Top Financial News
Sat, 26 Feb 2000, 9:24pm EST
Nasdaq May Top 5000 on Demand for Computer, Telecommunications Shares
By Nick Olivari
Investors See Nasdaq Index Topping 5000: U.S. Stocks Outlook
New York, Feb. 25 (Bloomberg) -- Nasdaq 5000? Some money
managers say the Nasdaq Composite Index is headed toward another
milestone, driven by demand for shares of computer and
telecommunications companies.
``We don't see any major glitches in the tech story,' said
Dan Cook, a money manager with StoneRidge Investment Partners LLC
in Malvern, Pennsylvania, who manages $880 million. ``Business
looks good and the money is flowing' to Nasdaq listed stocks.
The Nasdaq gained 4 percent this week, about half of the
amount it would take to reach 5000. The index finished the week
at 4590.50, falling 27.15 points on Friday. The index closed at a
record on Thursday.
One reason managers such as Cook are optimistic that the
Nasdaq index is headed higher is that as the index has been
outperforming the Dow Jones Industrial Average, they expect more
money to flow out of companies such as International Paper Co.
and American Express Co., and into stocks like Cisco Systems Inc.
The Nasdaq is up 12.8 percent so far this year, compared
with a decline of 14.22 percent for the Dow average and a drop of
9.25 percent for the Standard & Poor's 500.
Edmund Cowart, a fund manager at Eagle Asset Management Inc.
which oversees $7 billion in St. Petersburg, Florida, said it's
significant that the indices have gone in different directions on
a large number of days this year.
The Nasdaq has gained on 12 days this year when the Dow
fell. According to MarketHistory.com, the last time the
performance of the indices has diverged over a similar period of
seven weeks was in February 1999 and before that in March 1998.
Cowart said that tells him money is flowing out of
industrial companies and into the telecommunications, computer
and biotechnology industries that account for about four fifths
of the companies in the Nasdaq index.
``Money is moving from value to growth,' said Cowart.
``It's rotation into the things that have been working like Cisco
Systems and out of the things that are down and out.'
Indices Diverge
Cisco Systems closed the week at 132 3/4, a gain of 5.5
percent. With a market value of $454 billion, it recently
overtook General Electric Co. as the world's second-largest
company and is now closing in on Microsoft Corp., which has a
market capitalization of $475 billion.
For the week, the S&P 500 index declined 0.95 percent, led
by Fluor Corp. and Novell Inc., each of which dropped more than
25 percent. The big gainers in the S&P for the week included
Mirage Resorts Inc., up 29 percent, after MGM Grand Inc. offered
the acquire the company for $5.5 billion.
Gateway jumped 24 percent after the company unveiled
alliances with Sun Microsystems Inc. and OfficeMax Inc. aimed at
boosting sales of the personal computers it makes.
The Dow Jones Industrial Average fell 3.4 percent this week,
closing below 10,000 for the first time since April. 6. The
decline contributed to reduce the price-to-earnings ratio for the
index to 23 from a high of 28 in September.
Microsoft Could Gain
Microsoft, the biggest company in the S&P 500, fell almost 4
percent this week. The No. 1 software maker has tumbled 22
percent so far this year.
Price Headley, president of BigTrends.com, a stock and
options advisory firm in Lexington, Kentucky, said Microsoft
could be poised to rebound. He pointed to a technical indicator
showing that the stock closed below its 200-day moving average on
Wednesday. When the price falls below that line it ``has
historically been an excellent time to buy,' he said.
For 14 of the last 17 occasions when Microsoft has dropped
to its 200-day moving average, the stock has gained an average of
26.1 percent in the next four months, Headley said. That compares
with an average drop of 7 percent on the three occasions it fell
over the four months.
Headley recommends buying call options that allow the holder
to purchase the stock for 100 by July 20 on expectations the
stock will move higher within the four-month time frame.
StoneRidge Investment's Cook is considering adding to the
Microsoft shares the firm owns. In the interim, he's been buying
semiconductor equipment maker Applied Materials Inc. and computer
network equipment maker Extreme Networks Inc.
Next week, investors will be looking to February's
unemployment report and changes in average hourly earnings to be
released on Friday for more evidence of the size and possible
timing of Federal Reserve interest rate increases this year.
``If hourly earnings growth is above the 0.3 percent
expected, it may be the confirmation that Greenspan is right and
inflation is ticking up,' said Michelle Clayman, chief
investment officer at New Amsterdam Partners LP, which manages $1
billion. ``That could make for more bumps in the market.'
Companies expected to report earnings include Dayton Hudson
Corp., Litton Industries Inc. |
