Tech Stocks Cool in Rally Aftermath

Technology stocks ended mostly lower Thursday as investors pulled out of the battered sector following Wednesday’s rally induced by the U.S. Federal Reserve’s interestrate cut. Some issues, however, managed to hold on to Wednesday’s gains.

The tech-heavy Nasdaq composite stock index fell 49.85 to 2566.84, after climbing more than 14 percent Wednesday.

The E-Commerce Times stockindex, which consists of 10 prominent dot-coms, slipped 3.54 percentThursday, following an 18.8 percent rise Wednesday.

Winners and Losers

Among e-commerce stocks, e-tailer Beyond.com (Nasdaq: BYND) registered an 80 percent gain, rising 0.12 to 0.28. Online auctioneer eBay (Nasdaq: EBAY) fell 3.98 to 35.38, while Amazon.com (Nasdaq: AMZN) lost 2.06 to 15.50.

Thursday’s big technology and telecommunication winners were America Online, Inc. (NYSE: AOL), which rose 4.59 to 42.09, and Sprint PCS (NYSE: PCS), which picked up3.31 to 24 after announcing a wireless agreement with Palm (Nasdaq: PALM).

On the downside, Qlogic (Nasdaq: QLGC) dropped 8.06 to 7.88, andInktomi (Nasdaq: INKT) fell 4.62 to 13.88, after saying sales andearnings for the quarter just ended would be below previous expectations.

Taking a Breather

Stocks soared Wednesday after Federal Reserve policymakers delivered asurprise interest-rate cut, lowering their target for the key federal fundsrate to 6 percent from 6.5 percent. The central bank said the move reflectedslowing sales and production, declining consumer confidence, “tightconditions” in financial markets and high energy prices.

Brian Belski, market strategist at US Bancorp Piper Jaffray, said Thursday’smarket action was “a fairly big positive” for tech stocks. Biggains two days in a row would be “too much, too fast” and could spur moreselling, he told the E-Commerce Times.

The fact that stocks did not giveback all Wednesday’s ground, according to Belski, “showed that the marketbelieves in the gains.”

Spurring Investment

Analysts said the rate cut should help cash-strapped companies resumeinvestments in information technology. Several technology companies –ranging from computer makers to chip manufacturers to Internet consultants –have said fourth-quarter results will be hurt by a slowdown in technologyinvestment.

“Interest rates have been rising,” said Bob Anastasi, director of researchat Raymond James. “The fact that interest rates are moving down should helpspending on technology products next year.”

“Most tech stocks have earnings that are far in the future,” said ChrisBonavico, money manager at Transamerica Investment Management.

As lower interest rates take hold, companies with “cash-flow issues” could see thedoor to liquidity begin to open, Bonavico told the E-Commerce Times.

Analysts Cautious

Still, analysts also urged caution. “Before the dancing and partying get tooloud, there remain issues to be dealt with,” US Bancorp’s Belski wrote in aresearch note. “An important variable going forward will be how much of atime discount the market will give the high-growth stocks for theirimpending and probable stabilization.”

E-commerce stocks, in particular, are not likely to regain their formerluster, according to Transamerica’s Bonavico. “They’ve been shown to be notreal businesses — more concept than execution,” he said. “Some investorswere fooled, most investors were speculating” in bidding up the stocks, hesaid.

The rule going forward, Bonavico said, will be “Once bitten, twice shy.”