Paul, interesting piece from Andy Neff's [Bear Stearns] weekly e-mail that I thought you all might find interesting. As usual the big question is - - will it happen again this year???
*** 'Tis The Seasonality. Our statistical analysis - as documented in the
chart and table below - gives evidence of a clear seasonality in tech stocks
that we have commented on before: technology stocks are generally weak on
an absolute and relative basis in June (often starting in May) and then tend
to outperform (usually starting in late June) from July through January.
What does this mean? We think that corrections in tech stocks, like that we
have seen recently in shares of Dell, EMC and Sun Microsystems, tend to be
followed by a rally in these stocks and would encourage investors to pick an
entry point now in anticipation of what may be a typical seasonal rebound.
As explained below, our analysis is based on the stock price performance
over the past nine years (excluding 1995 for the reasons given below) of
technology stocks as measured by the Amex Computer Index (XCI) an index of
26 leading technology stocks including Apple, Applied Material, ADP, Cisco,
Compaq, Dell, EMC, H-P, Intel, IBM, Microsoft, Oracle, Sun Microsystems,
Texas Instruments and others) on an absolute basis as well as against the
S&P 500.
Performance of the Amex Computer Index Vs. The S&P 500
Stock Price Performance from January 1991 through May 1999*
<<...>>
* 1995 was excluded because the seasonal patterns were affected by Windows95
anticipation and disappointment.
Below is the data in table format (for those that cannot retrieve/see the
graph).
Monthly Performance: Amex Computer Index, S&P500 (1991-99, excluding 1995)
%Ch Jan Feb Mar Apr May Jun Jul Aug Sep
Oct Nov Dec
XCI +9.77 +1.17 -1.48 +2.01 +2.74 -1.86 +3.56 -0.36
+4.52 +1.00 +4.84 +1.48
SPX +2.58 +1.35 +0.34 +1.67 +1.40 -0.09 +1.87 -1.67
+1.75 +1.80 +1.59 +2.78
Diff* +7.20 -0.18 -1.82 +0.34 +1.34 -1.77 +1.69 +1.31
+2.77 -0.80 +3.25 -1.30
* XCI minus S&P500 - a positive number implies outperformance by technology
index and vice versa
Here are the conclusions which we draw from the data:
* Absolut Tech Stocks. On an absolute basis, technology stocks have
performed best from July through January but have performed worst during
March, June and August that are months often associated with earnings
pre-announcements or fears of pre-announcements.
* Relatively Speaking. On a relative basis, technology stocks have
underperformed the market in March, June and December for the reasons noted
above, and in October perhaps owing to that month's historical volatility.
However, as noted above, we think that after a lackluster or down spring,
technology stocks tend to bottom in late June and then start a strong upward
move from July through January.
* Y2K Impact. As noted, we excluded 1995 from the analysis because of
the aberrant impact of Windows95 that year. Y2K could have a similar impact
this year thus leading to non-typical results. This is possible but, as we
have discussed previously, we believe that the impact of Y2K on stocks
should peak around now owing to the maximum uncertainty but that any impact
should diminish over the course of the year as visibility increases. As an
aside, we would note that Y2K seems to be the dominant concern with
investors at this point, but we think it is a "time capsule" issue, i.e.,
one that goes away with time and thus reduces its impact on stock prices.
* Bottom Line. Our perspective remains the same: You probably want to
pick your entry points in anticipation of this move.
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