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Is tech wreck on way?

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Sunday, April 20, 2014, 9:00 p.m.
 

Now you see it; now you don't.

Some of the magical gains of the beloved stocks and sectors of the market — like LinkedIn, Tesla Motors and biotechnology companies — have vanished. The Nasdaq composite index, which holds many speculative stocks of the market, declined about 7 percent in March. Biotechnology, one of the most popular sectors of the market until recently, has fallen about 20 percent since early February. Twitter, a social media darling, has lost 38 percent this year.

That kind of disappearing act among speculative companies wouldn't in itself be unnerving for cautious investors who stay away from high-flying stocks that ride the momentum of popularity. But the sharp downturn this year, mixed with economic data that have been weaker than expected, has left investors wondering whether the still pricey tech and biotech stocks have further to fall and whether gains in the full stock market will ultimately evaporate, too. There's been talk of a 2000-style tech wreck, in which the most speculative stocks of the market crashed and eventually set off a broader market swoon.

The Dow Jones industrial average is down about 1.8 percent for the year.

In 2000, the mania over technology stocks gave way to a decline of 78 percent in the Nasdaq index. And the infection took the Standard & Poor's 500 index down 49 percent and the Dow down about 38 percent.

But while analysts have seen a mania building recently in technology stocks like electric carmaker Tesla — which gained about 500 percent in about a year — the frenzy doesn't stretch to the full stock market.

“It's too early to argue the market top is in,” said Doug Ramsey, chief investment officer of the Leuthold Group.

Investors have been protecting themselves recently, by buying large, relatively stable companies such as Caterpillar, a stock that was scorned last year as investors grew increasingly fond of fast-growing companies and worried about Caterpillar sales in emerging markets. Caterpillar's stock has climbed about 19 percent since late January.

Recently, Ned Davis Research suggested investors cut back their exposure to growth stocks, and last week urged investors to buy telecommunications stocks, which aren't powerful growers but pay some of the highest dividends in the market.

Last year, investors snubbed telecommunications when they figured dividends would be less attractive to investors this year as the economy picked up steam and bond yields rose amid less stimulus from the Federal Reserve. But this year hasn't turned out as expected. Economic data still show a recovery, but it is not as robust as investors had thought. Economists have cut growth expectations to 2.5 percent from 3 percent as they have digested lackluster economic data.

Many think growth will pick up this year, as the winter doldrums leave the economy.

“We believe the slowing economic growth of recent months reflects fundamental conditions rather than one-off weather effects,” said Glenmede strategist Jason Pride. “We are watching for signs that portfolio risk levels should be lowered.”

Gail Marks Jarvis is a personal finance columnist for the Chicago Tribune. She can be reached at gmarksjarvis@tribune.com.

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