Tech Stocks Surge As Fed Cuts Rates

A surprise move Wednesday by the U.S. Federal Reserve to cut interest rates from 6.5 percent to 6 percent caused high-tech stocks to skyrocket during the day’s second half of trading.

The Nasdaq composite stock index surged 324.83, or 14.2 percent, to close at 2616.69. The rally represented the largest one-day point and percentage gain in Nasdaq history.

Similarly, the E-Commerce Times stock index, which monitors 10 prominent dot-coms, including Amazon.com (Nasdaq: AMZN) and eBay (Nasdaq: EBAY), jumped 18.8 percent. Amazon rose 26.6 percent, or US$3.69, to $17.56, while eBay soared 30.3 percent, or $9.17, to $39.36.

The day’s stellar showing came as a welcome dose of good news for the Nasdaq, which has been hammered in recent months by wary investors dumping tech shares over fears of dampened profits and unsustainable growth.

A day earlier, the Nasdaq suffered its seventh-largest percentage decline ever — 7.2 percent. The index remains almost 50 percent off its all-time high of 5132.52, set March 10th.

Big Gainers

Among the tech names that scored significant gains Wednesday were Cisco Systems (Nasdaq: CSCO), which jumped $8.00, or 24 percent, to close at $41.31, Intel (Nasdaq: INTC), which gained $3.17, or 10.2 percent, to close at $34.23, and Oracle (Nasdaq: ORCL), which climbed $5.63, or 21.3 percent, to end the day at $32.00.

Other winners included Sun Microsystems (Nasdaq: SUNW), which jumped $7.56, or 30 percent, to close at $33.00, and Microsoft (Nasdaq: MSFT), which gained $4.56, or 10.5 percent, to close at $47.94.

Economic Concerns

In making its announcement, the Fed indicated that it was concerned about the health of the economy and was on guard to prevent a further downturn. The rate cut came almost four weeks before the Fed’s next scheduled policy meeting, slated to take place on January 30th and 31st.

“These actions were taken in light of further weakening of sales and production, and in the context of lower consumer confidence, tight conditions in some segments of financial markets, and high energy prices sapping household and business purchasing power,” said the Fed, the central banking entity of the United States.

However, the Fed added that concerns over the tech sector should be kept in check, noting that “to date, there is little evidence to suggest that longer-term advances in technology and associated gains in productivity are abating.”

Info Tech Concerns

Nonetheless, more caution about the tech market did emerge on some fronts. In a research note issued Wednesday, Merrill Lynch analyst Thomas Kraemer said that a reduced competitive threat from dot-coms may cause brick-and-mortar firms to slash their information technology (IT) spending.

“This, in addition to economic slowdown, aggressive purchases in front of Y2K, and elongated purchase cycles, could delay the tech recovery that consensus expects to come in late spring, 2001,” Kraemer added.

However, Kraemer said that data storage shares, which plummeted Tuesday after a Robertson Stephens analyst downgraded several firms in the sector, including EMC (NYSE: EMC) and e-commerce software security developer VeriSign (Nasdaq: VRSN), may wind up faring better than their tech counterparts.

“All of tech has been massacred, but our data suggests that storage may weather the storm better, since its earnings stream will be more reliable than almost any other area of technology,” Kraemer wrote.

Hope Glimmers

Among the storage hardware and business software development stocks, EMC was up $13.50, or 24.9 percent, to end the day at $67.81, and VeriSign leaped 30.4 percent, or $18.80, to close at $80.61.

The Fed rate cut could also bode well for the struggling personal computer niche. A report released Wednesday by PC Data found that PC sales fell 24 percent in December from a year earlier, a fifth consecutive year-over-year decline.

However, some computer giants saw significant market gains, with IBM (NYSE: IBM) gaining $9.81, or 11.6 percent, to close at $94.63, and Hewlett-Packard (NYSE: HWP) jumped 12.6 percent to close at $34.06.

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