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 interest rate 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 stock index, which consists of 10 prominent dot-coms, slipped 3.54 percent Thursday, 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 up 3.31 to 24 after announcing a wireless agreement with Palm (Nasdaq: PALM).

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

Taking a Breather

Stocks soared Wednesday after Federal Reserve policymakers delivered a surprise interest-rate cut, lowering their target for the key federal funds rate to 6 percent from 6.5 percent. The central bank said the move reflected slowing sales and production, declining consumer confidence, "tight conditions" in financial markets and high energy prices.

Brian Belski, market strategist at US Bancorp Piper Jaffray, said Thursday's market action was "a fairly big positive" for tech stocks. Big gains two days in a row would be "too much, too fast" and could spur more selling, he told the E-Commerce Times.

The fact that stocks did not give back all Wednesday's ground, according to Belski, "showed that the market believes in the gains."

Spurring Investment

Analysts said the rate cut should help cash-strapped companies resume investments 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 technology investment.

"Interest rates have been rising," said Bob Anastasi, director of research at Raymond James. "The fact that interest rates are moving down should help spending on technology products next year."

"Most tech stocks have earnings that are far in the future," said Chris Bonavico, money manager at Transamerica Investment Management.

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

Analysts Cautious

Still, analysts also urged caution. "Before the dancing and partying get too loud, there remain issues to be dealt with," US Bancorp's Belski wrote in a research note. "An important variable going forward will be how much of a time discount the market will give the high-growth stocks for their impending and probable stabilization."

E-commerce stocks, in particular, are not likely to regain their former luster, according to Transamerica's Bonavico. "They've been shown to be not real businesses -- more concept than execution," he said. "Some investors were fooled, most investors were speculating" in bidding up the stocks, he said.

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