What a Week: One Step Forward
By Rebecca Byrne
Staff Reporter
05/17/2002 05:34 PM EDT
Two of the most beleaguered sectors of the market -- technology and telecom -- finally caught a bid this week, propelling the Nasdaq to its biggest weekly gain in more than a year.
In fact, it was a very good week for all three major averages, with the Dow and S&P 500 also putting in their best weekly performances so far in 2002. The Dow ended up 4.1% for the week to 10,353, while the S&P 500 was up 5.1% to 1108. The Nasdaq zoomed almost 9% to 1741.
"We got the rally from the two most beaten-up and battered and bruised sectors -- telecom and information technology -- but whether that bid came from real money thinking the worst is over and it's time to start adding to positions, or short-covering, we don't know," said Joe Liro, equity strategist at Stone McCarthy Research.
Clocked Up
The tech rally started early in the week, with Applied Materials (AMAT:Nasdaq - news - commentary - research - analysis) surging 8% Monday, ahead of its earnings on Tuesday. Traders speculated that shorts were covering their positions ahead of the chip-equipment giant's results in hopes of avoiding another squeeze. Just the week before, traders had scrambled to cover their short positions after Cisco (CSCO:Nasdaq - news - commentary - research - analysis) came in with better-than-expected results.
But other behemoths also joined in the party, with IBM (IBM:NYSE - news - commentary - research - analysis) and Microsoft (MSFT:NYSE - news - commentary - research - analysis) among the Dow's biggest leaders on Monday. Sears' (S:NYSE - news - commentary - research - analysis) announcement that it would buy Lands' End (LE:NYSE - news - commentary - research - analysis) for $1.9 billion in cash also gave the broader market a boost.
Bulls received further momentum on Tuesday as a retail sales report and better-than-expected earnings from Wal-Mart (WMT:NYSE - news - commentary - research - analysis) showed that the consumer remains resilient. Meanwhile, Intel (INTC:NYSE - news - commentary - research - analysis) added on almost 6% following an analyst upgrade.
Squared Off
Still, after a two-day jump that defied many analysts' expectations, market action was subdued through the balance of the week, with stocks posting more modest returns.
That said, telecom, networking and software stocks all ended up with solid gains after floundering for several weeks. In addition, the Philadelphia Semiconductor index ended the week up almost 13%, aided by a report Friday from Semiconductor Equipment and Materials International that showed an increase in April orders -- the fifth consecutive rise.
The hardware sector also ended on a high note after Dell (DELL:NYSE - news - commentary - research - analysis) beat analysts' earnings estimates Friday. Still, not all the news in tech land was upbeat.
Hewlett-Packard (HPQ:NYSE - news - commentary - research - analysis) cast a pall over the hardware sector on Thursday after missing analysts' revenue estimates, and struggling telco Qwest (Q:NYSE - news - commentary - research - analysis) said it faces another big charge related to its stake in its teetering European joint network venture KPNQwest.
Tough Print
The data flow this week was decidedly mixed. The University of Michigan Consumer Sentiment survey jumped to its highest level since the end of 2000, and retail sales shot up 1.2%, well above the estimated rise of 0.7%. But inflation at the retail level was higher than expected, April housing starts fell to a level that undershot projections, the Philadelphia Fed survey -- a measure of manufacturing in the region -- dropped more than expected, and jobless claims rose.
More depressingly, the market's sharp climb this week has only dragged the major averages up to levels that they last saw in April. The Nasdaq is still down almost 11% since the start of the year, and the S&P 500 is down 3.6%. The Dow is up 3% for the year, however.
"This week's rally basically just recaptured ground," said Liro. "It's certainly welcome, but to say this is conclusive we really have to see the market move above some key resistance levels."
Liro believes the Nasdaq needs to move above 1750 to 1800, a level that he said the index has failed at in the past. The Dow, meanwhile, has had a tough time getting over 10,600, and the S&P 500 hasn't been able to break 1128.
Still, Liro said the overall market has been in a "stealth bull" mode for several months, with the majority of stocks now sitting well above their 200-day moving average.
Bargain Hunting
Steve Galbraith, chief investment officer at Morgan Stanley, said that going forward, investors should not focus on near-term data points and earnings visibility but should instead be trying to separate "good businesses from bad, winners from losers and over-valuation from under-valuation."
Throughout 1999 and well into 2000, visibility on corporate profits was very high, and this manifested itself into near record low levels of dispersion in analyst expectations, Galbraith explained. Today visibility is low, and analyst disagreement is nearing cycle highs.
"Just as the odds were that visibility would diminish and uncertainty would rise two years ago, today the odds suggest visibility should increase and earnings uncertainty should fall," he said. |
