Stock markets in London and New York saw a flood of money sweep back into old-economy industrial stocks yesterday. The Dow Jones average soared by almost 500 points in a convulsive day of trading. In London the FTSE 100 index closed 110.2 points higher at 6,557.2, with traditional manufacturing stocks to the fore as investors fled the new-economy wonderstocks.
The Dow's rise of 499 points, 4.9 per cent, took it to a close of 10,631 and was its largest daily points gain. However, the index is still 9 per cent off its record high of earlier this year. The tech-laden US Nasdaq reversed early losses and ended up 135, 3 per cent, at 4,718.
In London, however, the techMARK 100 index of technology shares fell 6 per cent to 4,783.3. It has now lost 16 per cent of its value this week.
Equity strategists said London's correction was overdue and warned of worse to come if the slump in internet-related shares sparks a wave of panic selling among small investors.
NatWest Stockbrokers said it is now seeing sellers outnumber buyers by two to one among small investors. "Most have been selling technology stocks and returning to stable 'blue chip' companies," the firm said.
Richard Jeffrey, equity strategist at CCF Charterhouse, said: "It would be a disappointment if small investors get their fingers burned on their first experience on the stock market. But I fear this may be the case. The greatest danger is that when they come to sell, there will be no buyer."
Jeremy Batstone of NatWest Stockbrokers said: "I would think the small investor in technology stocks would be starting to feel a bit jittery." He warned of a "dead cat bounce" in tech stocks, with small investors being tempted to buy more hi-tech shares. He said: "Then we will see the professional investors selling and there will be a significant fall."
On the FTSE 100, the list of biggest risers read like a roll-call of traditional industry, with Billiton, Hanson, BAA and Invensys all recording healthy gains. The biggest falls were in technology and media, with Reuters, Telewest, CMG and BSkyB leading the way down.
Lastminute.com continued to disappoint with another fall of 25p to 387.5p. Shares in the new issue now stand barely above their issue price of 380p.
Commenting on the sudden reversal of the trends of the past six months, Steve Russell, equity strategist at HSBC, said: "We think that TMT stocks [telecoms, media and technology] have got too stretched. The valuations were suggesting they were all going to be winners. We think there will now be a switch to individual stock selection. So some of the new economy companies will do very well. But some will do very badly."
He added that "new economy" stocks would continue to suffer over the next few days.
Mr Jeffrey of CCF Charterhouse, said: "Many of the technology groups are hopelessly overvalued and it is no surprise to see a correction.
"Whether it is a lasting one remains to be seen. But there is fantastic value in the old economy stocks, with terrific dividend yields."
Private client stockbrokers have denied they have been hit by a wave of panic selling.
However, some investors have been struggling to get through to telephone dealing services.
Barclays Stockbrokers' lines have been overwhelmed, with calls in some cases being answered only by a continuous dialling tone. The average "wait time" to get through has been up to 10 minutes. "We have been very busy," a spokeswoman for the stockbrokers said yesterday.