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Hewlett-Packard warning threatens already jittery tech investors

May 16, 2011 |  4:39 pm

Technology shares got the worst of it Monday as some investors continued to pull back from risk-taking after stocks’ phenomenal run-up of the last eight months.

Hewlett-Packard Co. then dropped another bomb after the market closed, as Bloomberg News disclosed that the tech giant’s CEO sent a memo to top executives warning of “another tough quarter” in the three months that will end in July. H-P had warned in February that results for the quarter ending in April would fall short of expectations.

H-P shares tumbled 4.8% in after-hours trading, down $1.91 to $37.89, after falling 61 cents to $39.80 in regular trading.

Nas516 Even before the Bloomberg report hit the newswires the tech sector was leading the broader market lower. The tech-dominated Nasdaq composite index (charted at left) fell 46.16 points, or 1.6%, to 2,782.31, its biggest one-day percentage decline since March 16, when markets were reeling from worries about the economic effects of Japan's earthquake.

Also Monday, slumped $10.05, or 5%, to $192.51; Google slid $11.13, or 2.1%, to $518.42; and Apple gave up $7.20, or 2.1%, to $333.30.

By contrast, the blue-chip Standard & Poor’s 500 index eased 0.6% for the day, to 1,329.47.

Wall Street has lost its momentum since major market indexes hit multiyear highs on April 29. Despite generally robust first-quarter corporate earnings reports, some weaker-than-expected U.S. economic data in recent weeks have raised fears that the recovery could be flagging.

That has fueled selling in stock sectors that would be most vulnerable to slower growth, including industrial, financial and tech issues.

The biggest losers, however, have been sectors tied to commodity prices, which also have tumbled since April 29. Most commodities fell further on Monday. Crude oil futures slid $2.28 to $97.37 a barrel in New York; silver futures were down 88 cents to $34.13 an ounce.

Of the 10 major stock industry sectors in the S&P 500 index, energy is the worst performer so far this month, down 9%. The basic-materials sector (chemicals, steel, paper, etc.) has the second-worst May performance, off 5.9%.

Tech stocks’ losses overall still are modest: The S&P 500 tech sector is down 2.9% this month, not much worse than the 2.5% drop in the S&P 500 index. The Nasdaq index is down 3.2% from its 10-year closing high of 2,873.54 reached April 29. . . .

Market bulls believe the economy has hit a speed bump, but nothing serious enough to warrant abandoning stocks.

“Data suggests that the global economy has slowed recently, but we believe that it is still in the midst of transitioning from recovery to self-sustaining expansion,” Bob Doll, chief equity strategist at money management titan BlackRock Inc., wrote in his latest weekly outlook letter.

“Equity markets have held up pretty well in recent weeks in the face of some weaker economic data and we do not believe there is significant downside risk in the markets,” Doll said.

But this has been a momentum-driven stock market, as buying begot more buying on the way up. The question now is whether selling will beget more selling if investors fear that their paper profits of the last eight months could quickly evaporate.

Even with May’s losses so far, the Nasdaq index is up 31.6% since the end of August. That’s a lot of money still on the table.

-- Tom Petruno