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. Last Updated: 07/27/2016

Nasdaq Dive Negates Rebound




NEW YORK -- Wall Street tumbled again Tuesday in a late-day sell-off that wiped out the last of the technology-stock rebound that had followed mid-April's record plunge.


Although the day's decline did not rank among the worst losses in the market's spring plunge, it may have troubling significance for individual investors: The popular strategy of buying on market dips - especially technology stocks - has failed miserably in recent weeks, saddling investors with huge losses.


With Tuesday's 5.9 percent dive, the tech-dominated Nasdaq composite stock index fell below its close on Friday, April 14, when it had slumped 9.7 percent to end its worst week in history. The Nasdaq now has fallen 37.3 percent from its March 10 peak, eclipsing the 35.9 percent drop in the 1987 market decline.


European stocks fell Wednesday in the wake of a broad selloff in Asia, as Wall Street's latest plunge reverberated through the world's exchanges, The Associated Press reported.


In Frankfurt, Germany, the Xetra DAX Index of leading shares was off 1.6 percent at 6,820.18 in midday trading.. Among those hardest hit were blue-chip technology companies SAP, Siemens and Deutsche Telekom. However, London - Europe's largest exchange - recovered slightly from its morning fall, with the FTSE-100 Share Index rising 0.1 percent at 6,093.8, with Vodafone and some other technology stocks gaining.


Earlier in Tokyo, Asia's largest market, falls by high-tech and communications companies helped push the 225-issue Nikkei Stock Average to a loss of 274.29 points, or 1.7 percent, at 16,044.44. It was the Nikkei's sixth consecutive drop and its lowest close since May 28.


What has demoralized many individual investors is the pattern of the decline: Technology stocks have staged three rallies since April 4, each time pulling in bargain hunters who believed the shares were certain to rebound to their old highs. But each time, share prices have quickly reversed, creating fresh losses for those buyers.


That is quite apart from the experience investors have enjoyed for much of the last decade, as stock declines, particularly in the tech sector, have been short-lived and soon followed by powerful new rallies.


"There's a shift in psychology going on,'' said Arthur Micheletti, chief investment strategist at Bailard Biehl & Kaiser in San Mateo, California. "Instead of buying the dips, at some point people will say, 'Gee, the next little rally, I'm bailing out.'"


If that change in psychology becomes widespread enough, the slow and steady grinding down of stock values and investor confidence of the last two months could give way to a sudden avalanche of selling - and perhaps true panic, analysts said.


With many hyperactive traders sidelined by the tech sector's collapse since mid-March - after the stunning gains of the previous six months - a new wave of selling could come from mutual-fund investors, who have been calm so far but may only be starting to see the damage in their monthly statements, said New York money manager James Awad.


To be sure, the market overall isn't faring as badly as once high-flying tech issues. On Tuesday, the Dow Jones industrial average fell 120.28 points, or 1.1 percent, to 10,422.27. It is down 11.1 percent from its peak, much less than the Nasdaq index's losses.


Some on Wall Street actually would welcome a panic-driven "blowoff,'' led by tech stocks, saying it could mark the end of the current bear market for tech shares and perhaps lead to a less spectacular but more sustainable upward move.


For now, though, most investors probably are in between the extremes of panic and bullishness.


The Federal Reserve has raised interest rates six times since last June, boosting the key short-term rate it controls to 6.50 percent from 4.75 percent. And most economists believe there's a good chance the central bank will vote another rate hike at its next meeting, June 27 and 28, perhaps even a second half-point increase like the one imposed May 16.


The credit tightening - in the name of restraining inflation - has helped push mortgage and credit-card rates to the highest levels in years and has squeezed the supply of cash available for buying stocks. Higher rates also make business loans more expensive and can crimp corporate profits.


All of this tends to work against a recovery in stock prices.