ANALYSIS: Tech stocks are back, though go-go days gone
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By EILEEN GLANTON, Associated Press
NEW YORK (June 4, 2000 9:56 p.m. EDT nandotimes.com) - Technology stocks roared back to life last
week, boosted by bargain-hunters and shored up by signs that inflation remains under control. Wall Street
analysts were happy to proclaim the good health of the sector, but cautioned that the go-go days of late 1999
and early 2000 are gone.
The Nasdaq composite index, the best-known barometer of the technology sector, rose 608.27 points, or 19
percent this past week. That marked the Nasdaq's best weekly performance in history, easily topping the 9.7
percent gain from April 17-21.
A pair of crucial catalysts drove the Nasdaq's latest surge. First among them: a stream of government reports
that showed that the economy has begun slowing down, possibly enough to convince inflation watchdogs at the
Federal Reserve to stop raising interest rates.
Fears of escalating rates contributed to the Nasdaq's sharp decline in March and April. Analysts believed that
while technology companies might survive the crunch of higher rates, which ratchet up borrowing costs, their
"old economy" clients would curtail technology spending to protect their bottom lines.
Last week's passel of benign economic reports provided a desperately needed tonic, sparking buying and
increased trading and allowing a wide range of technology stocks to improve, analysts said. Investors were
rejoicing in the hope that the Fed had achieved its goal of a soft landing, in which the runaway economy would
slow to a more sustainable pace rather than grind to a halt.
"Now that we've seen some softness in the broad economic data, that pushes concerns about interest rates to
the back burner," said Michael Murphy, manager of the Murphy New World Technology Fund. "Interest rates will
still be an issue, but some downside pressure has been alleviated." This past week, Tony Dwyer, chief equity
strategist at Kirlin Holdings told clients to add to their technology-stock holdings for the first time since March.
Signs of a slowing economy contributed to his decision. But at the core, Dwyer said, he simply determined that
the carnage was over for now.
"I don't change my opinion very often, but it appears that many of the needed factors for an important market low
are in place and that simply cannot be ignored," Dwyer said. "I don't know what the next few days or even few
weeks might bring, but from an investment standpoint, this looks like a good time to come back to Nasdaq."
Money managers are jumping back into the technology sector because many believe that many stocks that
reached sky-high valuations earlier this year are now quite reasonably priced.
This past week, Edward Kerschner, PaineWebber's chief investment strategist, told clients that many leading
large-capitalization technology stocks are fairly valued given their prospects for strong earnings.
But analysts expect that many smaller companies, especially those without clear prospects for earnings growth,
will never return to the dizzying heights reached earlier this year.
"The real mania areas have died down considerably," Murphy said, citing Internet and biotechnology stocks.
"Many of them have taken horrendous hits to the point that it's changed the whole business."
Murphy said many fledgling technology companies that saw their stock prices sliced by 60 percent or 70
percent this spring are now struggling to raise enough capital to survive. Ultimately, many won't, and that could
actually improve the prospects of the survivors.
"Investors should find it easier to focus on the strong companies, those with earnings - or at least prospects for
earnings - and a good business plan," Murphy said.
Analysts warned that the new, stripped-down Nasdaq is likely to remain just as volatile as it was in its headiest
days. Moving into summer, market volume is likely to remain light enough to exacerbate price swings.
But much of the speculative frenzy that drove the Nasdaq to its peak is gone, market watchers said.
"A lot of money evaporated in March, April and May," Dwyer said. "It will still be volatile, but this is a better
market environment."
Even with its record-breaking 19 percent gain this past week, the Nasdaq index remains 24.5 percent, or more
than 1,200 points, below the record 5,048.62 set March 10.
The Nasdaq's biggest single-day percentage gain came last Tuesday, when it rose 7.9 percent. The index
finished the week with a 230.88-point gain on Friday, leaving it at 3,813.38.
The Dow Jones industrials rose 495.52 points for the week. On Friday, the index rose 142.56 points to close at
10,794.76.
The Standard & Poor's 500 rose 99.24 points during the week, gaining 28.45 on Friday to finish at 1,477.26.
The Russell 2000 gained 55.66 for the week. On Friday, the small-company index rose 20.57 to close at
513.03.
The Wilshire Associates Equity Index, which represents the combined market value of all NYSE, American and
Nasdaq issues, ended the week at $13.734 trillion, up $1.117 trillion from last week. A year ago, the index was
at $12.152 trillion. |
