Updated 02-Feb-01
General Commentary
Techs ended Thursday's trading mixed, as investors continued to weigh the significance of the rate cuts against growing evidence of a more pronounced economic slowdown... The big question is how fast will the economy and earnings begin to rebound... If the answer is by midyear, then it makes sense to continue loading up on techs... On the other hand, if the rate cuts don't bring about the desired result in the desired time frame, then the tech sector probably got a bit ahead of itself during the big January advance... Unfortunately, nobody knows the answer to the question of how long it will take the economy to snap back... We're all just guessing... Some guesses may be more educated than others, but they're still just guesses... Heck, even Greenspan is guessing... The reason for all the guesswork is that we don't have enough information yet... All we know is that the economy has slowed hard and fast... We'll need to keep a close eye on the upcoming jobs data (due today), consumer confidence, retail sales figures, housing, credit conditions, etc. to determine more clearly and more accurately the scope and likely duration of the slowdown.
A popular phrase during last year's election fiasco was "the market hates uncertainty." Though grossly overused to explain away market declines, the the statement has some basis in fact... If traders can't predict an outcome with a reasonable degree of certainty then they often choose to park their money in cash until they can... We could be nearing that point in the market/sector now... Traders are reasonably certain that lower interest rates will bring about a recovery, they just becoming less sure of when... That's why Briefing.com contends that the sector could experience a modest near-term pullback (worst case) or move into a holding pattern (best case).
Since the macroeconomic outlook is clouded and will remain open to debate for several weeks, let's shift our focus back to the smaller picture... What sectors are hot and which are not... In the not category we have optical networking, telecom equipment, e-software and storage stocks -- places where valuations in many cases remain relatively high... Those groups exhibiting more favorable relative strength include PC, chip, chip equipment, mainframe software, telecom services, fuel cell and e-consulting... Not surprisingly, these were among the hardest hit groups last year and, thus, offered (and generally still do) the more compelling valuations... Fuel cell stocks the major exception... These alternative energy companies came back into vogue as the California energy crisis moved from a small story buried in the middle of the paper to the front pages.
While knowing which groups are currently in and which are out is beneficial, the market has recently switched allegiances faster and more often than Boris Becker changes partners... Consequently, careful stock selection is as important today as ever... Don't believe us just compare EMC (EMC) to Network Appliance (NTAP); Emulex (EMLX) to JNI Corp. (JNIC); IBM (IBM) to Hewlett-Packard (HWP); Capstone Turbine (CPST) to Active Power (ACPW); Linear Tech (LLTC) to PMC-Sierra (PMCS); and/or New Focus (NUFO) to Corvis (CORV).
Robert Walberg |
