The answer for many investors is to shift money into stocks with fast earnings growth that aren't as richly priced. That will mean gains for drug, retail and financial shares in coming days. "We're searching for a little bit of safety - cheaper growth stocks," said Courtney Smith, of Orbitex Management.
The performance of the major market indexes last week reflected the slump in computer stocks. The computer-dominated Nasdaq Composite Index lost 1.6 per cent, while the broader Standard & Poor's 500 and the Dow Jones Industrial Average gained about 0.7 per cent.
Software and computer makers were among the biggest losers in the S&P 500, while casino and hotel and motel stocks gained the most. Dell's fourth- quarter earnings on Tuesday matched forecasts though its revenue growth of 38 per cent fell short of expectations. The stock slumped 11 per cent for the week to 80.125, after losing 12 per cent the previous Friday in anticipation.
Microsoft fell 6.3 per cent, software maker Oracle dropped 4.4 per cent and number one online bookseller Amazon.com lost 2.5 per cent. Insurer Transamerica gained 33 per cent after agreeing to sell itself to Aegon NV for $10.8bn (pounds 6.55bn) and casino operator Mirage Resorts jumped 22 per cent on optimism that new casinos in Las Vegas will lure more gamblers.
The Nasdaq Composite set a record on 1 February at 2510.09, giving it a 14 per cent gain for the year. Since then, the index has slid 9 per cent. The prospect of higher interest rates also is weighing on stocks with high price/earnings ratios. On Tuesday, Federal Reserve Chairman, Alan Greenspan, presents his semi-annual testimony on the economy to the Senate Banking Committee, with a repeat performance before the House panel on Wednesday.
Investors will be listening for clues that the central bank is leaning toward raising interest rates amid signs that the economy is growing more quickly than expected. A report on Friday that the US trade gap narrowed in December shows the US may boost its estimate of fourth-quarter economic growth when it updates the figure next Friday. Richard Yamarone, an economist at Argus Research, said growth may be revised up to 6.1 per cent at an annual rate, from 5.6 per cent, the estimated at the end of January.