Technology stocks get new life
as investors rekindle affection

The Nasdaq has rebounded nearly
27% from its 6-year low

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By Amy Baldwin
Associated Press

NEW YORK >> Investors' love affair with technology hasn't ended. In fact, many are carrying a big new torch for the sector that burned them so badly.

Technology has been the focus of recent stock market rallies, with investors snatching up shares with a fervor that has been rarely seen -- or at least, sustained -- since the stocks began flaming out two-and-a-half years ago.

Once again, the question on Wall Street is whether a technology rally suggests that the bear market is ending -- or that investors are being foolish.

"As technology goes, so goes the market," is the thinking of many investors, said Michael Murphy, head trader at Wachovia Securities. "If this market is going to rally, tech is going to have to lead the way."

But Chuck Hill, director of research at Thomson First Call, doubts that tech earnings are going to be strong enough to sustain the momentum.

"The numbers don't support it," said Hill. His firm tracks analysts' earnings expectations.

This past week, the tech-laden Nasdaq composite index rose 3.8 percent. The two gauges less focused on technology had less robust returns: The Dow Jones industrial average gained 0.5 percent, while the Standard & Poor's 500 index advanced 1.7 percent.

Among the major indexes, it is the Nasdaq that has had the strongest recovery since Oct. 9, when it and the S&P hit six-year lows and the Dow made a five-year low.

The Nasdaq has bounced back nearly 27 percent from its low of 1,114.11. The S&P has recovered 17 percent from 776.7, while the Dow has advanced almost 18 percent from 7,286.27.

Technology's surge has been in spite of some negative news, such as this past week's first-quarter profit warning from chip equipment maker Applied Materials Inc. That's surely another sign of investors' enduring affection for technology.

Some analysts say the tech gains indicate that investors' sentiment and the direction of the market are turning positive again.

"The stocks got to the point where they are screaming buys," Murphy said.

But some analysts say that investors could be getting sucked in again by a sector that still has some potential to disappoint them.

"They are buying the stocks that killed them over the last two years. To me, that is a worrisome sign," said Gary Kaltbaum, market technician for Investors' Edge Partners in Orlando, Fla.

Kaltbaum said he doesn't see how technology can be worth buying if other safer havens, such as home builders and defense stocks, are stumbling.

Another concern is that technology earnings will be weak through at least the first quarter of 2003, said Hill of Thomson First Call.

"Tech (profits) have picked up some, but it is at a much, much slower pace than anticipated," Hill said. "When will we get back to a more robust recovery? I don't know."

Hill pointed out that analysts are continuing to cut their earnings growth forecasts for the tech sector. Analysts now expect fourth-quarter growth of 18 percent, down from 32 percent projected on Oct. 1 and down from 60 percent on July 1.

As for the first quarter of 2003, current expectations call for earnings of 15 percent, down from 28 percent estimated on Oct. 1 and down from 60 percent on July 1.

"You can always find some (companies' results) that are on the positive side, but in general I would say there is a negative tone to what we are hearing from tech companies," Hill said.

The market's major indexes all ended the week higher.

For the week, the Dow rose 41.96, climbing for the sixth straight week -- the longest weekly winning streak in 3 1/2 years. Yesterday, the Dow advanced 36.96 to 8,579.09.

The Nasdaq had a weekly advance of 51.86 points. Yesterday, the Nasdaq slipped 0.38 to 1,411.14.

The S&P had a weekly gain of 15.09, after rising 5.56 to 909.81 yesterday.

The Russell 2000 index, which tracks smaller companies stocks, ended the week up 6.92, or 1.8 percent. Yesterday, the Russell declined 0.32 to 385.92.

The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,584.05, up 145.25 from last week. A year ago, the index was 10,486.67.