Nasdaq could retest April lows
By Bambi Francisco, CBS.MarketWatch.com
Last Update: 4:20 PM ET Jun 17, 2001
SAN FRANCISCO (CBS.MW) - As hopes for a recovery in the last six months of this year dissipate, the risk that tech shares can drop as much as 20 percent from current levels is rising, according to a market strategist.
In early April, technology stocks crashed to what appeared to be the bottom for that sector. Yet this bottom was based on investor expectations that the Federal Reserve's rate cuts would curtail the corporate spending slowdown and save this year's profit goals.
"This hasn't happened yet," wrote David Readerman, director of software and Internet strategy at Thomas Weisel Partners, in his most recent weekly report. "We believe the Nasdaq and its component stocks could retest market lows - but survive."
On April 4, the Nasdaq fell to an intraday low of 1,619.58. Currently, the tech barometer - at 2,028 - stands 20 percent above that level.
While the long-term outlook is positive, Readerman said, "the tech and telecom sectors are in growth recessions," as measured by the earnings-growth rate for 77 tech firms tracked by the investment bank. On average, earnings during the first half of this year are expected to fall 8 percent from the second half of last year. Of note are some of the firms on the list with decelerating earnings, such as Yahoo (YHOO), with earnings for the first six months of this year expected to fall 96 percent from the prior six months; Cisco (CSCO) down 83 percent; WebMethods (WEBM), down 100 percent; Inktomi (INKT), down 588 percent; Siebel Systems (SEBL), down 18 percent.
Inktomi's stunning drop would come after a stellar second half last year, when earnings soared 100 percent. By comparison, Cisco's earnings climbed 20 percent, while Yahoo rose 24 percent.
The earnings-growth rate estimates across the S&P 500 are beginning to resemble those of the recession years of the early '90's, rather than those of the "soft landing" years of '94-'95 and '97-'98, according to Thomas Weisel Partners' growth stock strategist Mat Johnson.
Still, the TWP team is estimating that earnings for the 77 tech firms it is tracking to improve by 22 percent on average. Some market participants are less sanguine following the recent spate of bad news. Nortel Networks' (NT) warning had analysts ratcheting down this year's estimates to a loss of 90 cents, from a loss of 8 cents prior to the warning.
Oracle's (ORCL) quarterly results, to be out Monday, will set the tone for the software industry when the company gives its outlook for future sales.
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Bambi Francisco is Internet editor of CBS.MarketWatch.com, based in San Francisco. |
