The Dow Jones industrial average soared more than 320 points yesterday, while the technology-laden Nasdaq composite index fell nearly 125 -- a complete role-reversal from the past two months.
Analysts said it is too soon to know if yesterday's reversal of fortune is the sign of renewed investor interest in blue-chip shares, a false break in a bear market, or just a brief respite from a bull market in technology stocks that's had a stubborn penchant for breaking all the rules.
"We've seen such a tremendous dichotomy between technology and the rest of the market for quite awhile," said Gil Knight, a principal with Allied Investment Advisors in Baltimore.
"Outside of tech, most of the stocks in the Dow Jones look like they've been in a bear market -- still, 320 points is a pretty big move."
The Dow rocketed 320.17 points, or 3.26 percent, to close at 10,131.41, its biggest one-day rally since Oct. 15, 1998. But even with yesterday's big bounce, the 30-stock index is down 11.9 percent year-to-date.
The Nasdaq fell 124.01 points, or 2.63 percent, to end the day at 4,582.62. It's up 12.6 percent so far this year, but yesterday's sell-off extended its three-day loss to 9.2 percent -- just short of the 10 percent needed to qualify as a "correction" in the index.
"The money is coming out of the superinflated Nasdaq and into industries that have gotten knocked down recently," said Thom Brown, a money manager with Rutherford, Brown & Catherwood Inc. in Philadelphia.
Only one other time has the Nasdaq fallen more than 2 percent while the Dow rose more than 3 percent: Oct. 20, 1987, the day after the stock market crashed.
The Standard & Poor's 500 Index climbed 33.00 points, or 2.43 percent, to close at 1392.15.
More than three stocks rose for every two that fell on the New York Stock Exchange. That, too, is a reversal of recent market action: Losers have been outnumbering gainers, leading many market-watchers to worry about the underlying health of the stock market. That's why, of late, concerns of a bear market have gone from whisper to debate.
Technically, the Dow has yet to reach such depths -- though in bottoming out first 17 percent and then 18 percent from its Jan. 14 record high in recent weeks, the blue-chip index has twice approached the 20 percent threshold most experts say helps define a bear market.
Even if it was only a correction, perennially dependable blue-chip stocks clearly have been ailing. To make matters worse, investors abandoning these "Old Economy" stocks were ramming money into technology shares -- sending the Nasdaq to 15 record highs so far this year before this week.
Investors have been so ardent in their pursuit of technology stocks because those companies are involved with the fastest-growing parts of the economy: information technology, the Internet and biotechnology. Some investors, and even some economists, believe that technology companies -- particularly those involved with the Internet -- are virtually recession-proof now because firms that wish to remain competitive have no choice but to keep investing in the latest equipment, software and services.
And at a time when the Federal Reserve is on a campaign to cool the economy with relentless interest-rate increases, such views have helped send investors into technology stocks, since Old Economy companies clearly will feel the pinch as the cost of money rises.
Even so, many market experts have grown concerned that the torrid performance of the high-tech sector had gone from buying frenzy to genuine stock market "bubble," a speculative mania in financial assets that seems to arise a couple times each century.
Bubbles tend to have unpleasant, if not ruinous, endings. That's just what happened in Japan, where the collapse of a bubble in stocks and real estate crushed the economy 10 years ago, leaving it so weakened that it hasn't recovered yet.
Robert F. Mewshaw, president of Lutherville money manager Van Sant & Mewshaw Inc., said technology shares had clearly entered the bubble phase and said this week's decline was not only inevitable -- it was needed to let the air out of a market that was over-inflated. More selling may be in the offing, too, he said.
"The sell-off was long overdue," Mewshaw said, noting that the selling may not be over, yet.
Elsewhere on the broad market, the Russell 2000 index, a benchmark of small-cap stocks, tumbled 14.12 to 558.87; the Wilshire 5000 index jumped 147.76 to 13,608.75; the American Stock Exchange composite index sank 19.39 to 996.12, its first close below 1,000 in two weeks; the New York Stock Exchange composite index climbed 16.59 to 605.02; and the S&P 400 midcap index slipped 0.42 to 458.12.
The Sun-Bloomberg Maryland index of the top 100 Maryland stocks dropped 6.38 to 288.16.
The blue-chip Dow rose on the strength of old-line industrial companies including DuPont Co., up $2.9375 to $50.75, Johnson & Johnson, up $4.1875 to $76.9375 and Minnesota Mining & Manufacturing Co., up $3.375 to $82.50.