stuffing out of Wall Street

The Microsoft antitrust ruling initiated a badly-needed correction in the tech-heavy NASDAQ composite on Monday. By the end of trading, the composite closed down 349, or 7.5 percent, for its single-largest point loss in history as investors sold billions of dollars worth of New Economy stocks, primarily in order to buy familiar Old Economy stocks in the Dow, which rose over 300 to close at 11,222. Microsoft shares fell 15 percent Monday on jittery anticipation of the antitrust ruling, and in the process costing Chairman Bill Gates US $11 billion personally. About forty other dot-coms, caught helplessly in the vortex, sank to their lowest values for the year. The NASDAQ collapsed again Tuesday, and by over 570 points, or twenty-seven percent off from its historical high point in afternoon trading. Action on the Dow had been more restrained Tuesday, with a gain of 1.86 to 11,223.79 showing at midday. But panic on the NASDAQ spread throughout the Street, leaving the Dow down by over 500 at one point. Then programmed trading and bargain hunters colluded to save the day, which ultimately left both indices to close only slightly off from Tuesday's market opening. Ominously, Treasury notes were on the rise Tuesday as investors took refuge from dot-com uncertainty. By midday, 10-year notes were up 9/32; thirty-year bonds were up 16/32; two-year notes were up 3/32; and five-year notes were up 8/32, all a sure sign of bearish retreats to traditional comfort zones. We warned readers that a correction was iminent on the NASDAQ some weeks ago, when we perceived the imbalance between the Old and New Economy shares as artificial and impossible to sustain. The shadow of a correction appeared briefly Tuesday afternoon but could not materialise. It appears that the tech sector won't take its medicine voluntarily, so we expect to see a tremendous reciprocal momentum in both market sectors during the weeks to come. A firm correction does, of course, have to come at some point. How dramatic it will be depends on how wide the swings become. If they remain in the range of 500 points, then it will be a spectacular shock indeed. ®